Consulting » Companies quizzed on carbon policy

It will probably come as a surprise that BT is responsible for 0.7% of the
UK’s entire electricity consumption. But it may come as an even greater surprise
that 99% of its demand is sourced from renewable and combined heat and power
sources (a very efficient form of energy).

But these are just two of the nuggets of information revealed in the
company’s response to an international investor-driven corporate communication
campaign, now in its fifth year, called the Carbon Disclosure Project.

Headquartered in London, the CDP sent out a questionnaire to 2,400 of the
world’s largest quoted companies in 2007 and asked them about risks and
opportunities related to climate change, emissions and past and current actions
to reduce them.
It is full of tiny and gigantic statistics, as well as unexpected holes,
concerning the corporate response to climate change and institutional investor
support. In 2007, investors that are signatories to the project (and thus
officially demanding the information) represented more than $41 trillion of
assets under management.

Food for thought

Some of the revelations from the research include the extraordinary statistic
that the carbon footprint of a packet of Walkers cheese and onion crisps amounts
to 75g; the heating energy saved by insulating an isolated building is
equivalent to a thousand times the energy that went into manufacturing the
materials and that outdoor advertising company, JCDecaux, swapped 1,600
billboards for 20,000 free bicycles in Paris.

Given its five-year existence, trends are now becoming visible. In the UK,
77% of FTSE-500 companies replied to the questions, compared to 45% in 2002. BT,
J Sainsbury, Cadbury Schweppes and Shell are among the British companies that
have participated and allowed their responses to be published since the
beginning, while WH Smith, Debenhams and John Wood Group are among those that
have not replied.

The CDP revives the long-standing question concerning the benefit of
voluntary corporate initiatives. While some of the companies may, in any case,
be publishing emissions information in their corporate social responsibility
reports, it puts them on the spot by asking them specific, consistent questions.
Non-responses, claims its chief executive Paul Dickinson, are a sign of
skeletons in the cupboard. “I find it incomprehensible that a company doesn’t
respond. What’s going on in there?” he asks.

It is a line familiar to corporate governance theorists and public relations
gurus: transparency breeds accountability and familiarity breeds favourability.
In effect, one of the aims of the CDP is to create a naming and shaming list,
point out the leaders and laggards for each sector, and drum up collective
support to act on greenhouse gas emissions.

But there is no reason why a company should be penalised for not replying. In
most parts of the world, there is no requirement to report on emissions or
produce environmental reviews. In the UK, only an amendment to the Companies Act
2006 that came through in October requires companies to do anything close to
reporting on emissions. But its terms are very general. Companies are now
legally obliged to report information about environmental matters in the
business review section of the annual report and accounts, or explain why they
don’t feel environmental issues are relevant to their business.

Many of those who do reply are partly motivated by a requirement to provide
data to governmental authorities anyway because they are participants in the
Emissions Trading Scheme (ETS). Companies in the Scheme are not obliged to
quantify its financial impacts separately in their accounts, but do quantify
physical emissions. Some go over and above their disclosure requirements and
have reported on these issues in their annual statements for years before the
ETS began. “Why wouldn’t we publish this? We feel we’re a fairly transparent
company and that it’s the right thing to do,” says Roddy Kennedy, BP’s chief

First movers

Others do not create heavy enough emissions at their facilities to be included
in the ETS, but are still engaged in energy efficiency innovations and want to
report on them. This is because of solid views concerning first mover advantage.
“If you wait for irrefutable evidence [of climate change] in 10 to 20 years’
time you’ll be second in terms of getting the best and most cost-effective
solutions through,” argues Mike Barry, Marks and Spencer’s CSR director.

The first mover advantage is an important consideration. There are also
market advantages to developing environmental leadership. In addition, corporate
planners would be foolish to ignore the possibility that new legislation might
be round the corner, or the impact of the climate change bill. A cross-party
political consensus in the UK has emerged in this area. The possibility of
including service sectors in the ETS has been discussed, while activist
companies like Trucost, the organisation which carried out much of the number
crunching work for the CDP, are already calling for mandatory emissions
reporting using consistent international standards not unlike IFRS.

Reputational risk

The question of whether to act is also driven by a decision on how far climate
change, now accepted as a reality by most scientists, has an impact on corporate
risk, and that will depend on the industry and on a company’s views on
reputational risk. The fact that numerous investors are clamouring for
information suggests that they think climate change will affect risk.

Nevertheless, there are some fairly obvious contradictions evident among the
data. If so many powerful shareholders want companies to clean up, it is not
easy to explain the slow European progress on emissions targets.

The answer to this lies in the fact that some environmental communication is
still used defensively to protect a company’s image, while emissions reporting
is not always externally verified. Yet the CDP is taken seriously and is backed
by luminaries such as corporate governance expert Derek Higgs and German
Chancellor Angela Merkel. That is because carbon dioxide is gradually being
accepted as a new type of commodity.