Climate Group: Are investors taking carbon disclosure seriously?

Climate change is one of the biggest issues facing business, so it is not surprising that today’s investors want to understand how companies are managing the risks and taking advantage of the opportunities.

The Carbon Disclosure Project (CDP) is responding to this growing interest. Representing investors managing US$41 trillion of assets, the CDP now requests corporate information on carbon and climate change management where regulation and standards have so far feared to tread.

This year, CDP sent out almost 2,500 surveys to the world’s largest companies. They received responses from just over half of these. Over three-quarters of the FT500 responded. The data is patchy and inconsistent, with only half using internationally recognised standards for reporting.

Some companies like Bayer, Deutsche Telekom, Iberdrola and BP provide a thorough understanding, not only of their own emissions, but of the wider risks and opportunities climate change poses for their business. Others simply state that “measuring GHG emissions would be unjustifiably time-consuming,” or that “the issue does not apply to their business”, which demonstrates a concerning disregard for the issue.


"it’s worth turning the tables and asking a few questions of the investors who are creating the hoops that respondents have jumped through"


The gulf between best and worst regarding carbon disclosure makes troubling reading for those of us analysing the results (The Climate Group analyses this data as part of its annual “Carbon Down Profits Up” report). However, before banging the “business should do better” drum, it’s worth turning the tables and asking a few questions of the investors who are creating the hoops that respondents have jumped through.

One assumes that the investment community requests information, via the CDP, to enable it to make better, more informed investment decisions. However, it is hard to understand if and how this is currently happening. The size of a company’s carbon footprint does not appear to be having an impact on investment decisions, and does not appear to be influencing any dramatic shift to investment in low-carbon solutions.

For example, although the trend of investment in renewables is going in the right direction, it is still only a small proportion of the total: In 2006, global investment in renewable power reached US$71billion, out of a total energy investment of US$500-600billion (In The Black report, 2007).

Few rewards

Another common conception is that investors will reward companies that understand and manage carbon and climate change to create a business opportunity, either through leadership in their sector or, perhaps through diversification into a business opportunity created as a result of climate change.

Whilst there is evidence in The Climate Group’s recent Climate Brand Index research indicating consumers would reward businesses that are doing a good job, it is almost impossible to find similar evidence charting a positive shift in mainstream investment behaviour. Indeed, Lisa Roner’s article cites analysts who believe Wal-Mart was rewarded with a “drop in stock price” for announcing greater disclosure.

There are plenty of rational arguments for this current mismatch between what investors say they want to do and what they actually do. Poor quality carbon disclosure by companies is one such argument, and the Institutional Investors Group on Climate Change (IIGCC) is responding by producing tailored sector guidance - the first being for electrical utilities.

The lack of long-term certainty over the cost of carbon also makes it nearly impossible for traditional risk analysis tools to generate data that enables confident investment decisions. The obvious answer to providing a more solid foundation is regulation and long-term policy to support a stable cost of carbon.

The question is – can we wait for that to happen? Without investors rewarding sustainable and responsible business practice now, there is a risk that fewer companies will see the value in carbon disclosure. Lack of transparency and the loss of vital momentum towards creating a low-carbon economy will be the cost.


The Climate Group has produced 10 Tips on Carbon Disclosure


Emily Farnworth is director of the Corporate Leadership Programme at the Climate Group