Carbon awareness and accountability

The Carbon Disclosure Project was launched six years ago, with the support of the British government, as an innovative device to encourage the world’s biggest companies to disclose their greenhouse gas emissions. In 2006, the project was undertaken for the fourth time. Over two hundred institutional investors, with assets of US$31.5 trillion under management, signed a single global request for disclosure of information on their greenhouse gas emissions to 2180 companies, including the FT500 largest companies in the world.  

Sam Geall: Briefly, what are the goals of the Carbon Disclosure Project?

James Cameron: The Carbon Disclosure Project is a philanthropic initiative, to construct a dialogue between the institutionary investor community and large publicly listed corporations on the subject of climate change.

SG: You have now published the responses to the fourth Carbon Disclosure Project. How has the project developed since it first launched?

JC: It has developed rather remarkably. Year on year, a larger number of investor companies have signed the letter, a larger number of companies have received and responded to the letter, and there has been a significant increase in the amount of money that makes the request through the Carbon Disclosure Project letter.

The quality of the responses has also improved. So there is a quantitative and qualitative improvement year on year. Now we have 225 institutions asking in the order of 2000 companies what they understand by climate risk to their business and what they are doing about it. That constitutes US$31.5 trillion under management – a significant proportion of the global emissions of greenhouse gases. It really does matter. Some significant scale has been achieved in four years of the process.

SG: The project seems to have been very effective at raising awareness of companies’ carbon emissions. How much do you see this translating into action by companies and investors?

JC: I think it would be immodest and unrealistic to expect four years of awareness-raising to translate into a significant shift in the way either investor company assets or corporate assets are directed. However, the gap between awareness and action has been highlighted this year. In every presentation event and every launch event that we’ve held, that issue has come up and has been a question in the audience’s mind, and the message has been received and understood on both sides of the dialogue.

I don’t want to exaggerate this, because the first steps have been very modest indeed, and they match modest steps that governments have made to alter the conditions for investment in ways that favour the reduction of greenhouse gases. But we do now have, at last, a carbon market. It’s in its infancy, but it’s real. It enables a price for carbon to be established and it enables investors to invest in that marketplace. Every single penny that they invest reduces greenhouse-gas emissions, which therefore reduces risk to them, across the whole of the portfolio.

Putting on my other hat [as vice chairman of] Climate Change Capital, having just raised in the order of a billion dollars for a specialist carbon fund (which has attracted investment out of those big institutional investors who are Carbon Disclosure Project-signatories) is very significant for the carbon market. But not compared to the amount of money that’s flowing in a direction which increases risk.

SG: What was the response to the Carbon Disclosure Project from Chinese companies? 

JC: The response was mixed. For instance, Sun Hung Kai Properties, a Hong Kong-based real-estate management and development group, was one of the companies that failed to respond at all, despite the fact that 48.89% of the total common shares is held by the Carbon Disclosure Project 4 signatories. That is to say, virtually half of the stock of the company is owned by the people asking for the response, but they didn’t respond. You can’t make out any case that real-estate management and development is unaffected by climate change.

However, if we look at Asia as a whole, the responses are pretty good. But it’s in its early stages. There are 39 companies that were contacted in Asia – 11 made no response, 12 declined, three provided information and 13 answered the questionnaire. So, 16 out of 39 provided something useful, which is not nearly as high as Europe, for example.

SG: It seems important than Chinese companies join in the project further.

JC: It’s absolutely crucial that the global nature of the problem is reflected in the global nature of the response. We live in a global investment market, with China increasingly attracting investment from overseas, and indeed investing itself overseas, building businesses that cross out of domestic markets.

SG: How do you think Chinese companies can be encouraged to participate?

JC: I think it’s to do with establishing credibility among institutional investors that they are aware of contemporary issues that matter in the world at large. I don’t claim that if you’re investing in China and you’re looking for returns in the emerging market as it is, that climate change is the top of your list of important criteria. But these big institutional investors – who command a very substantial proportion of the total amount of assets in the world that are available for investment, including investment in China — have identified [climate change] as a key concern. China is increasingly associated with both the problem of climate change and the potential solutions to climate change.

So it makes absolute sense that the Chinese corporate world as well as the Chinese investment institutions act like everybody else and understand how to factor in climate risk to their businesses, learn how to mitigate the risk, learn how to invest and find opportunity – that they learn how to invest to avoid loss.

JC: I think it’s got some good momentum now. The Carbon Disclosure Project will work with other disclosure initiatives to make sure that we improve the quality of the data that we all get, that the data is comparable, that accounting standards develop so that one can compare properly the performance of businesses. If an investor is really committed to altering the way they invest, they need good metrics that they can rely upon. There’s still a lot of work to do there.

But looking ahead, I think maintaining consistency over disclosure will lead to more active engagement by the investment community in the policy realm, because they will be increasingly at risk unless governments intervene to establish and maintain the price of carbon – and possibly more intervention by regulators to ensure that the market is kept consistently informed about companies’ actions that increase systemic risk to the marketplace. So, I think maintaining this simple device will lead to increased effort in the policy-making realm and increased effort in the regulatory realm, both of which will make it easier for investors alter the way they allocate their capital.

James Cameron is the chair of the Carbon Disclosure Project and the vice chairman of Climate Change Capital, an investment banking group specialising in commercial opportunities created by a low-carbon economy.

Sam Geall is assistant editor of chinadialogue.