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Can Environmental Disclosure Move the Needle? An Interview with Emily Kreps of CDP
CDP’s latest campaign targeting companies that refuse to disclose their environmental impacts provided me with an opportunity to talk with Emily Kreps, Global Director of Investor Initiatives at CDP about their work and impact at the age of climate emergency. The conversation led me to the inevitable question: Is CDP more like Joe Biden or Bernie Sanders?
Photo credit: CreditDebitPro
I’ve been following CDP (formerly the Carbon Disclosure Project) for the last decade, as I was impressed with its vision to create a “global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts”. CDP’s idea of creating a coalition of investors who are worried about environmental issues and use their power to incentivize (or pressure) companies to disclose their environmental impacts seemed to me as the right approach to move companies in the right direction. And it seems to be working — over 7,000+ companies responded to CDP’s climate change, water, forests and supply chain questionnaire this year, as well as more than 620 cities and 120 states and regions worldwide.
At the same time, I have to admit that I started asking myself recently if’s platform isn’t becoming somewhat dated. After all, we are now at a crisis mode that is very different from the situation in 2002 when CDP started asking companies to disclose their environmental impacts. This crisis mode requires us to take an honest look at the tools we currently use and reevaluate the value they provide and their ability to address the challenges we face.
This is why I was happy to have the opportunity to speak with Emily Kreps, Global Director of Investor Initiatives at CDP about their latest campaign, in which they’re targeting over 700 companies, including Amazon, Volvo, BP and Exxon Mobil for not reporting environmental information. The conversation with Emily was an opportunity for me to learn about CDP’s latest efforts and share some of the doubts I have about their ability to adjust to the changing environmental context. So, here’s the interview (it was condensed and edited for clarity):
Raz Godelnik: Hi Emily. Can you please tell me about the new campaign?
Emily Kreps: Sure. We have 525 of the world’s largest institutional investors who sign up to a disclosure request, which we send companies each year for them to disclose around climate change, water security, and deforestation. We’ve been requesting this information on behalf of investors for 17 years and it is used to inform the capital markets through Bloomberg, S&P and others who use this information to build their ESG products on top of that.
Emily Kreps, CDP
Four years ago we launched the non-disclosure campaign, which is an opportunity for our investor signatories to go back to companies that they had previously requested information from and have either stopped disclosing or have never disclosed to CDP, and ask these companies to further engage in disclosure. It is an opportunity to demonstrate how important this disclosure is to our investors. So while we’ve been doing this campaign for the last four years, this is the first year that we’ve made the process public because it’s important for us to show companies that investors do really care about this information and they do use it in a fulsome way.
RG: From your point of view, what do you think is the main issue for the companies that don’t disclose the requested information? Is it because they don’t care, or is it a matter of different priorities?
EK: Well, each company that either declined to disclose or has stopped disclosing has had their own reasons, so I wouldn’t want to speculate on any company’s decision. However, some companies have said they are going to create their own narrative and put their own report rather than respond to CDP.
The challenge for investors in the broader market is that this means that the data companies are providing is not in a uniform and a comparable standard that allows for analysis across different companies in the same industry, or different industries or different geographies.
And that’s something that investors are increasingly concerned about. So for example, Exxon Mobil, BP and Chevron all stopped disclosing to CDP in 2018, although they previously disclosed, saying ‘well, we put out our own CSR report’. But in that case these companies can dictate the narrative around the information they want to share, whereas from CDP’s perspective we think we have a very fulsome set of questions that we ask in a structured manner that gives some real insight into the issues around governance, risk management, metrics, targets and strategy.
RG: So let’s say I’m Amazon and I don’t disclose my carbon emissions. I’m just ignoring your requests for all of these years. Why would I reconsider my refusal this time?
EK: That’s a good question. I’m sure you saw that Amazon shareholder meeting, where some employees stood up asking Jeff Bezos to come out on stage to talk about their concerns with respect to how Amazon is addressing climate change. Amazon is a large company and I have little doubt that they do actually consider and measure their environmental impact. But the really critical part is transparency and disclosure, and I think that if we see more stakeholders, employees, as well as shareholders and regulators really advocating for this disclosure and transparency then companies like Amazon will demonstrate the potential impacts their business has on the environment.
RG: Let’s talk about your investors. So if this disclosure is really important for them, I’m curious why aren’t they taking more active measures? It’s one thing to say ‘you know we care about this’. It’s another thing to say ‘if you’re not going to disclose then we’re going to seriously consider our investment in your company’.
