The founder of CDP tells Oliver Balch how the organisation he started 17 years ago has helped transform corporate and investor attitudes to climate change
The phrase "task force” is hardly one to get the heart racing. Expand it to the Task Force on Climate-related Financial Disclosures, and you’re into catatonic territory. So it’s little wonder that when the TCFD (as insiders call it) issued a suite of recommendations over the summer, it didn’t trouble the headline writers much.
Not so Paul Simpson, who met the news with huge excitement. First, there was the substance of the recommendations. To summarise the 74-page document in a single sentence: "Big companies: get better at telling those who hold the purse strings how climate risks could affect your bottom line."
Second was the fact that more than 100 chief executives, from Bank of America and Barclays to HSBC and Axa Group, endorsed the taskforce’s conclusions. That’s a group managing assets worth more than $24trn saying, in effect: "Yes, climate change is (a) real, and (b) potentially very costly".
When Simpson first came up with his pro-climate idea back in the late 1990s most business people saw global warming as a side issue, if not an outright hoax
Simpson, a former financial analyst who set up CDP (formerly the Carbon Disclosure Project) more than 17 years ago to promote greater environmental transparency by companies, describes this signal from the financial mainstream as “fantastic”.
“When we began in 2000, there was not so much awareness as there is now. In fact, there was quite a lot of resistance from the investment community about why should we do it,” he says. “Now, we’re seeing many mainstream champions . . . openly talking about the environment and the Sustainable Development Goals as being a major factor for financial performance and financial risk.”
It is difficult to overestimate just how far things have come. When Simpson first came up with his pro-climate idea in the late 1990s most business people saw global warming as a side issue, if not an outright hoax. Climate issues were for tree-huggers, not money-makers.
He says he was prompted to set it up by a conversation he had at a climate finance conference run by the Social Venture Network in the Netherlands.
"I was working as an analyst, but I was interested and inspired about environment issues and climate change in particular.” While the science of climate change was becoming clearer, and some governments were beginning to talk about it, “there was very little discussion that I knew of any maturity in the investment community and very little dialogue in companies.”
Today, more than half the world’s companies by market capitalisation annually fill in the CDP extensive questionnaire about their climate footprint. That’s 6,000-plus global corporations investing time and resources in tabulating their annual greenhouse gas emissions, often down to a facility-by-facility level.
Simpson may have only been 25 when he set up the CDP, but he is not one to get ahead of himself. He is the first to admit that much still remains to be done. Not all large companies disclose environmental impact data. And those that do often fail to report as well as they might.
Immense power is aggregated in investment institutions and very large companies. Our focus is on making sure they deliver what society really needs
That said, he’s no Eeyore either. Describing himself as a “fairly upbeat person most of the time”, he can look back over the last 17 years and say – albeit with characteristic British modesty – that every year has witnessed “momentum building, increased traction and more interest” in non-financial disclosure.
Why the shift? It’s not only down to CDP, of course. There is a growing consensus around climate science, a new generation of more forward-thinking business leaders, and a realisation that global warming and resource scarcity are beginning to bite.
All the same, CDP’s role in this gradual turnaround has been far from insignificant. Along with the likes of the Global Reporting Initiative and the Sustainability Accounting Standards Board, the London-based transparency advocate is one of a small coterie of organisations that are revolutionising what companies report on and why.
Asked the reasons for CDP’s success, Simpson first cites the organisation’s clarity of vision and purpose. “In the structure of the modern economy, immense power is aggregated in investment institutions and very large companies. Our focus is on making sure that all those institutions are appropriately tackling the issue [of climate change] because that will deliver what society really needs.”
All of which leads to his second reason for CDP’s influence: winning investor support. When Simpson established the world’s first and (still) only exclusive environmental disclosure platform for corporations, he did so with the explicit backing of the investment community.
Back then he managed to muster 35 investors with around $4.5trn in combined assets under management. Today, the figure stands at over 800 pension funds, banks, insurance firms and other financial institutions, controlling more than $100trn.
The fact that CDP’s request for information arrives on corporations’ doormats on behalf of investors carries serious weight. This isn’t just another non-profit asking for data, Simpson explains. It is the companies’ owners demanding answers from the executives in their employ.
Today 6,000-plus global corporations invest time and resources in tabulating their annual greenhouse gas emissions, often down to a facility-by-facility level
Third on Simpson’s list is CDP’s framing of climate change and, in more recent years, the issues of deforestation and water scarcity. The organisation’s 42-year-old founder believes in working within the system to change it. Cajoling, persuading, nudging, encouraging are his preferred tactics.
To that end, he is always careful to speak his audience’s language of risk-management. “The investment community often leads with risk. I mean, who doesn’t want to manage risk well?”
