For this installment of Answered, we asked Chris Fowle, VP Investor Initiatives CDP North America, about the role of carbon disclosure in investor research and decision-making in the era of the historic COP21 climate agreement.
Fowle’s answers illustrate a growing interest among investors in understanding and valuing portfolio exposure to emissions-related risk. He indicates more companies are also stepping up to set science-based emission reduction targets.
Learn more about CDP from our other resources in this series:
Framework: Who are the investors represented by the CDP and who use its data? What should companies understand about them?
Chris Fowle: More than 800 investors, representing over $100 trillion in combined assets are signatories to CDP’s annual information request on climate change. This is the largest collaboration of investors in history on any single issue, and provides the authority behind CDP’s questionnaires. This authority has enabled CDP to build an unparalleled data warehouse qualitative and quantitative environmental information that underpins a significant portion of the environmental ratings and research available in the market today. CDP’s investor signatories and members represent a diverse set of investment professionals from every corner of the financial industry. Buy- and sell-side investors, index providers, and ESG research and ratings agencies all actively use CDP data to inform their decision-making, develop new financial products, and support company engagement.
FW: How are investors interpreting and using the data?
CF: Buy-side investor signatories, including state pension funds like CalPERS and the New York State Common Retirement Fund, university endowments like the University of California system and the University of Toronto, and asset managers like BlackRock and Goldman Sachs use CDP data to conduct sector and portfolio analyses, assess the carbon footprint and risk exposure of their portfolios, support shareholder engagement, and inform exclusion and divestment criteria.
Investor signatories also use CDP data to support their sell-side activities. CDP’s high-quality, comparable data on corporate environmental performance helps inform broker recommendations, supports investment research, and allows for peer and sector analyses, as well as the development of new financial products. For instance, Goldman Sachs Asset Management exclusively used CDP data to develop a newly launched $2 billion low-carbon index fund for the New York State Common Retirement Fund.
The data CDP collects, together with our award winning analysis such as our sector research series, provides investors with vital information to be more active owners and engage companies on environmental issues. Investors filed a number of successful shareholder resolutions in 2015 that referred to CDP, and in many cases referenced its data and analysis:
- American Electric Power agreed to report on stranded assets and quantify its exposure under a 2 degree scenario
- Amgen agreed to report on how they plan to increase their sourcing of renewable energy
- AT&T agreed to set targets for sourcing renewable energy
- Clarcor agreed to issue a sustainability report including GHG reduction targets
- Coca-Cola agreed to produce a feasibility report on setting targets to source renewable energy
- Dean Foods Company agreed to disclose its water risks to CDP for the first time in 2016
- Dillards agreed to set science-based GHG goals
- Flowers Foods agreed to disclose its water risks to CDP for the first time in 2016 and to begin sustainability reporting
- Fresh Del Monte agreed to disclose water risks, impacts and mitigation efforts to CDP for the first time in 2016
- Hologic agreed to set GHG goals for products and operations
- Hubbell agreed to set public goals to increase company-wide energy productivity
- McDonald’s agreed to set company-wide GHG reduction goals
FW: What CDP questions or disclosures do investors find most important?
CF: The diverse set of investors that make up CDP’s signatory base have an equally diverse set of priorities concerning the environmental data that CDP collects. For instance, the portfolio manager of a water-focused socially responsible investment fund might prioritize water use efficiency information collected through the CDP Water questionnaire over supply chain traceability information collected through CDP’s Forests questionnaire.
FW: What if any impacts is COP21 having for companies and investors so far? Are there signs of increased focus or activity in the wake of the agreement?
CF: The outcomes of COP21 have far reaching implications for both companies and investors. France’s ratification of the Paris agreement on June 15th serves as a perfect example. The French ratification introduces a €22 per tonne carbon price, increasing to €100 per tonne by 2030. CDP’s recently released research report on the cement industry shows how such price levels jeopardize billions of dollars of future earnings for the cement industry: a price of €22 per tonne puts $11 billion of future earnings at stake. At €100 per tonne, this increases to $50 billion.
In addition, remarkable disruption within and between industries is going on in ways that would have been unimaginable just a couple of years ago, disruptions that will now only increase in frequency. Apple, for example, is now producing so much renewable energy it’s going to sell it. Few would have predicted such direct competition between an IT company and major power producers. The Chief Economist of the IEA has also recently said that the gas industry is now in competition with Google! Rapid change is afoot and the investor community is waking up.
As part of its work in the We Mean Business coalition, CDP invited companies globally to commit to taking public leadership steps on climate in the lead-up to COP21, helping bring together the business voice on climate in support of an ambitious agreement. In the year and a half leading up to COP21, more than 363 companies made commitments through We Mean Business.
Following the successful agreement, We Mean Business has renewed this call to action, and in just the few months following COP, we’ve had more than 50 new companies make commitments. For US companies, the fastest growing commitment area has been science-based target setting, in which companies agree to align their emissions reduction targets with the 2 degree decarbonization pathway laid out in the Paris agreement. More than 160 companies have committed to set science-based targets, including Walmart, Coca-Cola Enterprises, Kellogg, and Colgate Palmolive.