GRI Conference - 27 May - Pinkse -Carbon Disclosure Panel


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GRI Conference - 27 May - Pinkse -Carbon Disclosure Panel

  1. 1. The institutionalization and commensuration of carbon disclosure GRI Conference 2010 Amsterdam Dr. Jonatan Pinkse
  2. 2. Outline 1. Brief overview of carbon disclosure avenues 2. In-depth analysis of the Carbon Disclosure Project as avenue for carbon reporting and carbon accounting 3. Discussion
  3. 3. Three avenues for carbon disclosure • Sustainability or corporate social responsibility (CSR) reporting • Filings to the Securities and Exchange Commission (SEC), particularly in the United States • The Carbon Disclosure Project (CDP)
  4. 4. Carbon disclosure in CSR reporting Research on the Fortune Global 250 shows: – 57% of the Global 250 addresses the risks of climate change; 64% reports about how to mitigate these risks; and 60% describe business opportunities Since 1999 type of information provided about climate change has changed: – In 1999 48% of companies reported on emissions performance related to own business activities. By 2008, this had risen to 59% and data are more specific. – Reporting on indirect emissions from the purchase of electricity (33%) and transportation or product use (26%) only emerged in 2005 – Kyoto mechanisms were rather new in 1999, but received explicit attention in 2005: 24% mentioned to explore the consequences of emissions trading – What has not changed is corporate descriptions of product innovations to address climate change concerns, improve energy efficiency and reduce dependency on fossil fuels Source: KPMG (1999, 2002, 2005, 2008)
  5. 5. Carbon disclosure in SEC filings (1) Publicly-listed companies must provide information to the SEC of instances ‘where a trend, demand, commitment, event or uncertainty is both presently known to management and reasonably likely to have material effects on the registrant’s financial condition or results of operation.’ – In 2001-2005 an increasing number of companies disclosed their carbon exposure to shareholders via this route – Non-US-based companies persistently report more than their US counterparts – Great diversity across the sectors But, is climate change material? – In 2005 of the 55 reporting companies, 9 give no information, 5 believe it is not possible estimate the impact, 8 expect a mixed impact, 27 acknowledge an adverse impact, and 5 companies say likely to be an impact, but not material Source: Chan-Fishel/FoE (2002, 2003, 2004, 2005, 2006)
  6. 6. Carbon disclosure in SEC filings (2) 30 25 20 15 10 5 0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 automobiles insurance oil & gas petrochemicals utilities reporting non-reporting Source: Chan-Fishel/FoE (2002, 2003, 2004, 2005, 2006)
  7. 7. Carbon disclosure in SEC filings (3) Last January SEC provided interpretative guidance on carbon disclosure, highlighting following areas: – Impact of legislation and regulation – Impact of international accords – Indirect consequences of regulation or business trends – Physical impacts of climate change
  8. 8. The Carbon Disclosure Project (1) – CDP is a form of institutional entrepreneurship using the power of investors to urge firms to disclose information about climate change – Sends out questionnaires to large sets of companies worldwide every year; first time 2003; currently 7th round – # of investors grown from 35 (2003) to 475 (2009) – Asset size: from 4.5 to 55 trillion dollars in these years – # countries of origin: from 7 (2003) to 30 (2009); initially half of investors from UK, now much more spread globally
  9. 9. The Carbon Disclosure Project (2) Responses: – 2003: FT500; 2009: 2,456 companies including FT500 – Response rate FT500: from 46% (2003) to 82% (2009) – Apparently successful institutionalization – European companies most likely to respond, consistently considerably more over the years than: – North American and Asian companies (catching up lately) – Companies from BRIC and developing countries (though they are catching up quite substantially recently, esp. Brazil 100% disclosure in 2009)
  10. 10. Geographical variation in CDP response 300 250 200 150 100 50 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 North America Europe Asia-Pacific Emerging economies Answer No Answer
  11. 11. A closer look at CDP5 2007: is carbon disclosure useful? The institutionalization of standardized information disclosure is urgent: – A channel for accountability to stakeholders – Enables demanding certain performance levels – Enables benchmarking and comparison – Assess vulnerability to climate-related risks – Focuses managerial attention on performance outcomes – Transforming mitigation activities into a common metric is foundation of the carbon market But is CDP delivering these tasks already at this stage?
  12. 12. Commensuration Is CDP a successful project of commensuration, in terms of transforming “qualitative relations into quantitaties on a common metric”? Commensuration is a political process with 3 distinct dimensions: Technical commensuration: Translate GHG emissions into one common metric tCO2e Cognitive commensuration: Common understanding what pollution is, who the polluter and involves spatial and temporal aspects Value commensuration: Attaching price to GHG reductions, e.g. trading scheme or registry
  13. 13. Commensuration of carbon disclosure reporting Commensuration is less strict for reporting, but should at least enable ranking of companies But… narrative style of disclosure impedes comparison provides a platform for showcasing best practices questionnaire has changed over time disclosure of financial impact information is limited – 27 of 380 firms disclose cost savings – 123 firms estimate energy costs – 76 disclose EU-ETS allowances allocated – Openness about methodology is crucial for comparison, but often not disclosed
  14. 14. Commensuration of carbon accounting Technical commensuration requires a common methodology – WBCSD/WRI GHG Protocol dominant (197 firms), but used inconsistently (often combined with complementary methodologies) – Direct emissions relatively well-reported, but much confusion about indirect emissions Cognitive commensuration a huge challenge – Different consolidation methods to establish organizational boundaries – Neglect of non-CO2 emissions – Global emissions not truly global and limited breakdown per country – Lack or inconsistent use of external verification Value commensuration only takes place within the boundaries of trading schemes, which are not global yet
  15. 15. Climate Disclosure Standards Board Reporting Framework? Way forward… Advocates inclusion in mainstream reporting and stronger alignment with financial accounting rules: – Thus, investors as main users of disclosed information – Consolidation of existing standards, i.e. CDP for reporting and GHG Protocol for accounting – Using the accounting profession as key point of leverage
  16. 16. Discussion Investor pressure alone does not seem enough to reach adequate levels Quality of carbon disclosure and this analysis raises doubt about the value of carbon disclosure to investors, NGOs and policymakers at this stage – What are the prospects of carbon disclosure reaching a level of effective commensuration? – What does it mean for research and practice that disclosed carbon data remains inconsistent? – How can one assess whether climate change initiatives actually reduce corporate impact? – How does carbon disclosure relate to sustainability reporting in general?
  17. 17. Further reading – Kolk, A., Levy, D., & Pinkse, J. 2008. Corporate responses in an emerging climate regime: the institutionalization and commensuration of carbon disclosure. European Accounting Review, 17(4): 719-745. – Pinkse, J., & Kolk, A. 2009. International Business and Global Climate Change. London: Routledge.