May 12, 2011

Carbon Disclosure in Perspective

Posted on May 12, 2011 by William L. Thomas

Although even casual observers will have noted the fanfare surrounding the U. S. Securities Exchange Commission (SEC)’s release last year of guidance to public companies on disclosures regarding climate change and its consequences under federal securities laws and regulations, far less attention has been given to other developments in the carbon disclosure milieu that should inform corporate strategy. While the debate over regulation of greenhouse gas (GHG) emissions remains a hot topic in the courts, stakeholder pressure for greater transparency regarding GHG emissions management continues unabated, as illustrated by the evolving agendas of key stakeholders in the U.S. and abroad, two of which are highlighted briefly below.


Carbon Disclosure Project

The Carbon Disclosure Project (“CDP”) is a non-profit initiative launched in London in 2000 “to collect and distribute high quality information that motivates investors, corporations and governments to take action to prevent dangerous climate change.” Approximately 2,500 organizations in over 60 countries now measure and disclose GHG emissions and climate change strategies through CDP. Data is made available for use by institutional investors, corporations, policymakers and their advisors, public sector organizations, government bodies, academics and the public, including via channels on both Bloomberg and Google Finance. Investor CDP requests information on GHG emissions and climate change strategies on behalf of 534 institutional investors with a combined $64 trillion in assets under management and provides climate change data from thousands of the world’s largest corporations. Other notable initiatives include CDP Supply Chain, through which 60 corporate members encourage suppliers to measure and disclose climate change information. CDP’s Public Procurement initiative, through which national and local governments can question suppliers about energy use, GHG emissions and related risks, is a beginning to have an impact, including at the US General Services Administration, where work is underway on a project analyzing the costs and benefits of disclosing through CDP. CDP has launched a new product for investors with FTSE and ENDS Carbon called the FTSE CDP Carbon Strategy Index. It has launched initially with two UK indices; the FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index. Both indices have been designed in response to growing awareness of the significant potential impact of climate change on investment returns. Post Copenhagen, governments across the globe have been working towards holding emissions below levels that would increase global temperatures by 2ºC. Achieving these levels will require increased costs for carbon emissions. The FTSE CDP Carbon Strategy Index Series reflects this carbon risk in its initial offering of ‘carbon-tilted’ versions of the UK’s FTSE All-Share and FTSE 350 indices. The indices feature the same constituents with a variation of weightings based on their exposure to carbon risk, relative to their sector peers. The index series is based on future-oriented criteria rather than past emissions data. It is the first index series to offer a long term forward-looking investment tool that closely tracks established UK benchmarks while supporting the reduction of climate change risks across investment portfolios. This means retail and institutional investors, such as pension funds, can achieve broad and diversified market exposure as well as manage the impact of climate change on their investment. One can gain considerable insight into the state of the art of carbon disclosure from a review of responses to CDP, as well as the cross-cutting analyses compiled by the organization and its partners. To access the most current and archived reports, click here.  

Climate Disclosure Standards Board

The Climate Disclosure Standards Board (“CDSB”) is an initiative convened by the World Economic Forum at its annual meeting in 2007 and hosted by the CDP as Secretariat in response to increasing demands for standardized reporting of climate change information in “mainstream” reports. The term “mainstream reports“ is used to describe annual reports in which corporations are required to deliver audited financial results under the corporate, compliance or securities laws. CDSB released a Reporting Framework in September of 2010.  In connection with its work, CDSB has also compiled a database of global developments on legislation that directly or indirectly affects the way in which GHG emissions are calculated and/or the way in which risks are disclosed in corporate and securities filings. CDSB is in the process of upgrading the format to a new platform called “Interactive Standards” where the public and others will be able to see and contribute to the database. Other plans for 2011 center around engagement with corporations, investors and regulators through structured programs designed to align further the needs of preparers and users of climate change-related information.

Tags: Greenhouse Gases (GHGs)

Greenhouse Gases (GHGs) | Major Topics

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