But risk is only half the story. As the debate in business about global warming has matured, so too has Simpson’s enthusiasm for talking up the opportunities related to climate action.
“There are now enormous opportunities from the transition to a low-carbon sustainable economy … and as a business opportunity that’s very exciting,” he states.
Simpson isn’t above pointing the finger when he feels it’s necessary, mind. CDP grades the performance of every company reporting on its platform. Although its communications tend to point out those at the top, any ranking system implicitly draws attention to those at the bottom as well.
CDP also lets it be known which companies aren’t reporting at all. This is information for its investor base, rather than for the general public. Strong words can then be had behind closed doors, Simpson suggests.
There are now enormous opportunities from the transition to a low-carbon sustainable economy, and as a business opportunity that’s very exciting
His willingness to dig in his heels extends to CDP’s investor allies. Not all 800 or so CDP signatories are as equally engaged, he concedes. The more progressive will often push CDP to up its game. Last year’s decision to move from a general reporting system to one tailored towards specific sectors is a case in point. Investors pushed for the move arguing that it will help with industry benchmarking and, ultimately, with improving investment decisions. This month CDP released its latest sectoral report, on companies exposed to greatest risk from investment in deforestation-related commodities (see Rampant deforestation brings risk of stranded assets, CDP warns)
The majority of big banks are publicly owned, so are obliged to report. That’s not the case with most pension funds, many of which remain curiously quiet when it comes to environmental disclosure. The influential Financial Stability Board would like to see this disconnect sorted. Simpson agrees.
“They [investors] are quite good at pushing the companies they invest in to disclose, but some of them are not so keen themselves … We’ve been fairly clear and strong in our communications that we think all the investors should be disclosing,” he states.
CDP is trying to persuade business to commit to going 100% renewable (credit: Shutterstock Inc.)
As for what lies ahead, CDP’s chief executive points to the organisation’s latest strategy report. The 50-page document spells out Simpson’s desire to transform capital markets so that climate change disclosure and risk- management become “a business norm”.
A new all-singing, all-dancing reporting platform will go a small way to making that happen. The new facility, due to come on stream in April next year, will enable data to be tagged according to sector, geography, institutional type (cities and states now report to CDP, not just companies) and so forth.
“The advancement in data analysis are going to be really important for us going forward,” says Simpson, who insists that the new platform will help bring qualitative data to the fore, not just quantitative information.
Simpson knows transformation won’t happen overnight. Change takes incremental steps, which, when undertaken collectively and consistently over time, can bring about real, tangible results.
As Simpson sees it, CDP’s role is to help companies take such steps. The more they take and the faster they take them, the quicker a low-carbon world will come about. Which is why much of the organisation’s current strategy focuses on what Simpson calls “tools for change”.
In 10 years every business strategy, every city plan, every government will have a well-below-two-degrees transition plan baked into their long-term planning
CDP has played a leading role in promoting science-based targets, which invites companies to set greenhouse gas emissions targets in line with the level of decarbonisation needed to keep global temperatures below 2C of what they were in pre-industrial times. To date, 320 major companies have signed up.
“The fact that the idea is grounded in science explains why it is gaining traction,” Simpson says. “It stops being a case of whether we should [decarbonise] and instead becomes a debate about what this would look like for our business and how we could do it.”
CDP has also been promoting the concept of companies setting an internal price for carbon, something that has now made it onto the actual budget sheets of around 1,400 businesses.
Last but not least is CDP’s effort to persuade business to commit to going 100% renewable, both by generating their own clean energy and purchasing solar, wind or other renewable energy from third parties.
Under Simpson’s leadership, CDP teamed up with the Climate Group to found RE100, a business-focused campaign designed to realise precisely such a zero-carbon energy future. So far, 114 corporations have made such a pledge, including Apple, Google, Starbucks, IKEA and, the initiative’s latest recruit, HSBC.
Simpson may look youthful at 42, but he is old enough not to expect miracles. Will all companies be disclosing data on their climate impacts by 2020? Probably not, he admits. By 2027? Now there, he’s more confident: “In 10 years, every business strategy, every city plan, every government, will have baked in a well-below-two-degrees transition into their long-term planning.”
That may sound wildly optimistic, but dreaming big has kept this atypical activist going all these years.
“Looking back, there have definitely been times that have been harder than others, but there’s always been progress to show. That helps breed optimism and positivity,” he concludes. “That said, I think you probably have to be an optimist to work on these challenging subjects, come what may.”
This is one of a series of articles on climate. See also:
TCFD Global Reporting Initiative RE100 science-based targets SDGs Sustainability Accounting Standards Board Climate Group C40