carbon disclosure project and the cdp3 report · fpl group pharmaceuticals diversified financials...

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Carbon Disclosure ProjectAnd the CDP3 Report

Paul SimpsonProject Manager

Frankfurt 10th October 2005

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CDP Overview• Questionnaire sent to 500 largest companies globally by

market capitalisation (FT500)• Request for disclosure of investment-relevant information

regarding climate change• CDP1 - Collaboration by investors 31 May 2002

- 35 participants representing over $4 trillion assets- 45% completed questionnaire, 73% response rate

• CDP 2 - Collaboration by investors 1 November 2003- 95 participants representing over $10 trillion assets- 59% completed questionnaire, 86% response rate

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CDP3 Overview

• CDP3 – Collaboration by investors 1st February 2005• 155 participants representing over $21 trillion in assets• 71% answered questionnaire, 89% total response• CDP3 report authored by Innovest and launched 14th

September at JPMorgan Chase in New York followed by Amsterdam, Hong Kong, London, Tokyo, Melbourne, Frankfurt, Toronto, Paris, Sao Paulo and Stockholm.

• Keynote speeches by: Margaret Beckett, UK Minister for Environment, Jim Rogers, CEO Cinergy, Alan Hevesi, Sole Trustee of $120 bn New York State Pension Fund, Sir Christopher Bland, Chair BT, Alan Brown CIO, Schroders.

• Report and responses on web site at www.cdproject.net

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Context• Investors lacking information regarding risks and

opportunities from climate change and GHG’s.• Scientific consensus• Kyoto ratified but just the beginning, new taxation and

regulation expected in every nation and state• EU ETS will have unknown impacts• Many US states have developed policies: RGGI• More extreme weather events, $70bn losses 2003• Adaptation costs• Potential litigation• Growth in Carbon funds / Clean Technology investment• Growing investor collaboration (CDP, IIGCC, INCR)

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CDP3 155 SignatoriesGermany:Allianz GroupCommerzBank GroupDeutsche AMHVB GroupMunich ReUnion InvestmentWestLB AM

Global:ABN AmroABPAxa GroupBank of BrazilBNP ParibasCaisse des DepotsCalPERSCalSTRSCredit Suisse Group

Development Bank JapanDexia Asset ManagementFortis InvestmentsHermes Investment ManagementHSBCING Investment ManagementMerrill LynchMitsubishi SecuritiesNational Australia BankNew York State Retirement FundNikko Asset ManagementRabobankRoyal London AMSociete Generale AM UKState Street GlobalStorebrand InvestmentsSwiss ReTokio Marine and Fire InsuranceUBS Global AMUnicredito Italiano

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CDP 3 - Signatories by Region

CDP2 Signatory Distribution

United States (inc Canada),

25, 27%

European, 59, 63%

Japan, 5, 5%

South Africa, 1, 1%

Asia Pacific, 4, 4%

Asia Pacific

South Africa

European

United States (incCanada)

Japan


Asia Pacific, 9, 6%USA & Canada,

42, 28%

Japan, 11, 7%

South Africa, 3, 2%

Europe, 84, 57%

Asia Pacific

Europe

Japan

South Africa

USA & Canada


Europe, 29, 83%

USA & Canada, 6, 17%

Europe

USA & Canada

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CDP3 Innovest Report Findings

i) Increasing Disclosure and Response Rates

ii) Growing Awareness, But Gaps in Action

iii) Significant Variance in Company Action

iv) Cost of Carbon Varies Significantly Between and Within Sectors

v) Data Problems/Challenges Persist

vi) Most FT500 Companies Are Not Reducing Their Emissions

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Increasing Disclosure

0 10 20 30 40 50 60 70 80 90 100

CDP1 (2003)

CDP2 (2004)

CDP3 (2005)

Percentage

ResponseRate

Non TrivialResponseRate

DisclosureRate

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Growing Awareness but Gaps in Action

92% of Responding Companies Consider Climate Change to Represent Commercial Risks and/or Opportunities. But fewer have also… CDP3

Allocated Management Responsibility for Climate Change-Related Issues 86% Disclosed Emissions Data 80% Implemented Emission Reduction Programs 51% Established Emissions Targets and Timeline 45% Taken Early Action in Emission Trading 35%

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Evaluating the Responses

In CDP3, FT500 companies were asked nine questions that focused on the following:

1. Climate change as a financially-relevant risk/opportunity2. Allocation of management responsibility for climate change3. Relevant technologies4. Emissions trading5. Total annual emissions in tonnes of CO2e 6. Emissions from products and services7. Internal reduction programs and targets8. Emissions intensity9. Energy costs

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Climate Leadership IndexBMW Cadbury SchweppesDaimler Chrysler TescoFord UnileverHonda General ElectricToyota SiemensABN AMRO AllianzBarclays Munich ReDexia Swiss ReHBOS BPHSBC ChevronTexacoHVB Norsk HydroRBC RD/ShellUBS SuncorWestpac AlcanAir Products and Chemicals AlcoaBASF Anglo AmericanBayer BHP BillitonDow Chemical Rio TintoDuPont International PaperCitigroup Stora EnsoFortis BristolMeyersSquibbING GlaxoSmithKlineEndesa Novo NordiskEnel BT GroupIberdrola Deutsche TelekomKansai TelstraScottish Power MitsuiAmerican Electric Power UPSDuke EnergyEntergyExelonFPL Group

PharmaceuticalsDiversified Financials

Banks

Automobiles

Chemicals

Food Products, Beverages & Tobacco, Food & Drug Retailing

Insurance & Reinsurance

Integrated Oil & Gas

Industrial Conglomerates

Telecommunications

Transportation

Electric Power - International

Metals & Mining

Electric Power - N. America

Paper and Forest Products

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The Good

• ABN Amro has developed a number of carbon finance services based on EU ETS allowances.

