News Release

Carbon Disclosure Project: 'World's largest corporations seek clarity on climate change regulation'

Climate change questionnaire draws largest response to date from Global 500, S&P 500

Peer-Reviewed Publication

Carbon Disclosure Project

Global corporations view climate change as a driver of risk and opportunity and have cited clear regulation as key to managing the impacts, in this year's findings from the Carbon Disclosure Project (CDP), which includes exclusive data from 1550 of the world's major companies on greenhouse gas emissions and climate change related strategies.

With a backdrop of regulatory uncertainty delaying strategic investment decisions, senior management are calling for greater visibility on climate change related policy in order to better anticipate the impact of regulation driven carbon markets and carbon prices.

Despite the uncertainty with regard to regulation the majority of global companies are acting to reduce their emissions. 74% are now reporting emissions reduction targets, showing companies are increasingly taking climate change mitigation seriously.

The findings published by the CDP, which represents some 385 institutional investors with $57 trillion in assets under management, also revealed the Utilities sector to be the most transparent in their reporting of greenhouse gas emissions, with 93% responding to CDP. In contrast the Oil and Gas sector (an early adopter of carbon reporting) performed relatively poorly with a response rate of just 69%.

Carbon disclosure and climate change reporting is becoming critical for investors to fully assess their risks, liabilities and opportunities within their portfolios.

"We can see from 2008 responses to CDP a marked increase in levels of engagement from companies, with more companies reporting than ever before. With increased regulation on the horizon, investors are requiring this information to better understand the credit worthiness of companies in their portfolio and how climate change might affect their profitability" said Paul Dickinson, CEO of CDP.

The report, containing analysis by Pricewaterhouse Coopers (PwC) of 1550 responses from Global 500 and US S&P 500 companies will be launched Monday Sept. 22 at the New York headquarters of Merrill Lynch, one of CDP's global sponsors. The event will also feature a debate between senior climate change policy advisors to presidential candidates Barack Obama and John McCain.

Global 500 (FTSE Global Equity Index Series) Findings

The overall response rate among Global 500 companies was maintained at 77% in 2008. European and North American companies set the pace among constituents of the 'Global 500' with response rates to CDP's annual Questionnaire of 81% and 78% respectively. This compares to a response rate of just 41% in respect of Asian constituents of the Global 500. Out of the 383 companies that completed the Questionnaire, 58 companies (15%) were responding to CDP for the first time.

Business Risks and Opportunities

The majority of the 77% of Global 500 constituent companies that reported to CDP cited regulation as a key risk factor. A background of regulatory uncertainty has, for many companies, translated into a 'wait and see' policy which, in turn, has served to delay strategic investment decisions.

Regulation is also perceived as a catalyst for opportunities to:

  • Commercialize new products and services;
  • Generate additional income from emissions reduction programs via carbon credits; and
  • Invest in renewable energy projects.

The construction industry cites energy efficient buildings and energy upgrades as representing opportunities. The Technology, Media and Telecoms industry sees climate change bringing opportunities for travel substitution through teleconferencing and mobile devices to reduce greenhouse gas emissions.

Financial services firms recognize the long term impact climate change will have on the capital markets and cite the need to finance and invest in initiatives that could encourage ground-breaking changes in energy transmission and create a low carbon economy. They also cite reputation and the credit worthiness of investments in the portfolio as key risk areas.

Numerous sectors describe physical risk factors as material. The Manufacturing sector cites temperature changes, flooding, increased storm intensity, water shortages, spread of disease and change in local weather patterns as significant physical risks. Water supply was cited as a critical risk by the Raw Material, Mining, Paper and Packaging sector, as well as the Utilities sector, which also saw consumers becoming more aware of greenhouse gases due to rising fuel prices, which could lead to a decrease in demand.

Response rates across sectors varied and reveal that certain sectors are significantly better versed than others in disclosure practice and in the comprehension of what climate change means for their business.

