1. The institutionalization and
commensuration of carbon disclosure
GRI Conference 2010
Amsterdam
Dr. Jonatan Pinkse

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.
j.m.pinkse@uva.nl