Signing up to carbon disclosure
The Carbon Disclosure Project is striving to make all pension funds aware of carbon issues. Nina Röhrbein reports
Not every investor is aware of the risks and opportunities presented by climate change. As Farley Thomas, global head of wholesale at HSBC Global Asset Management, noted recently, volatility in equity markets has created winners and losers in the broader climate change investment sector.
The issue is being addressed by the Carbon Disclosure Project (CDP) - an independent US and UK-registered not-for-profit organisation. Its goal is to facilitate a dialogue between shareholders and corporations, supported by quality information, about the implications for shareholder value and commercial operations presented by climate change.
Funded by the governments of the US, the UK, France, Sweden, the Netherlands and the state of Victoria in Australia, the CDP provides a co-ordinating secretariat for institutional investors seeking information on the business risks and opportunities, and greenhouse gas emissions data from the world's largest companies.
"The idea behind the CDP was that climate change is a very serious and growing problem and that investors would benefit from having more information about it," says CDP chief executive Paul Dickinson. "We sent our first information request in 2002 to the 500 largest companies in the world - of which around 50% replied - representing 35 investors with about $4trn (€2.6trn) of assets. This year we sent our sixth information request to 3,000 of the largest companies according to the stock market indices from different countries, signed by 385 investors with $57trn of assets.
"Over that period the climate change debate has gone from whether humans cause it to concerns about whether governments will respond appropriately and solve the issues."
Another development was CDP's partnership with Wal-Mart. "It is to help measure Wal-Mart's emissions throughout its supply chain companies," says Dickinson. "In fact 29 large corporations are now working with us to send our questions to their suppliers so we expect a large increase of the project over the next 24 months."
Danish pension funds ATP and KPA and Dutch civil service scheme ABP have also become CDP partners, meaning that they will support the CDP's development and growth in their respective countries. The 10-20% of pension fund signatories include the Dutch railway pension fund SPF and healthcare scheme Zorg & Welzijn, formerly known as PGGM.
"Pension funds are interested in the best results over the long term, which means they have to take climate change very seriously," says Dickinson. "And there are advantages to being a signatory to the information request letter. Signatories get access to the data in advance and will be able to access all of the responses, while the public is only able to see the responses that are allowed to go public. With the ratification of the Kyoto Protocol, the start-up of the EU emissions trading scheme and the rallying oil price, data on greenhouse gas emissions have become increasingly relevant. And companies' accountability to shareholders, governments and society means that they will have to try to reduce their carbon footprint."
Floris Lambrechtsen, director of Dutch responsible investment advisory Double Dividend, says: "Following the signatures of asset managers that wanted to express their commitment to the CDP and emission reductions, a number of large pension funds that are active in the responsible investment space have also signed up for reputational and educational reasons. But although it is increasing, awareness surrounding the opportunities and threats from carbon to the asset owners in general is still very limited because investors struggle to understand the impact future regulations and the oil peak will have on their portfolio. While large pension funds are aware of the CDP and medium-sized ones are learning about it, most of the small pension funds are not aware of it yet. And the number of climate change initiatives available in the market has also led to confusion among institutional investors."
"We hope to promote a global unified business response to climate change so we see significant potential in the future and target a 100% response rate from the companies we write to and a 100% response rate of companies in the supply chain," says Dickinson. "We also want to extend our partnerships to help us achieve our short-term objectives - namely global growth of carbon measurement, disclosure and management - and significantly advance the accounting standards."