In ten years, the Carbon Disclosure Project has grown fast, and companies are finding that auditing their emissions brings bottom line benefits
The champagne flutes are being polished. In 2010, the Carbon Disclosure Project (CDP), the world’s most extensive voluntary greenhouse gas emissions reporting scheme, will celebrate its 10th anniversary.
The CDP is a British idea that has gone global. It is essentially a collector and compiler of information, sending an annual questionnaire to the world’s biggest companies, asking them whether they track their carbon emissions, and if so what their carbon footprint is. The data thus assembled goes into a range of reports covering different countries, plus an annual report analysing carbon-disclosure responses from the 500 largest corporations in the FTSE Global Equity Index Series.
Judged on the numbers, the project has made great progress. For the first CDP report in 2003, 235 corporations provided answers. The number has grown steadily since, to 2,204 in 2008.
Joanna Lee, CDP director of communications and corporate partnerships, says the rapidly increasing number of firms responding to requests for information shows how climate change “has gone from being a non-mainstream to a mainstream issue”. Investors are increasingly factoring the carbon data into their profiling of potential investments.
The number of investors backing the CDP questionnaire has also gone up, from 35 for the first set of reports in 2003, to 475 today. These investors – banks, pension funds, insurers and asset managers, including all the big names such as Barclays and Goldman Sachs – manage assets worth $55 trillion and so pack a considerable punch. Most come from rich, developed countries, but institutions from emerging economies, such as China’s Industrial Bank and a number of Brazilian funds, are also starting to show an interest in the potential global-warming impact of their investments.
Investors want carbon information for a number of risk-related reasons. The companies into which they might put their money are increasingly subject to carbon taxes, cap-and-trade schemes or other environmental obligations. The European Union’s emissions trading scheme, for example, already covers the power-generation sector and much heavy industry. It will cover airlines from 2012 and additional heavy-industry sectors such as aluminium smelting from 2013. Other cap-and-trade schemes are being designed, for instance in the US. Firms that are carbon-careless will end up paying more when such schemes start to apply to them.
Companies that are more resource efficient, meanwhile, tend to be more profitable. There are also risks associated with consumer perceptions of companies, with environmentally irresponsible firms increasingly under the public spotlight. Investors “want to understand that companies have understood these risks”, Lee says.
But there is a carrot as well as a stick, with benefits for companies that take the CDP reporting process seriously. Jan Noterdaeme, senior adviser to CSR Europe, says carbon audits are “clear mapping and diagnostic” exercises, which could produce some pleasant surprises, because carbon and energy efficiencies can also be cost efficiencies.
Joanna Lee says the process of carbon-footprint reporting draws out information relevant to a company’s bottom line that might otherwise not have been identified, and the growing number of companies with carbon-reduction targets is evidence of the value of this.
Then there are the big strategic questions. Politicians are starting to outline a vision of a low-carbon economy, involving huge changes in how we generate and consume power. Firms that can ride this wave will benefit, while the laggards will find their cost efficiency declining.
Noterdaeme says the CDP can be “a source of inspiration” for companies responding to the political call. He cites the French banking group Caisse d’Epargne, which has developed a “first generation of sustainable financial products” – socially responsible and carbon-labelled savings and investments. Other banks are starting to look with interest at similar schemes, because competitiveness is at stake.
Not just box-ticking
But Chris Burgess, director of corporate responsibility at Vodafone, cautions that the CDP is one initiative among many. Companies should not be satisfied just by ticking boxes on a questionnaire. “We have been engaged in energy efficiency and carbon reduction initiatives for several years, and have set challenging targets for carbon dioxide reductions. Many of these initiatives pre-dated the CDP and have been generated by direct stakeholder engagement or commercial logic,” he says.
Vodafone has a goal of halving its emissions by 2020 relative to 2006-07. Energy efficiencies and more use of renewables will contribute most of this. Burgess says Vodafone has made “substantial improvements in the energy efficiency of our network operations. It is not possible to link any of this activity specifically with the CDP.” However, he adds that the CDP “is a further tool that helps to validate our own existing data collection and reporting systems”.
