October 16, 2006

Carbon Disclosure Project survey reveals gap between climate change awareness, action by companies

Money talks, and investors are increasingly interested in finding out how the companies they invest in are addressing the risks and opportunities posed climate change. Providing answers to these questions has been the prime directive for the Carbon Disclosure Project (CDP), whose fourth report, released on October 4 by the Conference Board of Canada, concludes that awareness of these risks and opportunities has not translated into widespread planning and action by Canada's largest corporations.

"Large investors should be concerned about this gap between awareness and action," said David Greenall, principal research associate at the Conference Board. "Investor interest in corporate climate change strategies is expected to increase, so more and better information about corporate strategies will become even more important to the capital markets."

The CDP is supported by 225 of the world's leading investment institutions, managing an aggregate total of more than $31.5 trillion in assets (including more than $1 trillion from Canadian-based investors). Their annual survey of the 500 largest publicly traded companies in the world is designed to inform investors about the financial risks and opportunities associated with the climate change issue and how these FT500 firms are dealing with the issue. In 2006, the CDP request for information was sent to 2,180 companies around the world, including Canada's 280 most valuable publicly traded corporations. As a result, the CDP4 report includes, for the first time, a separate analysis of the responses from the Canada 280 companies.

Only 28%, or 78, of Canada's 280 largest publicly-traded corporations by market capitalization responded to the CDP4 information request. This response rate is low compared with that of other countries such Australia, France, Germany and the U.S., but the report cites a number of reasons. For 90% of the surveyed firms, the CDP4 marked the first time they had received its request for information. Also, says the report, the majority (just under two-thirds) of the CDP4 Canada companies are in low greenhouse gas (GHG) emissions intensity sectors. Finally, the CDP4 Canada 280 survey went to companies with small- to mid-range market capitalization (Canada has only 39 companies considered large-cap, i.e. having a market capitalization of more than $5 billion).

Slightly more than half the respondents were from large companies and those in sectors with intensive GHG emissions, such as gas and electrical utilities, mining, forest products, and oil and gas. The better response rate from this group indicates that these firms are responding to investor interest in the business implications of climate change.

The survey's ten questions asked Canadian companies about their disclosure practices and action relating to climate change. Of those responding to the CDP4 information request, 77% indicated that climate change poses business risks, while 63% saw business opportunities related to climate change. At the same time, however, forward-looking financial and strategic information was largely absent from companies' CDP4 responses, with 82% of respondents reporting that they had not addressed the financial significance of climate change to their operations.

The quality of responses varied considerably, possibly reflecting the newness of the CDP exercise in Canada. The report estimates that one-third of respondents' answers did not fully address the survey questions or provided incomplete information about how climate change risks and opportunities are being factored into long-term business planning.

CDP4 Canada 280 reports that 63% of respondents provided data on annual GHG emissions. The information showed that emissions are concentrated in eight GHG-intensive sectors. These sectors make up one-third of the CDP Canada companies but account for 91% of total reported emissions. Sixteen companies reported annual emissions in excess of one million tonnes of CO2 equivalent.

While 36% of respondents said they have a GHG reduction plan, only 20% have a formal reduction target with a timetable for achieving it. The survey also found that energy efficiency is seen as a "no regrets" business practice that yields direct cost-saving benefits while reducing GHG emissions. 73% of all respondents place energy efficiency improvements at the top of their action lists for reducing emissions.

"Respondents cited regulatory uncertainty as a major barrier to developing more comprehensive strategies and assessing the potential financial impact of climate change. Corporate disclosure would be improved by clear government policy on climate change," said Greenall.

One-quarter of all respondents cited regulatory uncertainty in the first Kyoto commitment phase as the major barrier to estimating the potential cost of reducing emissions. This figure jumps to 40% among companies in GHG emissions-intensive sectors.

Of concern as well was the rarity of climate change adaptation risk assessments: only 19% of respondents indicated that they were going beyond business continuity and emergency preparedness planning to incorporate climate change adaptation considerations into their engineering , infrastructure design and strategic long-term planning.

Although 62% of the Top 50 Canadian companies participated, small and mid-capitalization companies were underrepresented among the respondents. As a result, says the report, investors lack comprehensive information about how small and mid-cap firms are preparing to deal with climate change.

The CDP4 Canada 280 report was financially supported by Deloitte & Touche LLP (Canada), Bell Canada, Caisse de dépût et placement du Québec, Canada Pension Plan Investment Board, Catalyst Paper, Epcor Utilities, Golder Ecofys Solutions, National Corporate Responsibility and Scotiabank. The report was produced in association with Innovest Strategic Value Advisors.

The report is publicly available on the Web sites of the Conference Board of Canada, www.e-library.ca, or the Carbon Disclosure Project, www.cdproject.net.

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