Scottish Widows Investment Partnership (SWIP) is one of Europe's largest asset management companies, part of Lloyds Banking Group, managing funds approaching £150billion.
Challenge: Accelerating action in carbon reductions
Measurement and disclosure has been an important first step for companies in managing their greenhouse gas emissions. Going through the CDP process allows companies to understand where the majority of their greenhouse gas emissions come from and the risks to which they are exposed. For SWIP, the huge amount of information that companies provide via CDP is extremely useful for assessing the extent companies are exposed to climate change risks, and the quality of their management response. But disclosure is only a first step. Craig Mackenzie, Head of Sustainability at SWIP, explains “We want to open up a conversation with companies about how they manage energy and other sources of carbon and to see if they can significantly reduce their costs.”
Solution: SWIP is the first signatory to Carbon Action - driving the boardroom agenda
SWIP is the first signatory to Carbon Action. “We are pleased to be the first signatory to Carbon Action because efficient management of energy offers a huge win-win: lower carbon emissions, higher returns for shareholders.” says Mackenzie.
SWIP is committed to supporting and encouraging the companies in which it invests to manage their climate change risks effectively. This matters for a number of reasons. For some companies there are material financial risks resulting from carbon prices or weather impacts, though the number of companies in this category is relatively small; for others, the most significant issues are in their supply chains, or relating to the emissions generated by their products; but for all companies there are benefits in managing their business more efficiently and reducing energy costs.
By managing carbon effectively, companies make a large contribution in reducing the major long-term threat to the global economy which climate change represents. “Often companies do not need to make a choice between ethical goals or higher financial returns – that’s the great attraction,” observes Mackenzie. “There is frequently a clear business case. In the face of rising energy costs reducing emissions means making more money.” As SWIP points out, research by McKinsey and others finds that most companies have options to reduce carbon emissions at negative cost – across the overall economy there is the potential to save as much as 12Gt CO2e, 25% of the global total annual emissions in this way by 2030*.
Benefit: Carbon Action offers win-win; Lower carbon emissions and higher returns for shareholders
CDP reporting provides SWIP with a deeper understanding of companies’ risk exposure. It provides an indication that companies understand their carbon emissions and if they are actively managing them.
Craig Mackenzie has used CDP data since 2003 to inform his engagement with companies and to assess relative risk exposure to the EU Emissions Trading System (EU ETS), “Last year I did some work looking at the relative exposure of airlines to the EU ETS, in which they are included for the first time in 2012. Combining information from company accounts, CDP data and information about the EU regulations, we were able to forecast a cost of carbon for different airlines – this indicated that high-growth, low-cost carriers were going to be much more vulnerable than the more established national carriers.”
He sees further benefit in the CDP Carbon Action initiative: “The great thing about negative cost emissions reduction is that companies can take action even in the absence of policy support. Given policy makers in some countries are failing to impose a cost of carbon, this voluntary action is an important stopgap measure. With this in mind we work with other investors, through the United Nations Principles for Responsible Investment (UN PRI) and the Institutional Investors Group on Climate Change, to encourage negative cost emissions reduction activity.”
*McKinsey & Co (2009) Pathways to a Low Carbon Economy.