Climate change will be on the agenda of the G20 leaders’ summit in Hangzhou, China from September 4 to September 5, and on August 30, the insurers Aviva, Aegon and MS Amlin issued a joint statement calling for the leaders to announce the abandonment of all subsidies for fossil fuel producers.
In November, the UN’s climate change body will convene the follow-up to last year’s Paris conference in Marrakech, Morrocco. The following month, the Financial Stability Board, chaired by the Bank of England’s Mark Carney, will present its recommendations for setting a global standard for company disclosure of carbon emissions – a task that was laid down by the G20 and is being overseen by Michael Bloomberg.
This last project is especially relevant to the work of the CDP, a charity set up in 2000 that produces regular reports on companies’ carbon emissions, for use by the 827 fund managers and investors that subscribe to it.
Rick Stathers, a 16-year veteran of Schroders, where he was head of responsible investment before leaving in May, joined CDP in July. He is looking to expand the organisation’s coverage into new fields. Here, he sets out some of his plans.
Financial News: What does CDP’s research coverage look like at the moment, and how do you want to expand this in the future?
Rick Stathers: I have inherited a very good process and team; we are a unique repository of climate change data. We produce sector emissions reports, which we update on a biannual basis. By 2019 we will have covered 13 industries. So far we have done autos, miners (coal producers), cement, chemicals and utilities, we are in the process of looking at steel, and we will publish oil and gas in October.
We have focused on the high-emitting sectors first. We will carry on looking at food and beverage producers and transport, we haven’t firmed this up yet but these ones are fairly definite, in the next eight months.
Do you charge investors for the reports?
At the moment everything is free. The signatories only provide a small amount of funding. We have foundations that provide a lot more. Their mission is they recognise there needs to be more done to raise consciousness of climate change and carbon emissions within financial services. Hopefully we will transition to other models; but we are a not-for-profit organisation at the end of the day.
We are seeing a change under the Mifid II regulation: the unbundling of research costs. There are some mandates starting to appear; calls for tenders for specific research projects into climate change or water scarcity. Potentially that is an area that could grow more. It makes sense for us to do that.
How does this work contribute to the ultimate aim of reducing carbon emissions?
We are building a clean and complete dataset, on a best estimate for these emissions, and this is being used by low-carbon index providers. For oil and gas, we think the research coming out in October/November will be the first time these companies have been disclosing this information since Paris. We will have the first data to show where they are. It will be good to see how the US companies compare to the European companies, in particular.
The shareholder resolutions filed at these companies are all about business-risk exposure to the transition [to a low-carbon economy]. We want to look at how businesses are aligned to what governments have said they are committed to, because governments shouldn’t have said they are committed to anything that they are not actually willing to do.
So we also set “Sector Decarbonisation Goals”. We started doing this in the reports on the cement and autos sectors, and we will be doing it from now on. These derive from science-based targets on how much emissions must be cut. This analysis shows various sectors’ pathways to these targets. You can hypothesise: “How is this sector going to have to change, does it have a technology solution that would allow it to reduce emissions, would it be hurt by carbon pricing, is it likely this sector will face more regulatory risk?”
We are not giving investment recommendations, of course – we are not FCA-regulated. But we can highlight where there is more revenue risk to a company from this issue.
What are your metrics for assessing how much your reports are actually used by investors?
Of the executive summaries available online, these have been downloaded 100,000 times. We know that investors are reading them, because we have had companies phoning us up and saying “why am I getting this rating on your report”. We have had other signatories that want us to extend some of the research that we do specifically into stocks they cover in their portfolios. There are some where they say “You have done 12 companies in this sector, we would like to look at the other 20, can you help us?”. We are willing to look at this, but we will have to see how it impacts our other research requirements.
How does your work fit into the wider global policy agenda on climate change?
There is a growing sense of change in the initiatives around the world. It’s very good timing to promote this work. I think there is a growing appetite for it. There are some voluntary initiatives such as the Montreal Carbon Pledge, the Portfolio Decarbonisation Initiative, and regulations in France now. And then there is the ambition from Paris, and Mark Carney’s financial services taskforce on carbon reporting. My colleague Jane Stevensen is involved in that.
The pace of change that we need is something that always sits at the back of my mind. We have to see emissions start to peak in 2020, and start to decline by 2025. That is not long. So we have to look at how financial services responds to this.
And finally, what is next for CDP as an organisation?
We have expanded to about 150 people, and we are moving offices soon to Mansion House. Over the years we have moved around between various London offices but now there is a critical mass that this might be a permanent home.