EK: Yes. And that may be measures that certain investors consider at some point. I can’t speculate in terms of how their investment processes or decisions will change based on this, but from their perspective, whether divestment is a goal or not, they need good information and good data off of which to base their decisions. And so, this is sort of a fundamental first step in the sense of we need information. And then from there, they may take it in different directions.
RG: CDP is also involved with the science-based targets initiative. Do you think it is time to tie the disclosure with this benchmark?
EK: Absolutely. Science-based targets are a very important part of the disclosure process and in CDP’s scoring process we ask about whether companies have set science based targets and we do reward companies appropriately for having set those targets.
I think that that it is a really important transition that the corporate industry is going through in terms of having the ability to set science based targets and having a uniform methodology against which to do that.
RG: Can you talk a little bit about CDP’s theory of change regarding the shift that you want to see?
EK: Sure. As you know, for CDP the ultimate objective is to shift capital to more environmentally responsible companies, as well as issuers, cities, states, and regions. So we do that through disclosure and transparency. We think that disparate closure and transparency will drive good decision making by capital allocators and those who help issuers raise capital.
Now, we’ve traditionally done this using investor authority to collect this and I’m sure you’re familiar with our supply chain program which has been running for 10 years, where we use that supplier customer relationship to drive that disclosure. And those continue to be key components. I think that as we see this shift on the regulatory side in different jurisdictions and the rise of some mandatory investor reporting requirements that the need for standardized disclosure will only grow. And so CDP looks to remain relevant and to continue to shine a light on companies that are disclosing and being transparent about their preparation for transition to a low carbon economy.
RG: My sense is that the investors working with CDP and helping make this change happen through the request for greater disclosure send signals to the market, but are these signals strong enough to move forward as fast as we need to?
EK: I really can’t answer that. I think that we need a perfect storm of regulators as well as willingness from investors, but also from companies to provide information. Unfortunately, I think as we see more instances like a PG&E bankruptcy, or we see more instances of severe weather and climate change impacting companies operations and disrupting investments, which will then catalyze further scrutiny.
RG: Going back to the Amazon example, it was interesting to see that so much there was driven by the employees that came up with the shareholder resolution. And I’m wondering, from your point of view, how important investors are as a stakeholder group in terms of shifting companies to where we want them to be?
EK: I think that shareholders continue to play an important role in the dialogue in terms of engaging companies and some shareholder resolutions and engagements have been more successful than others. So I don’t think a broad sweeping statement to discount that is necessarily accurate. I think if different companies will feel the pressure from shareholders in different ways it then really depends on the coordination and collaboration of other investors as well. And I think that’s one of the things that CDP looks to demonstrate as investors come together and work towards a common goal, even if they have different investment strategy, philosophy or timeframe.
RG: Finally, are you going to share the results of the campaign, and if so when?
EK: We will make a portion of the results available probably towards the end of the year.
RG: Great. Thank you so much.
EK: Thank you.
Photo credit: Russ Allison Loar
So, what do I think about CDP and its efforts after the interview? Since we just had two days of Democratic debates in the U.S. let me answer the question using political terminology. In a conversation on “The Daily” podcast earlier this week, Alex Burns, who covers national politics for The New York Times told the host, Michael Barbaro that the divisions within the Democratic party is basically about “whether you think the system can be made to work in more or less the form it currently exists or whether you need to blow it up.” Joe Biden probably best represents the first approach, while Bernie Sanders and Elizabeth Warren best represent the second.
My sense is that CDP is much more aligned with those who don’t think you need to blow up the system to make it work, i.e. they probably feel more comfortable with the Bidens. Now, while the Bidens of the world have been doing an important job and will probably continue to do so, I think the urgency of the climate crisis requires a more radical approach that not only can make change happen, but can also make it happen fast enough. We need leaders who understand we need to push the ‘fast forward’ button, not the ‘forward’ button if we want indeed to win fast enough.
Is CDP ready to join the Bernies and Warrens of the world? I’m not sure, as the whole sustainability investing community is moving forward relatively slowly, but I hope it will as it can play an important role bringing stakeholders together to pressure companies to acknowledge and address their impacts meaningfully. I hope to see CDP prompting its community of investors to take a bolder approach, demanding companies to comply with the Paris Agreement goals and penalizing those who don’t. This may require CDP to change its model, but isn’t it what we all need to do “to build a truly sustainable economy”?
Climate ChangeSustainabilityInvestingCdpRisk Management
Go to the profile of Raz Godelnik
Raz Godelnik
Medium member since Aug 2018
Assistant Prof. at Parsons School of Design. Interested in new business models, strategic design, sharing economy, innovation & making sustainability work.
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