Investors seek more climate change data from big business

by Search Gate staff. Published Fri 04 Feb 2017 14:05
CDP enlists record number of institutional investors

Water and carbon management are of rising importance to institutional investors, with a record number supporting the Carbon Disclosure Project’s (CDP) 2017 requests for climate change and water information sent this week to the world’s largest companies.

This comes as external research from the US and New Zealand shows that, all other factors being equal, the greater a company’s greenhouse gas emissions the lower its stock value.

A global, independent, not-for-profit organisation, CDP is the world’s largest institutional investor collaboration working to inform the global market place on investment risk and commercial opportunity.

CDP’s annual request for climate change data, now in its ninth year, was sent to over 4,800 listed companies on behalf of 551 institutional investors with US$71 trillion in assets. New investors include Prudential Investment Management and State Bank of India.

This is the second year that CDP has provided a system for businesses to report their use and management of water. The number of institutional investors signing this year’s annual request for water information to over 400 companies has risen over 150% from 137 in 2010 to 354 with US$43 trillion in assets.

A number of water-related incidents are impacting water as an investment issue: BP’s stock price halved following the Deepwater Horizon oil spill; and shares in the Zijin Mining Group were suspended from trading on the Hong Kong stock exchange in advance of disclosure of the penalties and clean-up costs associated with the 2.4 gallon acid spill into the Ting river.

Given the potentially catastrophic consequences of mismanaging water resources, investors are placing increasing importance on greater transparency and accountability on water scarcity and other water related issues.

Some of the institutional investors that are signatories to both CDP’s climate change and water information requests include Allianz Group, Aviva, BBVA, CalSTRS, HSBC Holdings plc, ING, Mitsubishi UFJ Financial Group and National Australia Bank.

CDP’s chief executive Paul Simpson said: “It is clear that the effective management of both carbon and water will have a direct impact on a company’s ability to compete and grow in the future. Companies that do not take action now will fall behind their peers who are already beginning to capitalise on the opportunity that the management of climate change and water brings.”

A recent study undertaken by the Universities of California and Otago underscores the benefits to companies in managing their greenhouse gas emissions. The study, based on data from firms in the S&P; 500, the top 200 firms traded in Canada and CDP’s primary corporate emissions data, states that all other factors being equal, the greater a company’s emissions, the lower its stock value.

Directing investment to companies that better manage carbon makes financial sense. The FTSE CDP Carbon Strategy Indices have outperformed their UK benchmarks by 1.5% over a three year period, while keeping a low tracking error. This means retail and institutional investors, such as pension funds, can achieve broad and diversified market exposure as well as manage the impact of climate change on their investment.

This index series is the first to offer a long term forward-looking investment tool that closely tracks established UK benchmarks while supporting the reduction of climate change risks across investment portfolios. The FTSE CDP Carbon Strategy All-Share Index has outperformed the standard FTSE All-Share by 1.5% in the three years to the end of 2010 and the FTSE CDP Carbon Strategy 350 Index has outperformed the standard FTSE 350 by 1.4% over the same period.

Yulanda Chung, head of sustainable business for Standard Chartered, a CDP signatory investor, says: “CDP has become the gold standard for reporting and sourcing corporate carbon data. It serves as a platform from which to encourage a more thoughtful approach to managing greenhouse gases. In addition to disclosing our own carbon data, we consider other companies’ CDP carbon profile within financing decisions. With this, it has become a valuable information source for Standard Chartered.”

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