Companies are under mounting pressure to increase transparency and conduct business within a responsible, sustainable framework. Demands to release emissions data and reduction strategies come from environmental pressure groups and shareholders alike.
The Carbon Disclosure Project (CDP) is helping to coordinate the disclosure of emissions data. One of the more invisible NGOs in a field dominated by big players, CDP is forging an important relationship of transparency between businesses and investors. Companies have often been reluctant to voluntarily submit information that identifies them as a polluter. There is a fear that it may be misinterpreted and lead to losses in shareholder value.
So why should businesses disclose their carbon emissions information?
Voluntary disclosure theory
A recent study by the University of California in Davis should finally put disclosure fears to rest.
The study proved that carbon emissions disclosure follows the hypothesis of voluntary disclosure theory; whereby the disclosure of information results in net benefits for all shareholders. By tracking press releases, the study showed that immediately after companies disclosed information, their stock values rose. Disclosure is economically advantageous, especially when combined with clear carbon reduction strategies. This sends a strong message that investors have a preference for environmentally responsible firms.
Carbon Disclosure Project
UK based CDP has been facilitating information disclosure for the last 12 years. An inspiring nonprofit, CDP works off the basic premise of asking companies to share emissions information.
Why does this work?
Because CDP represents potential investors, purchasers and government bodies. Businesses have been very forthcoming in disclosing information once they see that a large proportion of the investment community is interested in CDP’s collated data. Some 4,000 organisations to date are engaged in emissions disclosure through CDP. Whilst they do approach businesses, any company can opt to voluntarily disclose information through CDP.
Benefits of disclosure
Businesses that disclose emissions information demonstrate several key points to investors:
- an awareness and willingness to address greenhouse gas emissions
- business leadership through engaging in Corporate Social Responsility (CSR)
- actively future proofing the business and creating green opportunities through innovation
To conclude
Governments are not the only key players in emissions reductions, the business world has an equally vital role to play. The existence of a service such as the CDP is an essential component in ensuring transparency in global greenhouse emissions. Even without a legal pull over businesses, CDP has been able to incentivise disclosure. The study by UC Davis serves only to reiterate the incentives for businesses to make information public.
Its’ co-author, Professor Paul Griffin, argues that:
“Companies should not be as reluctant as they have been to provide this information because we show that it can be shareholder-positive…our message is that it pays to be green.”
