Responsible Investor

Leveraging the Carbon Disclosure Project

Corporates are doing well in carbon disclosure, so why are investors lagging?

On September 24 in New York City, the fifth annual iteration of the Carbon Disclosure Project report was launched amid considerable fanfare. While most of that fanfare derived from the appeal of the principal speaker – former U.S. President Bill Clinton, the report itself did document some important progress. In an astonishingly short space of time, climate change has morphed from an esoteric, largely scientific issue to what is arguably the most compelling business, public policy, and investment issue of our times. This year’s report was written on behalf of 315 institutional investors from all over the world, with combined assets of $41trillion under management. The request was sent to 2,400 of the largest quoted companies in the world by market capitalization, and for the fifth time, Innovest Strategic Value Advisors was selected to analyze the responses from the Financial Times Global 500 (FT500) companies.
An analysis of those responses reveals several encouraging trends. Perhaps most importantly, this year’s CDP reveals, for the first time, that corporate awareness of climate related risks and opportunities is now beginning to translate into the development and implementation of meaningful strategies – and actions.

The second positive trend is the substantial increase in awareness and engagement among major institutional investors – compare CDP5’s 315 signatories with aggregate assets under management of $41 trillion with the 35 institutional investors with $4.5 trillion under management in CDP1.
Unfortunately, however, this heightened awareness and apparent appetite for change has yet to manifest itself in concrete and widespread changes in behaviour on the investor side; the vast majority of institutional investors do not yet seem to be utilizing systematically any climate-driven company research which might capture the premium “carbon beta”. Until and unless this happens on a consistent and systematic basis, important risks will remain hidden, opportunities missed on the upside, and the pace of the necessary corporate transition to a global low-carbon economy will be delayed.
While institutional investor awareness of climate risk has increased dramatically, only a tiny handful have moved beyond rhetoric and shareholder resolutions to take concrete investment action – namely, incorporating climate risk considerations directly and systematically

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