Achieving consistency in carbon reporting for companies

Investors are using information on companies' carbon dioxide emissions to manage their portfolios. So says the Carbon Disclosure Project (CDP), backed by hundreds of institutional investors. The CDP survey asks the world's biggest companies to report their greenhouse gas emissions.

This year, almost two-thirds of the 385 institutional investors behind the project said they used the survey to identify companies not adequately addressing climate change. The survey also found British companies perceive climate change as a major driver of new business opportunities. In addition, there is increasing investment in measuring and reducing the impact of emissions in company supply chains, as well as those related to product use and disposal.

However respondees to the survey also highlighted the lack of clarity on future disclosure obligations, and the urgent need for an agreed standard. During the Climate Change Bill’s passage through Parliament, an amendment was agreed that companies required to produce a business review should be required to disclose their greenhouse gas emissions. However at its committee stage it was removed because there wasn't an agreed methodology for measuring emissions.

So the UK Government is on the hook to develop guidance on how companies should report on greenhouse gas emissions and to help create a common standard. The challenge is – which standard?

There is a multiplicity of potential candidates:

• The Carbon Disclosure Project - often criticised because respondees can choose the level of information they wish to disclose.

• The Global Reporting Initiative - most widely used sustainability reporting framework.

• The Global Framework for Climate Risk Disclosure reporting standard for investors’ expectations but private sector take up is very limited to date.

• The GHG Protocol Corporate Accounting and Reporting Standard - widely used international accounting tool for companies however, tricky to achieve consistency and comparability.

• And last but not least, the Climate Disclosure Standards Board (CDSB) aims to develop an international accounting standard on carbon reporting, with an initial draft by September 2009.

So many standards, so little time. Watching whether HMG chooses one or something else entirely will be interesting!

What a week; how can IR react?

As we start the long climb back to a 6000 FTSE (how’s that for a positive start!) a group of IRO’s gathered in London over the last 2 days to consider their strategy. When most booked to come on the training course that I moderated on Tuesday and Wednesday this week, few could have predicted the turn of events.

IRO's for big cap companies from major companies are finding this hard enough; this group was from more emerging economies such as Poland, Russia, Czech Republic, Estonia, with South Africa, Japan and Germany providing delegates as well.

Inevitably we discussed what IR should look like in times like these, and I thought I would share the conclusions. Clearly there is no silver bullet, but the group identified some things IRO’s can do specifically.

First don’t panic. The scale of the market changes are felt across the board, and are affecting everybody. Rushing out communications on damage control measures is unlikely to be helpful. Start with an internal assessment of how the changes have impacted the company, and any strengths and weaknesses revealed.

For emerging market companies, this assessment is likely to include how the national economy is perceived, as well as the sector. IRO’s from those markets are well used to having to explain their own economy and its challenges as part of their investor presentations.

A next step is to ensure the companies monitoring capabilities are first rate. Stepping up shareholder identification and capital markets insight programmes is vital. Check media monitoring systems, and ensure that the company can respond quickly and broadly through the media to any negative coverage of the sector or company – and of course leverage any thing positive!

“Communicate” will be a key watchword as always. Cash always becomes king in difficult markets and any cash conservation or generation measures should be highlighted. Researching and communicating how well the company is placed relative to its peer group in areas such as exposure to price inflation and the short term effects of downturn are key, and should be exploited.

The non financial value drivers – assets not accounted for on the balance sheet but which nonetheless drive valuations – provide great communications opportunities. Patent and regulatory approvals, licences granted, management experience of difficult times, staff training resulting in improved customer service, market share enhancements, all provide communication opportunities. And simple reaffirmation that the corporate game plan remains on track can help.

All of which for under pressure IRO – especially those in emerging markets – will help sustain value.

Price discovery has never more important – or more difficult - than now.

It has been a simple thing for regulators – and politicians – to demonise traders and short sellers in le crunch. However one important facet for IR people has been the impact of MTF’s.

From Turquoise, BATS Trading and Equiduct as new entrants, to the more established Chi-X and PEX, these platforms mostly owned by banks or consortia of brokers, offer low cost transaction costs compared to the big exchanges - traditional trading venues. This competition has been created through the European Directive MiFID. Meanwhile in the US, the model is well established: there are about 40 alternative trading platforms, including operators of "the dark pools of liquidity".

Dark pools are private interbank or intrabank platforms that are widely used to trade stocks away from exchanges. They are used by clients such as hedge funds to buy and sell large blocks of shares in anonymity, avoiding the risk of moving the public price of a stock on an exchange as a result of copycatting by other traders. Some believe that as much as 12% of US daily volume is traded in this way. And Europe hasn’t even got started yet…

This absence of transparency is of concern at ANY time; but in today’s turbulence it is potentially very damaging. Investors wanting to avoid moving the public price of a stock may well be damaging that public price. The argument goes that if so much activity is hidden, how can the price quoted on the public markets be truly indicative of the investor interest or sentiment on a particular stock?

And so far this absence of transparency has been focussed on direct equities. Imagine when you add derivatives to the mix; even that limited view provided by “guesswork” on the background to a prop desk trade will disappear.

So far regulators have failed to act to shine a light. Meanwhile, empathy please for the IRO’s as they seek to keep track of intra day movements – as their day job requires.

Price discovery has never more important – or more difficult - than now.

It has been a simple thing for regulators – and politicians – to demonise traders and short sellers in le crunch. However one important facet for IR people has been the impact of MTF’s.

From Turquoise, BATS Trading and Equiduct as new entrants, to the more established Chi-X and PEX, these platforms mostly owned by banks or consortia of brokers, offer low cost transaction costs compared to the big exchanges - traditional trading venues. This competition has been created through the European Directive MiFID. Meanwhile in the US, the model is well established: there are about 40 alternative trading platforms, including operators of "the dark pools of liquidity".

Dark pools are private interbank or intrabank platforms that are widely used to trade stocks away from exchanges. They are used by clients such as hedge funds to buy and sell large blocks of shares in anonymity, avoiding the risk of moving the public price of a stock on an exchange as a result of copycatting by other traders. Some believe that as much as 12% of US daily volume is traded in this way. And Europe hasn’t even got started yet…

This absence of transparency is of concern at ANY time; but in today’s turbulence it is potentially very damaging. Investors wanting to avoid moving the public price of a stock may well be damaging that public price. The argument goes that if so much activity is hidden, how can the price quoted on the public markets be truly indicative of the investor interest or sentiment on a particular stock?

And so far this absence of transparency has been focussed on direct equities. Imagine when you add derivatives to the mix; even that limited view provided by “guesswork” on the background to a prop desk trade will disappear.

So far regulators have failed to act to shine a light. Meanwhile, empathy please for the IRO’s as they seek to keep track of intra day movements – as their day job requires.