Response rates across sectors ranged from:

  • Utilities: 93%
  • Retail and Consumer: 88%
  • Chemicals and Pharmaceuticals: 84%
  • Manufacturing: 77%
  • Technology, Media and Telecoms: 75%
  • Financial Services: 75%
  • Transport and Logistics: 73%
  • Raw Materials, Mining, Paper and Packaging: 72%
  • Oil and Gas: 69%
  • Construction & Building Products: 64%
  • Hospitality Leisure and Business Services: 60%

Reduction Targets

The majority of companies (74%) reporting stated they had emissions reductions targets in place. Within Retail, more than 90% of companies report such targets, with 75% in Chemicals and Pharmaceuticals and 68% in Oil and Gas. Within the Technology, Media and Telecoms industry, 68% have reduction targets and 44% have absolute targets (rather than intensity targets).

There are a wide range of plans for reducing emissions. The transport sector is focusing on investments in new technologies, changing travel patterns, energy efficiency and workforce education. The Utilities sector will invest further in renewables or low carbon fuel sources and improved efficiency of existing fossil fuelled plants. The Technology, Media and Telecoms sector aims to reduce business travel, energy use and the type of energy purchased and the Hospitality, Leisure and Business Services Sector will primarily aim to reduce emissions at ship or hotel level.

Carbon Disclosure Leadership Index

PwC scored all responses based on climate change disclosure and governance practices. Global 500 companies with 'leading' disclosure practice are highlighted in the Carbon Disclosure Leadership Index (CDLI). The highest scoring companies in the CDLI include:

  • BASF; Bayer (Chemicals and Pharmaceuticals);
  • Exelon; Iberdrola; Scottish & Southern (Utilities);
  • Nissan Motor (Manufacturing);
  • Barclays; Merrill Lynch & Co., Inc; Munich Re; National Australia Bank (Financial Services) and
  • EMC (Technology).

S&P 500 Findings

Out of the 500 US listed S&P constituent companies invited to complete CDP's Sixth Questionnaire, responses were received from 321 (64%) companies. This represents a year on year increase from 47% in 2006, through 56% in 2007. Increases in the number of responses and in the amount of detail contained in the responses from constituents of the S&P 500 is a signal that many US corporations are preparing for the possible introduction of new regulation under the next administration.

Climate change governance

A total of 248 companies (79%) reported that climate change risks require appropriate leadership. The number of companies that confirmed that a Director or executive-level officer has overall responsibility for climate change management rose to 204 (65%) compared with 141 (50%) responding companies last year. A total of 94 responding companies (30%) report some degree of linkage between employee incentives and goals related to climate change.

Action lags behind awareness

Although 254 companies (81% of respondents) perceive climate change as a risk, only 102 respondents (33%) have GHG emission reduction targets in place. This demonstrates that overall many US companies are still lagging behind their global counterparts. The gap between acknowledgement of the risks posed by climate change and positive action designed to reduce emissions needs to be closed.

Carbon Disclosure Leadership Index

US companies were also graded and the top scorers within the US Carbon Disclosure leadership Index were:

  • PPG Industries (Chemicals and Pharmaceuticals);
  • Exelon (Utilities);
  • Citigroup; Merrill Lynch & Co., Inc. (Financial Services);
  • Cisco; EMC (Technology, Media and Telecoms); and
  • Prologis (Hospitality, Leisure and Business Services).

Carbon Disclosure Leadership Index: 67 Global 500 companies feature in the Global CDLI showing distinction in their responses to the Carbon Disclosure Project Questionnaire based on their reporting of greenhouse gas emissions, associated risks and opportunities and emissions reduction targets. The Global CDLI includes the top 34 companies in the non carbon intensive sectors and the top 33 in the carbon intensive sectors.

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About CDP

Carbon Disclosure Leadership Index: 67 Global 500 companies feature in the Global CDLI showing distinction in their responses to the Carbon Disclosure Project Questionnaire based on their reporting of greenhouse gas emissions, associated risks and opportunities and emissions reduction targets. The Global CDLI includes the top 34 companies in the non carbon intensive sectors and the top 33 in the carbon intensive sectors.

