According to the latest research, 13,000+ companies will have reported environmental data via CDP in 2021. Only 2%, or 200, of the companies, received an A grade, and nearly 17,000 companies worth $21 trillion are still failing disclosure. This is a sign that disclosure requests aren’t working or a sign of a global market shift.
According to CDP’s latest figures for 2018, 14 pioneering companies including L’Oral (Unilever), HP and Lenzing AG achieved a triple A in their performance on all three environmental themes. This is an increase on the previous year’s record of 10. There have been significant improvements in companies’ recognition of their dependence on nature. Companies on CDPs Forests A List increased from 16-24 to 24, while those on CDPs Water A List increased from 106 to 118. It is notable that 79% of A-list companies are now required to disclose science-based targets.S..
Understanding the extent to which corporations are outsourcing their emissions and their impact is a major challenge for many corporations. Scope 3 emissions are part of the A-list approach. Many companies account for the majority of the emissions. Dexter Galvin, Global Director of Corporations & Supply Chains at CDP says that while there are different profiles in different sectors, its common to over 11 times direct emissions in the supply chain in ICT and telecoms that can be up to 22 times direct emissions. He also stressed the importance of water and commodity usage in the supply chain, and stated that CDP will expand its work to address more environmental issues. This will include land, oceans and biodiversity, resilience, waste, food, and waste.
Overall, there were improvements in emissions disclosure. 509 companies saw an improvement in their emissions disclosure scores in 2021 from a C or lower in 2020 to a A in 2021. This means that they have moved beyond simply being aware and disclosing their environmental impact to actually taking steps to reduce it. But that’s just the tip.
Investors are becoming more committed to net zero targets and there is a rising demand for corporate transparency in environmental matters. The Glasgow Financial Alliance for Net Zero, GFANZ, announced over at COP26 in Glasgow. 450 investors under $130 trillion managementThey had pledged to net zero. Companies are still failing to respond to the calls for action. In 2021, more than 590 investors with assets of over $110 trillion and 200 major buyers with $5.5 billion in procurement spend requested corporate environmental information through CDP. CDP received over 13,000 corporate disclosures. This represents 64% global market capitalization, an all-time high.
Only 2% of all companies were on the A List. 58% were between C and D-. This means that they are just beginning to understand their environmental impact. It is also concerning to note that 16870 companies with market caps of $21 trillion (including Exxon Mobil, Glencore, Glencore, and Berkshire Hathaway) failed to respond or provide sufficient information to their clients and investors.
Galvin states that these non-disclosing businesses are against a tide for change. Galvin believes there will be a series of environmental disclosure requirements in 2021. Galvin also claims that more companies are now disclosing their environmental information each year. He claims that 17,000 corporates are not taking the first step to report their environmental data. These companies are putting the planet and themselves at risk. They will be on the wrong side for investors, regulation, and public opinion if they continue to do business as usual. The scrutiny is growing – empty targets and greenwash won’t fly.
There is widespread support for the positive effects of disclosure. Companies that regularly and annually publish their environmental data can improve their reputation, stay ahead of regulations, increase their competitive advantage, uncover risk and opportunities, track and benchmark their progress, and access lower capital costs. Evidence also suggests that companies that score high on environmental metrics have higher financial performance. Stoxx Global Climate Change Leaders index, based on CDPs A List has seen an average annual yield of 5.8%, compared to its reference index for the past eight years. However, it is still not happening at scale.
Recent research from Carbon Tracker (CAP) and the Climate Accounting Projects (CAP), found that 70% of companies are carbon-neutral. Failure to disclose climate risk in financial reportsThis means that it is impossible to know if corporates who have pledged to take action are actually doing so. The majority of auditors who audit companies didn’t assess climate risk. It is impossible to know the capital at risk if there isn’t transparency on net zero targets or how they will be achieved. Investors and corporates are not prepared for the changes that lie ahead.
There is no doubt that market conditions are changing. Shell recently pulled out the UK’s Cambo oilfieldDevelopment, claiming that the economic case wasn’t strong enough. It is hard to understand why this project was even justified. The International Energy Agency, (IEA) World Energy Outlook 2021Projects show that, under a net-zero scenario, which many countries have committed to, the price for a barrel oil will fall to $36 at the end of this decade and $24 in 2050. Although today’s oil price may provide a good return on investment, it is unlikely that it will last the decade. We were seeing a disconnect between actions and commitments.
Mark Campanale is the founder and executive chairman at Carbon Tracker. He wrote that the multinational has openly admitted that its core assumptions have not changed in order to reflect the greatest threat to the planet, its economy, and its business model. It believes that oil prices will continue to be high at $60/barrel, even though it would be impossible to work towards net zero, as consumers and industries shift to other sources.
This boils down to transparency and investor response. Galvin states that we should demand transparency from heavy emitters as a society. Investor concern stems from the potential for unanticipated risks. CDPs reports are important because they provide data that underpins many of the data products that support investors in their ESG research including MSCI, S&P Global, and Sustainalytics. It is time to ask the hard questions. One of these is whether or not companies that fail to disclose credible and transparent information about their environmental impacts and climate risks should be considered for investment.stCentury portfolio