By David Greenall
Principal Research Associate - Energy, Environmental and Transportation Policy The Conference Board of Canada

Recognition of the economic and financial risks of climate change has moved it from the realm of scientific debate to the front lines of investment risk management. Putting a price on carbon will transform climate change into a competitive issue, creating assets and liabilities where they previously did not exist. Investors and corporations will have to adjust to the new reality of a carbon-constrained future. For example, CIBC World Markets estimates that 40 per cent of the market capitalization of the Toronto Stock Exchange could be affected by carbon pricing.

A growing number of banks, insurers and large institutional investors - such as the Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec, and British Columbia Investment Management Corporation - see the potential for financial returns to be affected by climate change. They therefore want to assess their investment risk exposure and are demanding insight on company action regarding climate change. Disclosure is the window through which investors are able to see into the boardroom and company operations. Unfortunately, much of the information already reported by companies, either in voluntary sustainability reports, securities disclosures or to governments, does not enable investors to accurately assess climate risks to long-term shareholder value.

As a result, a groundswell of investor action on climate disclosure is taking place. The most prominent example is the Carbon Disclosure Project (CDP). Representing 315 asset managers and owners (30 based in Canada) in 2007, with a combined $41 trillion of assets under management - up from $31 trillion in 2006 - the CDP seeks information on business risks and opportunities presented by climate change and greenhouse gas emissions data from 2,400 of the world's largest companies, including the 200 most valuable companies traded on the Toronto Stock Exchange. The CDP is premised on the principle that information is vital to the effective functioning of capital markets, with full and transparent communication and disclosure benefiting companies and their investors.

2007 marks the second consecutive year that The Conference Board of Canada has partnered with the CDP and Canadian investors and corporations to improve the state of corporate climate-change disclosure.

In working with the Carbon Disclosure Project, the Conference Board has been guided by three main objectives:

1. We aim to facilitate the development of a clear, open and efficient exchange of information between the investor and corporate communities on the issue of climate change. Our contribution, through the CDP, to the development of an international carbon reporting standard testifies to our recognition of the need for a better and integrated system of reporting.

2. We intend to advance business competitiveness and contribute to the effective functioning of Canadian and international capital markets by moving forward the discourse on how to communicate climate change risks to the investment community. We believe that disclosure can be a driver of change, encouraging action and improvement that benefits all stakeholders.

3. We want to contribute to public policy goals by promoting the role of the investment community and capital markets in working toward sound economic and environmental objectives.

As regulatory compliance regimes to reduce GHG emissions come online, placing new expectations on companies but also creating the space for innovative business solutions, more investors are likely to place climate change in their company-specific and portfolio analysis. Demands for financially relevant information will likely intensify and become more acute as the investment relevance of corporate carbon performance becomes a central competitive issue. In an era characterized by financial and governance scandals, the quality of a company's disclosure may directly affect its perceived risk profile. Corporations need to understand and adjust to this new reality.

This article is based on the CDP 2007 - Canada 200 report, which will be published on October 10, 2007. Information reported by companies to the CDP is publicly available via www.cdproject.net. CDP launch events will be held in Toronto on October 10 and in Montreal on October 11. To register for these complimentary events, visit http://www.conferenceboard.ca/carbon_5.htm