The Carbon Disclosure Project, founded in 2000, represents some 385 global institutional investors, with more than $57 trillion in assets under management. As an independent not-for-profit organization, CDP collects key climate change data from more than 1550 major corporations around the globe and has assembled the largest corporate greenhouse gas emissions database in the world. CDP also works with multinational organizations to facilitate the collection of climate change relevant data from their supply chain.

The Carbon Disclosure Project, a company limited by guarantee and registered in England (no. 05013650), is a Registered Charity (no. 1122330). CDP also enjoys 501(c)3 charitable status in the US as a special project of Rockefeller Philanthropy Advisors.

The Global 500 and S&P 500 reports will be formally launched Monday Sept. 22, 9 a.m. at Merrill Lynch headquarters, 4 World Financial Center, New York (webcast at www.cdproject.net). The event will also feature a debate between senior climate change policy advisors to presidential candidates Barack Obama and John McCain.

Speakers will include Presidential surrogates Dan Esty (Democrat) and Doug Holtz-Eakin (Republican), Jack Ehnes, Chief Executive of the California State Teachers Retirement System (CalSTRS), James Mulva, Chief Executive of ConocoPhillips, Gregory J. Fleming, President and Chief Operating Officer of Merrill Lynch and Dennis Nally, Chairman of PricewaterhouseCoopers USA.

For accreditation to the New York event, please contact Joanna Lee +44 207 415 7083 / +44 07919 074 926 Joanna.lee@cdproject.net

Appendix 1

CDP Global500 Key Findings 2008

The overall response rate among Global 500 (FTSE Global Equity Index Series) companies was maintained at 77% in 2008. European and North American companies set the pace among constituents of the 'Global 500' with response rates to CDP's annual Questionnaire of 83% and 82% respectively. This compares to a response rate of just 50% in respect of Asian companies in the Global 500. Out of the 383 companies that completed the Questionnaire, 58 companies (15%) were responding to CDP for the first time.

Higher response rate amongst companies with a longer history in the Global 500: 417 out of this year's Global 500 were also there last year. The response rate for these companies was 82%, up marginally from CDP5 (2007), suggesting a trend of increasing carbon disclosure amongst the world's largest companies and demonstrating the cumulative impact of CDP's work each year.

Global 500 reporting companies account for around 5.8% of global total emissions – on the basis of direct, or Scope 1 emissions which were 2,690 million metric tons of CO2- equivalent (MtCO2-e): Total reported emissions under Scope 2 and Scope 3 were 494 MtCO2-e and 4,175 MtCO2-e respectively.

Assuring credibility: the overall level of carbon reporting continues to improve, with 72% of questionnaire respondents now reporting Scope 1 and Scope 2 emissions, compared to 58% last year. The majority of companies that report emissions want external assurance of their emissions data: 59% of companies stated that they had, or planned to have, their numbers externally verified.

Very few companies were willing to provide emission forecasts: although many companies may undertake forecasts for regulatory and other purposes, these are generally seen as too commercially sensitive to make public.

Emissions reduction targets: 74% of respondents reported that they have emissions reduction targets in place (though only 56% disclosed them), suggesting that companies are increasingly taking climate change mitigation seriously, irrespective of direct regulation on carbon.

Carbon Disclosure Leadership Index (CDLI):

Report writers PwC scored all responses based on climate change disclosure and governance practices. Global 500 companies with 'leading' disclosure practice are highlighted in the Carbon Disclosure Leadership Index (CDLI). The highest scoring companies in the CDLI include:

  • BASF; Bayer (Chemicals and Pharmaceuticals);
  • Exelon; Iberdrola; Scottish & Southern (Utilities);
  • Nissan Motor (Manufacturing);
  • Barclays; Merrill Lynch & Co., Inc; Munich Re; National Australia Bank (Financial Services) and
  • EMC (Technology).

