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Dec 15, 2015

Keeping the Paris agreement: investors demand action

Carbon Disclosure Project gives update on emission reductions 

Last Saturday, after two weeks of intense negotiations in Paris, nearly 200 countries backed a historic and ambitious agreement to limit global temperature rises to below 2°C. 

This huge step forward paves the way for us to decouple our prosperity and development from net greenhouse gas emissions, and transition toward a low-carbon economy and avoid dangerous climate change. But achieving this will require evolutionary change from everyone – not just policy makers.  

The financial story

Much of the discussions in Paris focused on finance. Mark Carney, governor of the Bank of England and chair of the Financial Stability Board, announced that Michael Bloomberg is to head a new global taskforce aimed at highlighting the financial exposure of companies to the risk of climate change. Carney highlighted that access to high-quality financial information would help the markets understand mounting climate change risks.  

CDP has been providing climate change-related information to investors for 15 years, so we see this as an opportunity to shine a light on the increasing importance of this issue to the financial markets and central banks. With more than 5,500 companies already disclosing to CDP, we look forward to contributing our expertise toward the success of the taskforce.

It’s important to show that ‘divestment’ is not the only way the financial sector can contribute to tackling climate change. Another approach is engagement: working with companies in carbon-intensive sectors to encourage them to reduce and offset their emissions, rather than withdrawing capital from them. 

Since 2011, CDP has been working with a group of investors (now totaling 304), which together represent assets of $22 tn, to engage with more than 1,300 of the world’s highest-emitting publicly listed companies. This investor-led Carbon Action initiative has focused on energy-intensive sectors including oil and gas, electric utilities, materials, mining and metals, transportation and consumer staples. It has asked all 1,300 companies to take three specific actions in response to climate change. These are:

• to make emissions reductions (year on year)

• to publicly disclose targets 

• to invest in emissions reduction projects with a positive return.

Our 2015 results, which were announced earlier this month, are encouraging. Firstly, the number of companies to respond to our research has significantly increased from 2014, up by 145 percent to 552, a six-fold increase since 2011. These responses record a 77 percent increase in emissions reductions, amounting to 641 mn fewer tons of CO2 in the atmosphere, equivalent to closing down more than 168 coal-fired power plants. 

We additionally recorded a 130 percent increase in the number of emissions reduction projects, and a corresponding 121 percent increase in investments in these, which now total $86 bn.

Making real change

The period through to 2020 is critical for climate change and we will continue to work hard over the next five years to stimulate change in high-emitting sectors. Despite the good results that have been achieved, there is still much work to be done, with 23 percent of companies in our Carbon Action sample still without emissions-reduction targets in 2015. 

So we will continue to work with our investor members to refine our targets by sector needs over the next year into 2017 to ensure they stimulate corporate action.

Of course, real change can only occur when all parties – individuals, companies, governments and investors – work together, and we are encouraged that the good work in Paris will catalyze many more of these interactions as we ramp up efforts to reduce emissions. 

Helen Wildsmith is strategic adviser at CDP’s investor initiatives team