Carbon Disclosure Rating

Measuring a company’s “carbon footprint” and what they are doing to reduce it is becoming an important factor when institutional investors are deciding where to invest their money. A non-profit company named CDP (Climate Disclosure Project) claims to have the largest amount of self-reported climate data in the world. To get a high carbon disclosure rating of 71 and above, a company has to understand business issues related to climate change (and believe it is not a hoax) and incorporate ways to reduce their impact in its day to day business. If the score is below 50, they have a lot of work to do, as they probably have carbon emissions and other unfriendly environmental practices.

More and more investment firms as well as individuals are using social, economic, and government criteria (ESG) to evaluate a company before they invest. And one of the biggest areas they look at is climate change, and what the company is doing about it, since they might view polluters as a long-term risk.

The only drawback to the carbon disclosure rating system is that companies get a low score if they don’t choose to participate and answer the survey. Others, such as utility companies, know they are probably going to get a bad score, so they figure, “Why bother?”