Who’s Revealing What in the Carbon Disclosure Project

The release of the Goldman Sachs-backed carbon disclosure project highlighted the willingness of big companies to participate, but those actually acting in Australia to reduce emissions is way below international levels. That’s due to government inaction, says John Durie in The Australian. The Carbon Disclosure Project 2010 Australia and New Zealand surveys ASX200 and NZ50 companies on their exposure to risks and opportunities related to climate change.

John Durie in The Australian (19 October 2010)

The release of the Goldman Sachs-backed carbon disclosure project highlighted the willingness of big companies to participate, but those actually acting to reduce emissions is way below international levels. That’s due to government inaction.

Australian corporates are among the best in the world in terms of the importance they place on emission measurement and policy engagements, with 94 per cent claiming board and senior management responsibility.

But confusion over government policy is probably to blame for the fact that just 47 per cent of those responding to the survey have set emission targets, compared with 70 per cent offshore.

News Corporation, publisher of The Australian, came out ahead in terms of carbon performance leadership. This was measured on company strategy in identifying risks, opportunity and setting targets, governance, stakeholder communication and achievement in emissions reductions.

News topped the list in Australia followed by the big four banks, IAG, Qantas, Sims Metals and AGL.

On the other side of the ledger, Fairfax was among the 12 top 100 companies that didn’t even bother to respond to the survey.

Others included Aristocrat Leisure, Bank of Queensland, and Challenger, Duet Group, Primary Health Care, Singapore Telecom, Spark, United Group and West Australian Newspapers.

The survey has run globally for eight years and sets the standard for stakeholder communication on carbon exposure issues.

The Goldman Carbon Disclosure Index comprised of the leaders in the survey has outperformed the ASX 100 by 14.7 per cent since 2006.

The fact that Australian corporates, with some notable exceptions, have taken the time and interest in the issue shows corporate Australia is not only ready to act, it is acting on its own.

The push for a carbon tax from the likes of Qantas chairman Leigh Clifford, BHP boss Marius Kloppers, Wesfarmers chairman Bob Every and Telstra chairwoman Catherine Livingstone is yet further sign of the readiness.

The only thing missing is a government with some courage.

Source: www.theaustralian.com.au

Andrew Gray in Climate Spectator:

How are companies thinking about the risks and opportunities of climate change? How are they changing the way they do business to capitalise on a low carbon economy? And how does this change the way investors think about company valuation?

The Carbon Disclosure Project 2010 Australia and New Zealand surveys ASX200 and NZ50 companies on their exposure to risks and opportunities related to climate change. It is part of the Global CDP initiative and designed to address a growing appetite from investors for detailed information around carbon emissions and climate change strategies. The CDP promotes an important dialogue between companies and investors on carbon emissions and climate change more broadly and helps investors to make more informed investment decisions.

Each year the CDP highlights those companies that exceed their peers in relation to carbon disclosure in its Carbon Disclosure Leaders Index (CDLI). It is a formal recognition of the top 33 per cent ASX200 and NX50 companies with a carbon disclosure score above 70 out of 100.

These companies have provided leading disclosures regarding the consideration and the annunciation of business-specific risks and opportunities and data management practices for understanding Green House Gas (GHG) emissions and energy use.

The CDLI 2010 includes 31 constituents across industries, but what does this index tell investors about the role and the benefit of transparency on carbon and climate change more generally?

Since its inception in 2006, the CDLI has delivered a cumulative outperformance of 14.7 per cent against the ASX100. And what is interesting when you examine the nature of that outperformance is that the majority of it occurred during the height of the GFC. The CDLI outperformance was well correlated with the outperformance of ‘high-quality’ companies, with market leading governance and risk frameworks, during that period of extreme investor risk aversion.

So while the CDLI highlights to investors those companies with best-practice disclosure on climate change, it has also acted as a ‘proxy for quality’, as do many Environmental, Social and Governance factors. In the long term, we believe that companies’ better relative performance on carbon disclosure and management has the potential to differentiate companies in their own right.