Utilities perform well, Oil & Gas sector outpaced: within the carbon-intensive group, three sectors – Utilities, Construction and Mining & Metals – scored equally well overall, with Utilities and Chemicals &

Pharmaceuticals leading the field in the CDLI. Oil & Gas, having been an early adopter of carbon reporting, is now falling behind other sectors, achieving only sixth place on the basis of CDLI scores within the carbon-intensive peer group, ahead of only Transport & Logistics. (see full report for details sector analysis)

The impact of uncertainty: although there is now a broad consensus on climate science, the implications for corporate value are less certain. For some CDP6 (2008) respondents, this translates into a "wait and see" strategy. Others clearly feel that late starters risk missing out on opportunities.

Regulation remains a key issue: with more countries and regions now contemplating emissions trading schemes for carbon intensive sectors, regulation featured frequently as a key risk factor. Companies are looking for greater visibility on climate policy and on carbon prices, and many also mentioned the lack of harmonization on regulatory issues, with European installations currently disadvantaged by the cost impact of the EU ETS.

Increasing consumer awareness: consumer attitudes are featuring increasingly as a driver of risks and opportunities in the Business-to-Consumer sectors, especially in the Retail and Consumer and Utilities sectors. However, carbon disclosure to customers is still very much in its infancy. Some corporations are exploring carbon labelling, but there is little clarity on what information is relevant or whether this actually impacts upon consumer choice.

More focus on the supply chain: retailers such as Wal-Mart, Tesco and Carrefour noted that they were devoting significant resources to investigating supply chain emissions, possibly motivated as much by cost-savings and reputational benefits as by their wider environmental impact. This mirrors experience in the CDP Supply Chain Project, where a number of leading companies are working together to develop a standardized and cost-effective way to engage their supply chains in carbon reporting and to factor climate change into best practice procurement processes.

Governance still not at the forefront: climate change is still not a regular agenda item for most Boards. It is commonly discussed twice or four times a year at formal meetings, rather than being a routine Key Performance Indicator.

More regular communication with investors: most companies now communicate their climate change policies and performance to shareholders and other stakeholders. Most commonly, this is done through disclosure to CDP; but many also dedicate a section of their annual report or corporate social responsibility report to climate change.

Appendix 2

CDP S&P 500 Key Findings 2008

Out of the 500 US listed S&P constituent companies invited to complete CDP's Sixth Questionnaire, responses were received from 321 (64%) companies. This represents a year on year increase from 47% in 2006, through 56% in 2007. Increases in the number of responses and in the amount of detail contained in the responses from constituents of the S&P 500 is a signal that many US corporations are preparing for the possible introduction of new regulation under the next administration.

The increasing quantity and quality of responses demonstrates that these U.S.-headquartered companies see value in both their actions on climate change and the reporting of their performance. Many of these companies are expecting that carbon will become monetized through cap and trade legislation, which further enforces the importance of robust and reliable information.

More companies are disclosing actual greenhouse gas (GHG) emissions: The absolute number of S&P 500 respondents reporting actual GHG emissions figures rose to 228 (73%), compared to 175 respondents or 65% in CDP5 (2007). Most respondents continue to view energy management and emissions tracking and reporting as basic building blocks of long-term corporate sustainability.

Risk and Opportunity

Increasingly, companies are viewing climate change risk as an enterprise-wide risk: 254 respondents (81%) viewed climate change as having associated risks, and many cited specific examples. Climate change risks tend to be broken down into more traditional risk categories — including physical, regulatory, and general risk — but they are definitely being factored into enterprise risk management and corporate planning. Based on company responses, it is clear that more companies are viewing climate change risk not simply as an environmental or public relations issue, but as a game-changing set of business imperatives.

Along with the risk associated with climate change, responding companies are increasingly seeing opportunity: The percentage of CDP6 respondents pinpointing specific climate change risks (81%) was higher than the percentage of companies viewing climate change as a commercial opportunity: 71% (114 companies). Eyeing an emerging carbon-constrained economy, respondents in both the manufacturing industry and the construction and building products industry, in particular, see a myriad of associated opportunities.

