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March 10, 2009

Investors Want More Disclosure of Climate Risk Data from Corporations
    by Robert Kropp

CDP survey of signatory investors finds that integration of climate risk considerations into investment decisions is growing. -- Investors that are signatories of the Carbon Disclosure Project (CDP), a nonprofit organization which acts as an intermediary between shareholders and corporations on climate change issues, want the companies in which they invest to do more than just disclose climate and carbon information. The CDP signatories, who manage $55 trillion in assets, want companies to take such additional actions as adopting emissions reductions targets and developing low carbon solutions as well.

SRI Mutual Funds GuideThis was among the findings of a survey of institutional investors by the CDP. Among the 80 respondents were asset managers, pension funds, insurers and socially responsible investment funds. Mercer, a global provider of consulting and investment services, analyzed the survey results and compiled the report. The report, entitled "Investor use of CDP data," is posted on the CDP website.

While 77% of institutional investors surveyed by the CDP indicated that they factor climate change information into their investment decisions, only 11% of respondents have yet to fully incorporate CDP data into financial analysis. However, more than 80% of the respondents who do factor climate change information into investment decisions indicated that climate change is an important factor, and responses indicate that investors expect CDP data to increase in significance and applicability.

Jane Ambachtsheer, Mercer's global head of SRI, told, "While a majority of investors haven't yet adjusted their model to their formal investment decision- making framework, 64% of survey respondents did say they intended to use CDP data more in the future."

Ambachtsheer continued, "Even if a majority is not yet using CDP data in a systematic way, the fact that 77% of respondents do use the data indicates that it is part of their toolkit."

According to the report, "As climate change regulation matures and expands around the globe, members of the investment community will be increasingly compelled to analyze climate risks and opportunities in detail."

The report concludes with a number of recommendations for investors to consider. Investors are advised to utilize training to ensure that CDP data is leveraged in a meaningful way, to encourage their service providers to incorporate CDP data, and to hold companies to a standard of disclosure that utilizes standardized and comparable metrics.

One of the sponsors of the CDP report was the Calvert Group, a fund company that includes a number of prominent SRI funds. Rebecca Henson, Senior Analyst at Calvert, told, "Calvert co-sponsored the CDP report because we have been involved in climate risk integration, and this report helps us gauge how other investors worldwide are becoming more sophisticated in their integration of climate risk data."

"Considering the reputation of CDP around the world, we also considered it important that companies be made aware that investors are becoming more sophisticated," Henson continued. "Even with the economy in the state that it is at present, the report indicates that investors are increasingly incorporating climate risks and opportunities into their investment decisions."

Ambachtsheer of Mercer presented the report to an audience of corporate representatives at CDP's Spring Workshop for companies that reply to the CDP. In her presentation, she noted additional investor actions that indicate an ongoing emphasis on climate risks and opportunities despite the current economic crisis.

In February, a group of 35 investors with over $3 trillion in assets called on Congressional leaders to pass strong legislation to advance a clean energy, low-carbon economy. Among the investors' recommendations were the adoption of a mandatory national climate policy to reduce greenhouse gas emissions, and a low-carbon fuel standard to reduce reliance on oil and greenhouse gas emissions.

In December 2008, 152 global investors worth over $9 trillion called on world leaders to negotiate a strong and binding successor to the Kyoto Protocol. Among the recommendations was that governments agree upon a binding global target for reducing greenhouse gas emissions.

At the workshop, Ambachtsheer informed companies that corporate engagement was the leading area in which investors were using CDP data. Investors find that CDP information helps fuel discussions with management and leads to engagement via dialogue or shareowner resolutions with non-responding companies outside the CDP process.

"The workshop provided companies with an opportunity to understand exactly what investors are doing with the information that the companies are trying so painstakingly to provide," Ambachtsheer said.

"Having companies and investors in the same room was helpful. We found that companies would like to receive more information from investors as to how climate risk factors play into their buy/sell decisions," continued Ambachtsheer.

Ambachtsheer noted that the CDP currently has 475 signatory investors with a combined $55 trillion of assets under management.

"Investor involvement in the CDP has been overwhelming, even without a clear regulatory framework," she said. "Imagine the investor response when there is a clear regulatory framework."

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