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The Carbon Disclosure Project is proving to be a useful tool that helps insurers measure their environmental performance. Its ability to collect and share data on reducing emissions also assists with company collaboration in tackling climate change. Sam Barrett reports

Reducing our carbon footprint is regarded as a key way to slow climate change. And as well as taking steps to reduce their own emissions, insurers are concerned with the environmental impact of the companies they invest in and financially protect especially as climate change is linked to so many insurance claims.

"We've been working on the environmental side of the business since 1997 and its importance has really rocketed since then," says Zelda Bentham, group environment manager at Aviva. "As a multi-line insurer we'll invest in these companies on one hand and then insure them on another. It makes sense to know what risks are involved."

Given the importance of climate change data, a large number of initiatives are now in place to provide analysis of companies' environmental impact. These include the Dow Jones Sustainability Index, which was launched in 1999 to highlight the companies taking steps to boost their corporate sustainability, and the FTSE4Good indices, which measure the performance of companies that meet recognised corporate responsibility standards. Additionally, in the UK, Business in the Community has been running an environment index since 1996 to help companies benchmark their environmental management and performance.

But one of the broadest global initiatives linked to climate change is the Carbon Disclosure Project. This is an independent, not-for-profit organisation that collects data on companies' emissions and has two primary aims: to provide valuable insight to investors on companies' strategies on climate change and help inform investment decisions; and to inform company management of the serious concerns of their shareholders regarding the impact of climate change on company value.

International support

Launched in 2000 with 35 signatory investors, whose assets totalled some $4trn (£1.95trn), the annual questionnaire is now undertaken on behalf of 315 investors with assets in excess of $41trn. The CDP also has support from such figures as former US President Bill Clinton, former UK Prime Minister Tony Blair and the Chancellor of Germany Angela Merkel.

"When we launched it was apparent that climate change was a serious issue, but, although investors could ask a company for information on their emissions, there wasn't anywhere they could obtain this data easily," explains Paul Dickenson, chief executive of the CDP.

Initially asking the companies in the Fortune Global 500 for details of their emissions based on the Greenhouse Gas Protocol, the survey is now sent to approximately 2400 companies around the world. The number of responses has consistently risen over this time too. When the first survey was launched in 2003, just under 50% (243) of companies supplied their details. For CDP5 this year, 1300 of the 2400 companies responded pushing the response rate up to 54%. It was even higher for the original respondents, with 72% of them completing CDP4.

Questions on the survey cover a broad number of environmental issues and are determined by a consultation process involving investors and respondents. Mr Dickenson explains: "We like to keep the questionnaire as short as possible, but we ask for details of the company's emissions as well as what their strategy is on dealing with climate change and the risks and opportunities they have identified." Recent additions to the questionnaire have included areas such as the European Union Emissions Trading Scheme and emission reduction technologies.

Many major insurers have been involved since launch, including Aviva and Allianz and there are several CDP5 signatory investors that have become members in 2007: Axa, the Royal Bank of Scotland Group and Swiss Re to name a few. All agree there are significant benefits to participating.

"The CDP provides a great platform to demonstrate the work we're doing in this area," says James Wallace, group corporate responsibility analyst at Royal and Sun Alliance. "It wasn't a great hardship to report on it as it's something we were already recording internally. And although there are plenty of other organisations collecting this data, the CDP is the only one that leaves the responses open so that investors can look at the results."

As well as being a good way to publicise information about your company's environmental credentials and activities, Cliff Warman, leader of the environment practice for Europe, the Middle East and Africa at Marsh, believes it goes beyond the public relations message. "Undoubtedly a few companies have responded to the CDP for PR reasons but for many it's more than just paying lip service to the need to manage risks and reduce emissions. Companies can see what they're doing as well as learning from others," he explains.

New ways of tackling emissions are constantly coming on to the market but not all of them prove to be the most successful. By sharing data and experiences, companies can ensure their strategies develop as cost-effectively as possible.

"Our clients are very interested in developing ways to reduce emissions and the risks associated with this area so it's good that we're seeing more information about the projects that are being run," says Mr Warman. He adds that more projects are now being put in place; for example, clean technology projects, so it is useful to share information.

Mr Wallace agrees: "It's incredibly collaborative with companies putting aside their competitive nature to work together. I expect there to be more and more partnerships between companies to work on these types of issues."

As an example, RSA has been working with a number of insurers to put together some responsible procurement guidelines. Likewise, the industry has set up Climate Wise through the Association of British Insurers, which looks at ways to support climate awareness and reduce the environmental impact of business.