But what are companies actually doing to mitigate risks and seize opportunities related to climate change? And how are investors able to make decisions about how well a company is positioned for the low-carbon economy?

For the first time in this market the CDP recognises the ‘top carbon performers’. The Carbon Performers Leaders category enables investors to more easily identify those companies who are likely leaders in the areas of climate change strategy, governance, stakeholder communication and GHG reduction. These companies have been recognised by the Investor group on Climate Change for describing best-practice strategies to address climate change and were also leaders in terms of communicating steps in place to manage their emissions exposures.

Outside of the CDLI and the Carbon Performers Leaders the CDP 2010 identifies some high level, positive themes.

Despite policy uncertainty, the CDP response rates show a willingness among the larger listed companies to remain transparent with their stakeholders on carbon-related risks and opportunities. Seventy-two per cent of ASX100 companies and 72 per cent of NZ10 responded to this year’s CDP. And this strong response rate is in line with 2009 and a positive signal of companies’ continued engagement. Fewer ASX200 (ex 100) companies, however, responded to the survey this year, down from 31 per cent in 2009 to 21 per cent in 2010 and this was largely attributed to resource constraints relative to increasing mandatory reporting requirements.

We can see that companies have not changed their level of transparency on carbon emissions and climate change more generally, but how are they thinking about these issues as they relate to company strategy and performance?

The CDP survey results highlight that climate change management, particularly for larger Australian listed companies, is increasingly ‘strategically driven’. ASX100 companies surveyed in this year’s CDP rank equal third globally for board and executive engagement on climate change. Ninety-four (94) per cent of ASX100 companies surveyed report board or executive level responsibility for climate change, which is in line with the Europe 300 (94 per cent) and ahead of the Global 500 (84 per cent).

This high level of Board and senior executive engagement in Australia is a positive signal as we believe that the corporate governance mechanisms companies use to manage their climate change response will contribute to the value they can deliver for investors over the long term.

From an investment perspective, while information in the CDP around companies’ current year emissions data is important because it sets a baseline to assess the emissions intensity of a company, it does not tell an investor about the ultimate carbon emissions exposure of the risks and opportunities that may arise from a well formulated and executed climate strategy.

The longer-term value drivers are more likely to be determined by the company’s ability to strategically assess carbon risks and opportunities and integrate these effectively into broader company strategy. A strong governance response to support this approach is critical.

The CDP2010 also reveals that a large majority of companies have reduced emissions over the last year, largely through energy efficiency. Eighty (80) per cent of ASX100 responding companies have anticipated or already achieved emissions reduction activities. Cost advantages of energy efficiency, coupled with a clear policy setting, in this case The Energy Efficiency Opportunities Act, are seen as key drivers behind the trend. This is an important trend in this year’s survey and is consistent with the experience of the Global 500. It reveals that where there is a clear policy setting and bottom line advantages, companies are prepared to make the necessary changes to their operations.

It is worth highlighting, however, that companies’ enthusiasm for energy efficiency is somewhat at odds with the low number of ASX100 responding companies with formal emissions reductions targets. A mere 47 per cent of ASX100 companies have set emissions reduction targets compared with 70 per cent of Global 500 companies. We believe that the low level of formal emissions targets by Australian companies likely reflects uncertainty around just what those reductions targets should be.

Overall the results of the CDP 2010 for Australia and New Zealand are encouraging. The majority of companies continue to remain transparent with their stakeholders and importantly they are assessing how these issues integrate with the broader company strategy at a Board level. How, strategically, companies can think about carbon risks and how they can adapt their businesses to a low-carbon economy will be a key contributor to the value they can drive over the long term.

Andrew Gray is head of ESG research at Goldman Sachs Australia. For further information on the Carbon Disclosure Project 2010, please visit www.cdproject.net. 

Source: www.climatespectator.com.au