Innovest Strategic Value Advisors, Inc.

Carbon Disclosure Project

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Courtesy of Innovest Strategic Value Advisors, Inc.

The 155 Signatories to the Carbon Disclosure Project’s third information request (CDP3) represent over $21 trillion in assets, a doubling from CDP2 (95 investors with $10 trillion in 2004) and quadruple that of CDP1 (35 investors with $4.5 trillion in 2003). This increased interest from the investment community, coupled with a record high 71% disclosure rate to the CDP information request sent to the Financial Times Global 500 companies on 1st February 2005, points to a continued elevation of climate change as a critical shareholder value issue in the minds of investors and corporations alike. This report outlines the key issues that make climate change an investment relevant issue and draws upon company responses from the FT500 to highlight important trends, quantify the risks and direct attention to new investment opportunities.
Key Climate Change Developments
Affecting Investors Since CDP2
• The Kyoto Protocol has been ratified and the EU Emissions Trading Scheme (EU ETS) is now in effect.  Many companies have wasted no time positioning themselves to be winners under the new carbon regulations. There is now a defined market price for a tonne of carbon through the EU ETS. Investors now have new, identifiable regulatory risks embedded in their investment portfolios. These developments also stand to affect the magnitude and direction of the capital commitments on the part of industry.
• Parallel regulations and policies are emerging in multiple non-Kyoto countries, portending a shift towards a carbon-constrained global economy.  The Asia-Pacific Partnership for Clean Development and Climate (Asia Pacific Pact), signed in July 2005 by the world’s four largest coal consuming states (the United States, China, India and Australia) plus Japan and South Korea, calls on member countries to set individual targets for reductions in GHG emissions and has set the stage for increased collaboration in clean technology projects at the international level.
• Investment in “clean technology” continues to rise as investors seek to hedge their exposure to anticipated increases in carbon costs. According to Cleantech Venture Network, global clean tech investment in 2004 totaled $1.209 billion, up 3.4% from the $1.169 billion recorded in 2003 and up 11.4% from the 2002 total of $1.085 billion.
• A sea-change in corporate
positioning on climate change is discernible over the past 18-months.  Perceptions are changing most noticeably among U.S. based companies, many of which have publicly asked for greater regulatory certainty on greenhouse gas emissions (GHGs).  Companies such as Duke Energy, GE and JP Morgan Chase have made notable strategic leaps.
• 35% of the FT500 now report taking early action in emissions trading.  Trading at just under €22 per tonne at the time of writing, CO2e prices have soared over 300% since January 2005.
“Carbon funds” that invest in emission
reduction credits have grown
substantially: over $1.5 billion is
currently committed in 15 carbon funds
worldwide. Further, several FT500

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