CDP NON-DISCLOSURE CAMPAIGN: 2020 RESULTS Measuring the Impact of Investor Engagement on Corporate Environmental Disclosure
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DISCLOSURE INSIGHT ACTION CDP NON-DISCLOSURE CAMPAIGN: 2020 RESULTS Measuring the impact of investor engagement on corporate environmental disclosure WWW.CDP.NET CONTENTS CDP NON-DISCLOSURE CAMPAIGN 2 Introduction In the fight against climate change, 2020 ended with perhaps more 3 Non-Disclosure Campaign overview optimism than it started with. Analysts predict that recent net-zero Good disclosure enables pledges made by several countries, including China and the incoming US 5 2020 campaign disclosure results investors to assess how well administration, could, if achieved, limit global temperature rise to around companies manage their 2.1 degrees by the end of the century - around a degree lower than the 19 Regional focus ESG risks. CDP now reflects trajectory of current policies1. This could bring the world within striking 11 Climate change TCFD requirements and is a distance of the well below 1.5 degree target set out in the Paris Agreement. However, figures recently released from Brazil’s National 13 Forests model disclosure framework Institute for Space Research (INPE) show that deforestation in one of the 5 1 Water security on climate change, one of world’s largest carbon sinks has increased by 9.5% over the past year, the broadest risks facing with 11,088 km2 of Amazonian forest being destroyed. 17 Sectoral focus companies. We encourage all 19 Climate change companies to respond fully to Greater action is needed if the world is to avoid the worst effects of 21 Forests the CDP questionnaire. catastrophic climate change. The capital markets and corporate sector have a vital role to play. 23 Water security Thomas O’Malley, Global Head of Corporate The CDP reporting platform provides the investor community with the 25 Conclusion Governance at HSBC Global most complete source of self-reported corporate environmental data, in a 27 Appendix Asset Management consistent and comparable manner and fully aligned with the Task Force for Climate-Related Financial Disclosures’ (TCFD) recommendations. Over 6,500 of the world’s largest companies are annually requested to disclose to the capital markets 2 on their impact and management of climate change , forests and water security. In 2019 over 2,500 companies disclosed, meaning almost 4,000 did not submit the requested information. Since 2017, CDP has coordinated a global investor-led engagement campaign to drive enhanced corporate environmental disclosure on these issues. CDP investor signatories can sign up to participate in the campaign from February to March, but in 2020 as the global pandemic took hold it was uncertain how many investors would be able to participate or what position companies may be in to disclose in such a volatile economic climate. Encouragingly, we saw a record number of investors sign up Important Notice wishing to engage a record number of companies, demonstrating the The contents of this report may be used by anyone, providing acknowledgment is given to CDP Worldwide (CDP). This does not represent a license to repackage or resell any of the data reported to CDP or the contributing authors and presented in this report. If commitment of investors to prioritize the growing climate emergency and you intend to repackage or resell any of the contents of this report, you need to obtain express permission from CDP before doing so. to expect the same from their investee companies. We also saw the No representation or warranty (express or implied) is given by CDP as to the accuracy or completeness of the information and highest overall positive response rate from companies in the campaign so opinions contained in this report. You should not act upon the information contained in this publication without obtaining specific far, demonstrating that some companies, too, are committed to prioritizing professional advice. To the extent permitted by law, CDP does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this report or for any these issues and willing to be more transparent around them to investors. decision based on it. All information and views expressed herein by CDP are based on their judgment at the time of this report and are This report will provide an overview of the 2020 Non-Disclosure Campaign subject to change without notice due to economic, political, industry and firm-specific factors. Guest commentaries included in this report reflect the views of their respective authors; their inclusion is not an endorsement of them. (abbreviated to NDC in this report) and discuss the disclosure results and CDP, their affiliated member firms or companies, or their respective shareholders, members, partners, principals, directors, officers effectiveness of investor engagement. and/or employees, may have a position in the securities of the companies discussed herein. The securities of the companies mentioned in this document may not be eligible for sale in some states or countries, nor suitable for all types of investors; their value and the income they produce may fluctuate and/or be adversely affected by exchange rates. 