Levelling the data field
One problem for investors in recent years has been how to get hold of reliable environmental metrics so that they can properly compare different companies’ efforts. Without accurate, comparable information, how can they adequately evaluate the risks – and opportunities?
This is the fourth year of Ruffer’s involvement with CDP’s Non-Disclosure Campaign. The campaign encourages select companies in high impact sectors to disclose complete and comparable environmental data.
Environmental, social and governance (ESG) issues, and sustainability more broadly, have moved higher up companies’ agendas in recent years. Increasingly, annual sustainability reports contain troves of data, from the gender split across workforces to the number of health and safety incidents to the amount of carbon emitted. These reports help us to understand how companies are driving change and delivering outcomes for stakeholders. They also shine a light on each company’s priorities.
Reporting is undoubtedly improving. And some companies are starting to present standardised data through recognised frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI). But, by and large, companies can still choose what metrics to publish, depending on what they consider material.
This selective approach to disclosure has its drawbacks. In the absence of complete regulatory oversight or agreed standards for reporting sustainability data, companies provide an eclectic mix of metrics, often calculated using different methodologies or data sources. Peer groups rarely report on all the same metrics in the same way.
To help level the playing field, CDP has developed a questionnaire to extract environmental data that is not always found in companies’ own reporting. By asking all companies the same core set of questions (with additional relevant questions for certain industries), CDP can offer investors standardised, comparable environmental data they can use to assess the investment value of companies’ environmental impacts and strategies.
At Ruffer, we find the information from CDP’s platform very useful, especially in our efforts to evaluate climate risk in our portfolio. Our analysis of companies’ transition plans rests on three pillars: ambition, credibility and scope for value creation. A detailed response to the CDP questionnaire helps us assess each company's level of ambition on greenhouse gas (GHG) reduction, as well as its transition plan’s credibility. A first-rate CDP response can even help us determine whether the company’s GHG reduction initiatives could lead to a competitive advantage, with potential for generating persistent economic profits.
In previous years, CDP asked companies to complete three separate questionnaires, on climate change, water security and forests. This year, all three have been consolidated into one questionnaire, with supplementary questions on plastics and biodiversity. The aim is to drive a more holistic approach to managing environmental issues and to improve the reporting experience for companies.
However, as we often hear during our engagements, many companies are feeling an increasing reporting burden. As well as efforts to improve their own reports, companies also have to meet regulatory reporting requirements. And some find the new CDP questionnaire more onerous. Where should they focus their efforts?
We acknowledge the problem and are sympathetic to their resource constraints. But, for us as investors, the CDP questionnaire collects high-quality, comparable data which is globally accessible and can help our research and decision making.
Through CDP’s Non-Disclosure Campaign, we have led engagements with five companies we are invested in, sending letters to Balfour Beatty, General Electric, Marks & Spencer, Perseus Mining and Pfizer. And we are delighted to report that all five are planning to submit their environmental data through the CDP platform. Data we can put to good use.