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September 24, 2007

Companies, Carbon and Climate Change: The Carbon Disclosure Project Issues its 5th Global Corporate Climate Change Report
    by Anne Moore Odell

More companies are moving from simple carbon awareness to carbon action, but further work still needs to be done. -- Today, the Carbon Disclosure Project (CDP) released its much-anticipated Global Corporate Climate Change Report (CDP5). This is the fifth annual report by the CDP tracking carbon disclosure and attitudes toward climate change in the world's largest companies. The CDP additionally this year launched the Climate Disclosure Leadership Index (CDLI), an honor roll for companies who are best addressing climate change issues.

Today's forum launching the CDP Report features President Clinton and Harold Ford Jr., Vice Chairman of Merrill Lynch. Today also starts the U.N. summit on how to mitigate climate change with over 80 world leaders taking part. Later this week, President Bush will host his own US meetings on climate change. This week's high profile meetings on climate change illustrate the growing pressure on governments, companies and individuals to act now on carbon emission and climate change issues.

The CDP welds the strength of over 315 global institutional investors with more than $41 trillion in assets under management. This collaboration includes some of the largest US and foreign institutional investors, including CalPERS, Merrill Lynch, and Goldman Sachs. The CDP has collected 90 new signatories and almost $10 trillion in assets since last year's report.

Clark McKinley, Public Information Officer for CalPERS, the California Public Employees' Retirement System ($250.8 billion), explained why CalPERS joined the CDP: "To shine light on corporate environmental liabilities by improving transparency and the timely disclosure of environmental risks. With such information, we can better make informed investment decisions and assess costs associated with the impact to the environment which may include operational, market, liabilities, policy, regulatory and reputation risk."

The Report was compiled from data received from questionnaires sent to the large companies found on the S&P500 index and the FT500 index, which follows the 500 largest global corporations. RiskMetrics wrote the S&P500 report. Innovest Strategic Value Advisors wrote the FT500 report.

This year's questionnaire was designed to collect more data that would allow for more complex climate change issues to be explored. Yet one of the basic questions on the CDP Report is still applicable from previous years. How useful and trustworthy is information from the companies themselves, without independent verification?

"We are seeing encouraging signs that companies are moving beyond awareness to action," said Matthew Kiernan, Founder and CEO of Innovest. "The CDP report is widely available and heavily read. It has helped drive climate change awareness. The report has become an important part of investors' toolkits."

The CDP Report draws the parallel that many investors are making between positive carbon management and overall positive corporate management. A company's commitment to climate change issues are often reflected in their dedication to carbon disclosure.

One of the first indicators of a corporation's awareness of carbon issues is whether or not they respond to the CDP questionnaire. This year 77% of FT500 companies responded to CDP's request and 56% of S&P500 companies responded. The response rate is growing yearly with 75% of FT500 companies responding in 2006, 71% in 2005 and 59% in 2004.

US companies are behind their global counterparts, not only in their response rate, but also in many of their responses to carbon disclosure subjects, the CDP Report noted. For instance, the FT500 report finds that 80% of global businesses see that there are both challenges and opportunities presented by climate change. However, the US companies are more likely than not to see the challenges of climate change, not the opportunities.

Another area where the global companies are ahead of the US companies is in the number of companies who are actively reducing carbon and other greenhouse gases emissions. This year, 76% of FT500 companies who responded to the survey say that they have initiatives in place to reduce greenhouse gas emissions while only 29% of responding US companies have such programs currently in place. Last year, less than half (48%) of FT500 responding to the CDP questionnaire had greenhouse emission programs in place.

The CDP is also working to collect data on companies' supply chain management as well.

Carbon reporting was up across all industrial sectors, the CDP reports, but investors need to still look carefully within each sector, as reporting and carbon emissions vary widely from company to company within sectors. Interestingly, the more carbon intense sectors had higher disclosure rates than less intensive sectors.

Specific sectors face climate change and carbon risks in different ways. For example, the food, beverage, and tobacco sectors are feeling the effects of extreme weather events, forecasted to be on the upswing with increased global warming. The banks and investment sector is responding to global climate change by investing more resources in renewable energy with lower emissions. The gas and oil sectors are working to reduce flaring and venting operations in natural gas.

Although the CDP5 finds that the gap between awareness and action is shrinking among responding FT500 companies, there is still a huge disconnect between awareness and action on the investor side, the report concluded. The CDP calls on governments to help push investors into using carbon disclosure information in their investment making decisions.

The FT500 Report noted, "The objective of the CDP since its inception has been to increase awareness and provide investor-relevant information about climate change to enable informed action. Unless and until governments agree on material taxation or regulation of greenhouse gas emissions, investors will lack incentive to act, both more systematically and in greater numbers, and the full potential of the project is unlikely to be realized."

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