• Dow Chemical saved approximately $3 billion in energy costs between 1994-2004 due to improvements in energy efficiency

• Entergy owns 80 MW of wind power and has purchased over 500,000 emission reduction credits generated from landfill methane and coal mine methane recovery projects.

• FPL Energy represents nearly 40% of the current U.S. installed wind capacity of 3,000 MW.

• GE’s "ecomagination" initiative, a dedicated eco-efficiency product line that focuses on renewable energy technologies, hybrid locomotives, low-emission aircraft engines and water purification equipment. The company anticipates sales of ecomagination products to increase from a current level of $10 billion to $20 billion by 2010.

• HSBC is the world's first major bank to commit to "carbon neutrality."• Toyota has sold approximately 318,000 hybrid vehicles worldwide and is

currently researching low-emission vehicles that run on biogas.

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The Bad

• M&T Bank replied that it was "not sure" whether climate change represented commercial risks and/or opportunities for their business.

• DBS Group, one of the largest financial services groups in Asia, indicated that "climate change does not represent commercial risks or opportunities for the company because we are a financial institution.“

• SK Telecom responded that, "as a telecommunications service provider, our business has no direct relationship with climate change.“

• DirecTV, a US pay-television service provider, commented that, "the CDP questions are, for the most part, irrelevant to our industry.“

• Liberty Media declined to participate in CDP3 on the grounds that it “does not apply to our company.”

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The Ugly

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Cost of Carbon Varies between sectors

Carbon cost: $20 p/t carbon, Emissions Constraint: 20%, Compliance Period: 7 years

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Cost of Carbon Varies within sectors

Metals & Mining, Steel7 year compliance period, 20% emissions constraint

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

$5 $10 $15 $20 $50 $100

Cost of Carbon ($ per metric ton)

Ann

ual C

osts

as

a %

of N

et

Inco

me High

LowAverage

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Data Comparability – Challenges Persist

• 266 Companies Provide Emissions Data in CDP3…• …But only 153 (58%) can be accurately

benchmarked due to incomparability of data

– A variety of methodologies exist (i.e. not all companies using the WRI/WBSCD GHG Protocol)

– Varying interpretations of operational boundaries– Estimated vs. calculated data

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Most Companies Not Yet Reducing Emissions

500 Companies

266 Provide Emissions Data

153 Can Be Accurately Benchmarked

66 Reduce Emissions 87 Increase Emissions

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CDP3 Conclusions

• Remarkable progress has been made by companies, in both the disclosure and the strategic management of climate risk and business opportunities

• Challenge for Institutional Investors: integrating climate risk considerations into stock selection and portfolio construction.

• Promising evidence: a doubling in the asset base of CDP signatories (up from $10 trillion in CDP2 to $21 trillion in CDP3).

• Investors are informing themselves, more action to follow.

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Timetable for CDP4

• Collaborative action efficient for investors and corporations

• CDP4 Documents fixed 1st November• 1 February 2005 information request sent to corporations• CDP expansion by sector and geography: 300 largest

electrical utilities, largest companies in France, Canada, Australia, Asia, South Africa.

• 31 May 2006 closing date for corporations responses• September 2006 launch of third CDP report & website

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Comments on CDP

“when the Carbon Disclosure Project, which is sponsored by institutional investors with over $4 trillion in managed assets, looked at the ability of the 500 largest companies in the world, it stated that "GE stands out as being especially well-placed with respect to providing low-carbon solutions to a number of key greenhouse gas emitting markets.“We view this change as a business opportunity and a chance to focus our own environmental efforts; we already have a terrific array of products and services that focus on emission reduction and energy efficiency; and we are moving ahead with data collection and analysis to enable us to plan for the future.” Jeff Immelt, CEO GE

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John Browne, CEO BP, 26.11.03

“we've come to the judgment that to avoid serious impact upon societies or the environment it is necessary to stabilise atmospheric concentrations of greenhouse gases at around 500-550 parts per million. Today's level is around 370 ppm and has risen from pre-industrial levels of 280 ppm. That range of 500-550 parts per million could shift as the scientific understanding improves, but it establishes a present day objective to which action can be directed.”

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Closing thought

“Embedded in the challenge of climate change are both dangers and possibilities. Immense dangers for firms and investors who make bad choices, or no choices, about how to respond to the risks, and are then held accountable in the marketplace, the boardroom, or the courts; and immense possibilities for firms and investors to turn challenge into opportunity.”Dr. John Holdren, Professor, Harvard University

Excerpt from Presentation at the 2005 Investor Summit on Climate Risk

New York City, May 10, 2005

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For more information

Paul SimpsonProject Manager

Carbon Disclosure Projectwww.cdproject.net

[email protected]+44 7799 345 269