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Friday View: 16 December 2016

How investor action helps cut CO2 emissions

How investor action helps cut CO2 emissions

By Rick Stathers and Tom Crocker
Friday 16th December 2016

The Paris climate change agreement came into force last month and has now been written into law by governments in 116 countries worldwide, from Sweden to Swaziland[1]. However, if we are to keep global temperature rises below 2 degrees as per the main goal of the agreement, then the actions of governments must form only part of the story. The private sector – both investors and companies – is also crucial, perhaps even more so than the public sector.

Investor action is yielding results

CDP’s ‘Carbon Action’ Initiative, which announced its latest results last week, is an example of the private sector taking a lead to drive more sustainable, lower carbon economies. This year the investor-led action brought together an influential group of 329 investors, collectively managing US$25trn in assets – up from US$6.7trn and 35 investors at launch in 2011.

Carbon Action provides a mechanism for these investors to engage with over 1,300 companies in high-emitting, energy intensive sectors such as oil and gas, electric utilities, materials, mining and metals, transportation and consumer staples. The investors ask each company to take three specific actions in response to climate change:

– Make emissions reductions (year-on-year);

– Make emissions-reduction targets public; and

– Invest in emissions-reduction projects with a positive financial return.

The past year has seen real acceleration in positive results with response rates increasing by 50%[1]. On average, 86% of respondents across all sectors now have emissions reduction targets in place. 160 companies have also signed corporate climate action initiatives run by the We Mean Business coalition, a platform that brings together businesses working towards a low carbon economy.

A strong business case with real environmental returns

In just 12 months, Carbon Action has seen companies cut 522 million tonnes of CO2 emissions. That is the equivalent carbon savings to shutting down 150 coal fired power stations.

This is hard evidence that investors who engage with their portfolio companies and demonstrate the business case for reducing emissions can bring about real change with hugely positive environmental implications.

2016’s Carbon Action results also showed some clear global trends in corporate climate action, with Europe well ahead of the rest of the world. Nearly 80% of European companies disclosed their data to CDP, followed by 73% of companies in Australasia. When analysed on a sector by sector basis, the industrial and consumer staple sectors are leading other industries, with response rates of 72% and 75% respectively.

But there is still work to be done. The energy sector is lagging behind other carbon intensive industries, with only 66% of companies setting emissions reductions targets. Energy companies in Asia, Africa, the Middle East and North America are particularly bad at disclosing their emissions data to CDP.

Next few years are critical

We know that the next few years will be critical in the fight against climate change and both public and private sectors will need to work harder to meet the requirements of the Paris Agreement.
CDP’s Carbon Action provides real evidence of the difference institutional investors can make by engaging with companies to encourage them to reduce emissions. We believe that investor-led initiatives like this are fundamental to accelerating company action on climate change and expect to see them creating ever more positive environmental impact in the run up to 2020.

Rick Stathers is head of investor research at CDP, Tom Crocker is a research analyst at CDP

[1] http://www.cdp.net

 

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