Companies across industries report re-aligning product and service offerings to meet new standards of efficiency and say they are tracking the clean technology emerging in a carbon-constrained economy, from sustainable bridge-building composites to computer networking systems that reduce employee travel.

Companies across industries are beginning to establish emissions target programs, with manufacturing companies leading the charge: Overall 102 (32%) of CDP6 S&P 500 responding companies are developing emissions target programs.

Of the 102 respondents noting emission reduction targets, 49 companies (48%) reported goals of 2.5% or less per annum, 39 (38%) reported annual goals of between 2.5% and 5% emissions reductions and 4 (4%) reported aggressive emission reduction goals in excess of 5% per annum. The remaining 10 (10%) reported having general GHG emissions reduction targets in place, but did not specify these targets.

Given their historically heavy carbon footprints and extended global supply chains, manufacturing companies are often on the leading edge of carbon emissions management, tracking and reporting. This is the case when it comes to establishing emission reduction targets, with 38% of manufacturing respondents reporting such initiatives. Given that forthcoming regulation is widely anticipated (i.e. cap-and-trade), companies without emissions reduction targets need to consider these strategies with a degree of urgency.

Responding companies are implementing mechanisms for climate change governance:

A total of 248 companies (79%) reported that climate change risks require appropriate leadership. The number of companies that confirmed that a Director or executive-level officer has overall responsibility for climate change management rose to 204 (65%) compared with 141 (50%) responding companies last year. A total of 94 responding companies (30%) report some degree of linkage between employee incentives and goals related to climate change.

Drivers for action

Consumer motivation: For U.S. consumers, the push for action on climate change has sprung from pain felt at the gas pump throughout 2007 and 2008, and the specter of spiralling energy prices in the near future. The call for change from many public policy experts and academics, on the other hand, is grounded in widely accepted research linking human activity to rising global temperatures. Younger consumers are increasingly attuned to the risks presented by climate change and are calling for U.S. businesses to develop and produce more energy-efficient and sustainable products.

Public policy shifts: Shining the spotlight on the issue even more brightly is the 2008 U.S. presidential election, the first in which climate change, rising carbon emissions, higher energy costs and energy security will be high priorities for both the Republican and Democratic candidates.

Enterprise risk and opportunity: For the S&P 500 and corporate America in general, the risks derived from climate change and the challenges associated with operating in a carbon-constrained environment are at the core of doing business in today's increasingly connected and complex global economy. Forward thinking companies are recognizing that a strategy for addressing climate change should be embedded in their organizational DNA, as such an approach can drive significant cost savings and efficiency improvements, and help them manage critical resources necessary for long-term business sustainability. Companies are also seeing — and seeking to leverage — new-found opportunities in the carbon-constrained economy.

Action lags behind awareness

Although 254 companies (81% of respondents) perceive climate change as a risk, only 102 respondents (33%) have GHG emission reduction targets in place. This demonstrates that overall many US companies are still lagging behind their global counterparts. The gap between acknowledgement of the risks posed by climate change and positive action designed to reduce emissions needs to be closed.

Implementing emissions trading schemes in the U.S.: GHG emissions trading is gaining traction in the U.S., however, it is still in nascent stages, and responses to emissions trading questions were understandably limited in detail.

Many CDP6 respondents who reported that they trade emissions, do so in the European Union Emissions Trading Scheme (EU ETS). Of all respondents, just 58 companies (18%) reported having facilities covered by the EU ETS. Starting in September 2008, U.S. utilities in selected Northeastern states will be required to participate in emissions trading, when the first series of quarterly carbon dioxide (CO2) emission permit auctions are to be held in the U.S. under the Regional Greenhouse Gas Initiative (RGGI). It is anticipated that responses will be more comprehensive in future CDP iterations, as companies gain more experience participating in U.S. based emissions trading schemes.


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