Campaign groups, meanwhile, say that the CDP, while encouraging companies to pay more attention to their energy usage and therefore the bottom line, does not necessarily lead to absolute emissions reductions, and can in fact be a distraction from achieving real cuts. Emily Rochon of Greenpeace International, writing in the March 2009 issue of Ethical Corporation, noted that many companies trumpet their declining carbon intensity, but “the net effect is that emission reductions are wiped out as the size of a company and its operations grow”.
However, Johannes Berliner of WWF says the CDP is at least a step in the right direction. WWF runs the Climate Savers programme, for which companies can qualify if they deliver measurable absolute greenhouse gas reductions. Programme members include Coca-Cola, HP, Nokia and Sony. Berliner says the CDP is a handy pre-qualification for Climate Savers. “It is a very helpful tool that we use as a first indicator when we try to evaluate a company’s carbon footprint. We would wish more companies to sign up to the CDP.”
CSR Europe’s Jan Noterdaeme cautions against unrealistic expectations for schemes such as the CDP. He says these projects are still developing, pointing out that there has been a price on carbon through the European Union’s emissions trading scheme only since 2005. On methodological approaches he emphasises that a learning process is under way. “There will be contradictions for 20-30 years,” he says.
In particular, companies declaring their emissions have a huge task ahead of them in assessing the carbon footprint throughout the supply chain. This is a “whole new area of methodology and good practice,” Noterdaeme says. Supply chain emissions are known as scope 3 in CDP jargon, with scope 1 being a company’s direct on-site emissions, and scope 2 its indirect emissions related to energy supply.
Lee confirms that more companies are using the CDP methodology to collect data from suppliers. They are “encouraging their suppliers to think about climate change as well”, she says. “It has gone from being an institutional investor programme to a much broader programme.”
The CDP wants to continue its expansion. According to Lee, 80% of the global 500 top companies now have emissions management plans. This, she says, is significantly “higher than it was when we first started out”, and the time is ripe to move the focus to absolute emission reductions, rather than relative measures such as carbon intensity.
This point was made by Lord Sharman, chairman of financial group Aviva, when the CDP published its latest set of reports in October, covering European companies. “We need to go further,” Sharman says. “We don’t want to go on just measuring [emissions], we need to start reducing.” It is a point on which campaign groups, government and business can surely all agree.
CDP: the latest findings
The Carbon Disclosure Project published its Europe 300 report in October, covering the continent’s 300 largest corporations. Of these, 82% provided a response to the CDP questionnaire. The report lists all of the companies and their response status – showing for example that British American Tobacco was the largest non-responder, judged by market capitalisation.
European firms are subject to carbon-related regulation probably more than companies anywhere else in the world, and their high response rate and carbon-awareness reflects this. Of the responding companies, 84% had emissions- or energy-reduction targets. According to the CDP, transportation companies and utilities were “most aggressive” in their targets – perhaps not surprising given that these are the most likely to be affected by regulation and the rising cost of fuel.
The CDP ranks companies on the quality and openness of their disclosure, rather than on their actual emissions-reduction or environmental performance. Judged on the CDP scale, known as the carbon disclosure leadership index (CDLI), Europe’s stars are Bayer (CDLI score of 95), BASF (94), HSBC (92), Carnival and Rio Tinto (both 87).
This makes HSBC the UK’s most efficient and transparent carbon information discloser. The CDP published a survey of the FTSE 350 companies alongside the Europe 300 report. Other FTSE 350 high performers in the open reporting rankings were Centrica, retail real estate investor Hammerson, mining firm BHP Billiton, Northumbrian Water, Aviva and Lloyds Banking Group. Non-reporters, alongside British American Tobacco, included Eurasian Natural Resources, Cambridge-headquartered software firm Autonomy, and Carphone Warehouse.
The data disclosed by the responding companies shows, according to the CDP, that they are responsible for 61% of the UK’s greenhouse gas emissions. However, only 35% of the FTSE 350 companies disclosed emission reduction targets. Although UK corporations’ reporting of, and openness about, their carbon footprint is increasing, clearly some room for improvement remains.