Tag Archives: CDP

The Elm Consulting Group International, LLC and Sentiment360 Announce Solution to Reputational Risk Component of SEC Interpretive Guidance on Climate Risk Assessment

Use of New Technology Tracks Public Perception of Companies’ Sustainability/Climate Programs

In the Federal Register dated February 8, 2010 (75 Fed. Reg. 6290), The Securities and Exchange Commission (SEC) published its Interpretive Guidance on financial disclosure/reporting requirements as they apply to climate change matters, which is EFFECTIVE IMMEDIATELY.  Among the specific risk factors that SEC highlighted in this Interpretive Guidance is the potential business risk associated public opinion/reputational risk.  SEC stated:

Another example of a potential indirect risk from climate change that would need to be considered for risk factor disclosure is the impact on a registrant’s reputation. Depending on the nature of a registrant’s business and its sensitivity to public opinion, a registrant may have to consider whether the public’s perception of any publicly available data relating to its greenhouse gas emissions could expose it to potential adverse consequences to its business operations or financial condition resulting from reputational damage.

In response to this SEC mandate, The Elm Consulting Group International, LLC has partnered with Sentiment360, a global online monitoring company that delivers new media business intelligence SaaS solutions. With offices in the US, UK and the Philippines, Sentiment360 has a proven track record in collecting, analyzing, understanding and responding to online content, be it social media (mircrosites, blogs, forums, etc.), traditional media, video sites, image sites, and more.  Sentiment360 analysis can be delivered on-demand via a wide variety of customizable web dashboards.

“Combining the leading edge data tracking and analytics of Sentiment360 with Elm’s sustainability, climate and risk assessment expertise creates a unique solution to meeting SEC’s requirements,” said Lawrence Heim, Director in Elm’s Atlanta office.  “Our team can aggregate real-time unfiltered public opinion data without the need for surveys, screen it for relevance to sustainability/climate, and frame it in a business risk context. This will provide clients with ready-to-use information in a dramatic labor- and cost-saving manner.”

Heim continued, “Publicly-traded companies that sell products or services outside the US must assess their climate reputation risk globally to adequately determine their business risk and potential reporting needs.  Sentiment360’s worldwide data aggregation and tracking capabilities make this easy.  Elm’s global sustainability and risk expertise can assist in understanding cultural contexts of the subject matter as well.”

Sentiment360, with offices in the US, UK and the Philippines, delivers new media business intelligence SaaS solutions. As a spin-off from the Global Reach group of outsourcing companies, S360 has been offering new media analysis solutions through indirect channels since 2006. As of January 2010, S360 has begun selling directly to end-user clients under the Sentiment360 brand.

As a provider via 3rd party partners we have delivered new media analysis for a variety of entities including advertising and PR agencies, manufacturers, governments, law enforcement and more. As of January 2010, we have become the preferred provider for several global communications firms. More information is available at www.sentiment360.com.

The Continuing Carbon Conundrum

In several past articles, we discussed various business risks associated with calculating “carbon footprints” and making investments in climate change or CO2 emissions strategies.  During the last few weeks, more information has surfaced that illustrates an increased recognition of these risks.

The Wall Street Journal reported:

Manufacturers and retailers across the globe are working to measure their products’ carbon footprints for a variety of reasons, and all of the efforts have one thing in common: The results have the appearance of precision.

But all the decimal points in the world can’t hide the fact that measuring carbon footprints is inexact. It is clouded by varying methodologies and definitions — not to mention guesses.

“There are no clear rules for the time being,” says Klaus Radunsky, who co-chairs a group within the Geneva-based International Organization for Standardization that is producing a guideline for measuring products’ environmental impacts. “It depends very much on how you do the calculations.”

The well-regarded law firm of McGuireWoods LLP released an article comparing corporate responses to the Carbon Disclosure Project (CDP) to financial risk discussions/disclosures in the same companies’ 10-K reports for SEC.

[T]he Carbon Disclosure Project (CDP) in September 2008 released the results of its annual questionnaire. According to the CDP, 321, or 64%, of the S&P 500 companies responded to the questionnaire. In contrast, only 19, or 15.4%, of the 123 S&P 500 companies whose 10-Ks we reviewed provided any type of disclosure in their 10-Ks. In fact, at least one of the U.S. companies graded as a “top scorer” in the CDP’s U.S. Carbon Disclosure Leadership Index provided no climate change or GHG disclosure whatsoever in its 2008 10-K.  There may be reasonable explanations for this disparity. However, the fact remains that many S&P 500 companies make extensive disclosures regarding these matters in the CDP and in many cases these companies identify climate change as posing “commercial risk,” having a likelihood of “significant impact” or as a “potential material risk.” and yet they do not reflect those risks in what is arguably their most important SEC report for the year.