1 https://climateactiontracker.org/publications/global-update-paris-agreement-turning-point/ 2 CDP also requests suppliers to disclose on behalf of purchasing organizations through its Supply Chain program, as well as cities, ‘CDP Worldwide’ and ‘CDP’ refer to CDP Worldwide, a registered charity number 1122330 and a company limited by guarantee, states and regions. For the purpose of this report, figures will refer only to companies requested to disclose on behalf of investors registered in England number 05013650. and the wider capital markets. © 2020 CDP Worldwide. All rights reserved © 2020 CDP Worldwide. All rights reserved Figure 2 Campaign history NON-DISCLOSURE CAMPAIGN 2017-20 NON-DISCLOSURE of investor participation and company engagement. 1200 120 Investors may be engaging/ CAMPAIGN OVERVIEW companies may be engaged on multiple questionnaires. 1000 100 Distinct count is the total number of unique investors 800 80 and companies per year. 515 600 60 400 40 Whilst many companies produce their own sustainability reports, Companies engaged Investors participatingInvestors they are often too high level, lacking in metrics and comparability for 200 20 We believe that increased investors to make a proper assessment of a company’s trajectory to transparency around 0 0 a low-carbon, water-secure future. A recent report by the Climate Climate Change Forests Water Security Distinct Count companies’ environmental Disclosure Standards Board (CDSB) analysed the environmental Companies 2017 2018 2019 2020 performance is a key disclosures of the 50 largest companies in the EU and found that Investors 2017 2018 2019 2020 enabler to improve company companies are still taking a selective approach to environmental performance and to create a disclosure3. For example, 68% of the companies analysed referred to more resilient economy. TCFD but only 4% define short, medium- and long-term time This is why in 2020, 108 institutional investors from 24 countries, horizons. Less than a fifth disclose on their resilience under different representing USD 12 trillion in assets, signed up to this campaign Katarina Hammar climate scenarios. Only 22% provided disclosure and selected to engage 1,025 companies on CDP disclosure. These Head of Active Ownership 108 on deforestation. companies, based across 49 countries, represent USD 21 trillion in at Nordea Asset Management 108 institutional market capitalization and almost 5 billion tCO e in emissions. This is investors from 24 2 Reporting through CDP allows gaps in disclosure to be more easily countries, representing a 23% increase in participating investors and a 59% increase in the identified, by both investors and companies. We also see improvement USD 12 trillion in assets. number of companies they engaged from 2019. Since its inception in across KPIs with repeat disclosure. Companies disclosing through 2017, the campaign has seen an average 25% YoY increase in both CDP for three years are more likely to have in place risk management investors and companies as ESG moves into the mainstream and the procedures, targets, and emissions reduction initiatives than companies need for comprehensive, comparable environmental data becomes ever disclosing in their first year (Figure 1). Companies disclosing more necessary. consistently are also more likely to demonstrate greater levels of 80% environmental management and leadership, with 80% of companies 1,025 Of the 1,025 companies engaged, 839 were requested to respond to 80% of companies disclosing for four years or more scoring a B or above4, whilst over 80% 1,025 companies CDP’s climate change questionnaire, 148 on forests and 219 on water disclosing for four of those only disclosing occasionally score B and below. engaged on CDP security5. This represents over a quarter of all non-disclosers – 27% of years or more score disclosure. These climate change, 16% of forests and 30% of water security. B and above. Figure 1 Company reporting on selected KPIs with repeat CDP disclosure companies, based Emissions across 49 countries, With only 22% of the 1,604 companies requested by CDP submitting Number of Risk management Targets reduction years disclosing procedures initiative represent USD 21 trillion the forests questionnaire in 2020 more engagement on this topic in in market capitalization 2021 is vital. Deforestation and degradation is the second largest and almost 5 billion source of anthropogenic greenhouse gas emissions6. It is also 28% 43% tCO2e in emissions. a substantial business risk. The 101 companies that reported on 1 38% financial impacts of deforestation risks through CDP in 2019 identified USD 49 billion in potential losses alone. Yet, almost a third of all companies reporting on deforestation did not include forest-related 2 56% 43% 839 issues in their risk assessments. Of those that did, 92% identify 48% 839 were requested to substantial risks7. respond to CDP’s climate It is therefore imperative from both an environmental and business change questionnaire, perspective that disclosure and engagement on deforestation improve.