Raising awareness of environmental issues is also cited as a key reason for responding to the CDP questionnaire by Sylvain Vanston, expert manager, social and environmental ratings manager at Axa. "It enables us to enhance national investor awareness of the climate change issue, contributing to presentations at local events and thereby shaping the local climate change message," he explains.

Insurers also report that the CDP has raised awareness among employees, which has made it much easier to introduce carbon reduction initiatives. "We published the questionnaire response internally and it really helped to get employees interested in how they could contribute to reducing our carbon footprint," explains Mr Wallace. "This helped us become the first UK insurer to go carbon neutral."

Commercial benefits

As well as helping to influence their own strategy on managing their carbon footprint and potentially that of their community, the data given by insurance companies to the CDP can be useful from a commercial perspective too. Joe Wiggins, spokesman for Legal and General, explains: "As a signatory investor, we have access to all the CDP responses including those that are not made publicly available. This allows us to analyse the commercial risks and opportunities from climate change including regulation; physical risks from extreme weather events; changes in technology; and shifts in consumer attitude and demand."

Another key advantage of the CDP is that it has established a reporting standard. "It has given respondents a common framework," says Mr Warman. "You can't physically measure CO2 so lots of different methodologies have evolved for measuring it. The CDP gives one standard methodology so it's much easier to compare organisations."

As a result of these benefits, pressure from the signatories has helped increase the number of companies responding to the CDP questionnaire. For instance, the investment arms of some of the insurers can use the report to help shape their investment strategies.

This is the case at L&G, which uses the responses to the CDP as part of its institutional investment strategy. "Risk exposures and costs associated with climate change are an important aspect that our fund managers need to be aware of," explains Mr Wiggins. "It's also recognised that good performance in managing climate risk is a useful proxy for strategic corporate management and hence superior financial performance."

Aviva, which runs seven sustainable and responsible investment funds, takes this a step further through a process of engagement. Ms Bentham explains: "This year we engaged with 29 of the companies that have persistently not reported. We selected them on the potential impact they could be making through their greenhouse emissions and told them that if they failed to respond we would withhold support."

The pressure worked. Of the 29 companies, 15 provided a full response, three completed some of the survey and a further one said it would respond. "Our requests were ignored by 10 companies so now we're considering what action to take," adds Ms Bentham. "As an investor we're a large shareholder so we can have significant influence on a company."

Positive peer pressure

This type of pressure, as well as that from investors, means the point is approaching where it will become unacceptable not to complete the questionnaire. A prime example of this is US retail giant Wal-Mart. Mr Dickenson says that it ignored the first three questionnaires it was sent but underwent something of a conversion with the fourth. "The process of completing the questionnaire highlighted some emissions issues within the organisation that it has been able to address. For example, it found that its refrigerators were creating more emissions than the trucks it used to distribute goods to its stores," he explains. "It now uses the survey with all its suppliers to gauge their carbon footprints, which is a trend we're seeing with more and more organisations."

But while there's plenty of pressure to submit a response to the CDP, Mr Dickenson does not believe it will ever become compulsory as this requires legislation. "It's not mandatory but it feels like it is," adds Mr Wallace. "If you don't fill it in then your peers and potential investors think you're doing something wrong."

CASE STUDY - GETTING A GREEN HOUSE IN ORDER

Involved in the Carbon Disclosure Project since it was set up, Allianz has found that the questionnaire has helped influence the way it tackles its own environmental responsibilities.

"We have always taken a lead on matters relating to climate change and we're benchmarked as a leading insurer on the Dow Jones Sustainability Index," claims Mike Delany, management services manager at Allianz. "This is important to us so we're always looking at ways we can make our business more sensitive to climate issues."

As part of this, Allianz is working with the Carbon Trust, a government-funded body that helps business reduce carbon emissions. "Through them we've been looking at the efficiency of the building's hardware, such as the equipment and the power supplies," explains Mr Delany. "This has resulted in the introduction of sensors for the lights and a more sophisticated temperature control for the air conditioning."

It has also increased the amount of green electricity it uses, switching from just 30% to 100% from renewable sources. This costs extra but it is an expense that Mr Delany believes is worth paying for the environmental benefits it brings.

"We've also looked at changing habits in the office," he adds. "Are employees turning off lights? Do they leave their PCs on? Do they recycle everything they should?"

To help employees develop good habits Allianz teamed up with environmental charity Global Action Plan to run its Environmental Champion Programme. "With this employees volunteer to be trained to take an environmental audit of the business, looking at areas such as recycling, lights, PC usage and so on. They then present their findings and explain what should be done, following this up with a second audit a few months later to see what benefits have been achieved.

"We also pass on any proceeds from recycling initiatives to the local community rather than to the company, which employees appreciate as it helps to bring what we're doing to life."

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