Reuters echoed this in a report September 21, 2009:

“European countries do score highly [in the CDP rankings]. Of course, they are subject to a lot more regulation on greenhouse gases so they are more advanced than other places in terms of being able to report complete data,” Zoe Riddell, who produces the annual CDP report, said ahead of its release.

With all this ambiguity surrounding the reporting of GHG/climate risk information, one impact seems to be clear and easier to measure – the growth of “climate change business”:

HSBC, the big investment bank, just tallied up the revenues of listed companies operating in the “climate-change sector.” That includes companies that make low-carbon energy gear; energy-efficiency; and water and pollution management.

The upshot? The sector’s sales worldwide grew 75% last year to $530 billion, the bank reckons. That makes “climate change” a bigger business than wireless telecoms, capital markets, and aerospace and defense. The field is dominated by Germany, France, Japan and the U.S., which led the pack.

As companies look to evaluate climate change initiatives, pressure is mounting on audit functions.  There appears to be a growing – and almost complete – reliance on auditing as THE tool for verifying emissions calculations, reductions, reporting and accuracy.  But without established and auditable standards, what will an audit provide?

The environmental auditing industry is looking for auditing methods/tools that are sound, consistent and pragmatic.  Although EPA has proposed federal greenhouse gas (GHG) reporting requirements, they are not yet final.  Right now, most EHS auditing functions don’t include climate change program elements.  So audits at this time tend to review the management system aspects of GHG emissions management rather than the technical.  Until acceptable and credible standards exist, audits may not be able to provide the level of reliance desired.

AIG Shutters Climate Program, Creates Further Uncertainty for EHS and Risk Managers

Articles from the New York Times and Environmental News Network reported that last month, the world’s largest insurer – American International Group (AIG) – closed its climate change program.  AIG was until recently lauded as a leader in the financial services and insurance industry for its GHG activities.  According to NYT, AIG had

established new goals by inventorying its greenhouse gases and was collecting offsets for a year’s worth of emissions, developing insurance policies for renewable energy providers, and brainstorming for financial instruments that would assist innovators in the green movement.

With the closing of their climate program, the company is no longer calculating its emissions,  ceased efforts to reduce them and canceled its Be Green program,  NYT reported.

“Some people were concerned that if you took an advocacy position [on climate change], that might annoy — that’s a good word — clients,” the articles quoted Joseph Boren, the former CEO of AIG Environmental.

Both articles quoted Richard Thomas, former senior vice president of AIG, as saying that AIG’s decision about its climate change program  “will retard the development of some of the financial instruments to address some of the issues in climate change.” He pointed out that “AIG was a leader in that area, and now because of so much of what AIG did is in disrepute on the financial product side, I think that sends a chill through everyone.”

What does this mean?

Fundamentally, this demonstrates the unrelenting uncertainty of business risk related to climate management issues in the United States.  AIG’s actions are concurrent with federal GHG legislation having passed the House and awaiting Senate action, a President publicly committed to climate action, growing participation in the Climate Disclosure Project (CDP), successful completion of the first phase of RGGI and now Walmart’s supplier sustainability initiative.

Thomas’ statement and the NYT article indicate that some of AIG’s climate solutions were based on complex financial instruments rather than traditional insurance policy structures.  This itself presents an array of questions and possible concerns.  Certainly, the past year has shown the stark downside of AIG’s management of financial products; public and client concerns about the validity of such mechanisms may be justified.

Companies who had hoped to obtain insurance for various climate-related risks may not be able to do so, at least possibly not to the extent originally envisioned.  This places additional burden on companies to identify and assess their climate-related exposures themselves, develop internal management strategies on their own, and reduce reliance on potential insurance policies for financial risk mitigation.

New Environmental Risk Ratings by Financial Institutions

The Financial Times recently reported that

Markit, a financial information company, will this summer launch an index based on the Carbon Disclosure Project (“CDP”) results for the 2008 survey.  “There is an increasing market both from a retail and institutional perspective for products and exposure to companies who have a good environmental management strategies, and we’re certainly getting that message from many of the institutional investors who are signatories to CDP,” Ms Joanna Lee of CDP said.

The Markit information will apparently also reflect physical risk faced by a company’s EHS management activities.  US companies have historically focused their HSE risk control efforts on compliance-oriented matters or remediation activities.  Now there may be a direct shareholder-based driver to assess the risks on a broader basis.