Resources

• CDP
• Workforce Disclosure Initiative
• Task Force on Climate-related Financial Disclosures (TCFD)
• International Sustainability Standards Board (ISSB)
• Understanding the SEC’s proposed climate risk disclosure rule (McKinsey)

Guests

Climate Rising Host: Professor Mike Toffel, Faculty Chair, Business & Environment Initiative

Guest: Paul Dickinson, Founder Chair, CDP

Transcript

Editor’s Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.

Mike Toffel:
Paul, thank you so much for joining us here on Climate Rising.

Paul Dickinson:
Great to be with you, Mike. Thank you so much for inviting me.

Mike Toffel:
Can you tell us your involvement with CDP? How did that begin, all the way back 20 years ago when you were one of the instigators of the organization. What was the idea and what was your role?

Paul Dickinson:
Well, I'm going to go a little bit further back actually. So I'm recently turned 58. When I was 20 years old, I decided I wanted to be a politician, and I'd left school early, actually. I got into a university as a younger mature student, about 24 in 1988, and I was studying politics. But I left in the middle of my first term. Why did I leave? It's because I was also simultaneously working in an annual report design company. And so in 1988, I was looking at the annual reports of the world's largest corporations. And I got the idea into my head, which I think was correct, was that the power of national governments was declining and the power of corporations was increasing. So I continued working corporate communications to learn more about corporations. But I did do a Master's degree in 1997, 9 years later, set up by Anita Rodick and it was in responsibility and business practice. Anita Rodick had founded the Body Shop, which was one of the most interesting global ethical businesses. And during my time from 97 to 99 during this Master's, I met a scientist who worked with James Lovelock and I was introduced to the concept of climate change. And by the year 2000, I decided to spend the rest of my life working on climate change. So I connected with a lady called Tessa Tennant, who was the kind of mother of the responsible investment movement in the UK. She's a fantastic person who died in 2018. But she and I got together through the summer of 2000, also with somebody called Jeremy Smith, and soon after by someone called Paul Simpson, and we cooked up this idea for CDP that was originally called the Carbon Disclosure Project. We got a grant in January 2001, and that's when this concept we'd been working on actually became real.

Mike Toffel:
And so the concept of CDP is to work with investors, to get them to ask companies, in which they're investing, to disclose how they're thinking about climate change as risks and opportunities, what their actual emissions are, what targets they have and so on. Why did you go through the investor vehicle as opposed to working with a consumer movement or with NGO movement?

Paul Dickinson:
I mean, it was very important for us to be able to achieve absolutely gigantic global scale. Now, we couldn't do that by working with companies like saying to a company, "Hi, we want to work with you." We actually needed a process that could scale globally. And back to my epiphany when I was first looking at annual reports. What absolutely defines the global business system is the annual reporting of financial accounts each year. Like in the US, you report them to the EDGAR Database, managed by the SEC. And that data decides what stocks are rising, which stocks are falling in value, how you can access capital in the markets, who's paying great dividends, who's got huge growth potential. So our major insight was that corporations should be filing climate change accounts exactly as they file financial accounts. But why is anyone going to do what we say, right? What authority have we got? So what we recognized was that we could start a not-for-profit organization, which as I said is now 22 years old, it's just in its 20th annual cycle of reporting. And we could represent the authority of investors. And we use that word authority inside CDP, because actually we represent basically two authorities now. The authority of institutional investors, and more recently, we've been representing the authority of purchasing organizations. But when we're representing investors, the first line of the letter go to the chair of the board of the biggest companies in the world, originally 500. Now many, many more. But we started with the 500 biggest companies in the world. The first line of the letters said in 2002, when we first sent it, "As investors with 4 trillion US dollars of assets, we require you to provide this information." And we listed the 35 investors. Fast forward to this year. And the first line of the letter said, "As investors with $130 trillion of assets, we require you to provide this information." There was 650 investors this year. But either way it's quite correct the corporations should be reporting their greenhouse gas emission, their strategy on climate change into a public interest organization, in this case, CDP. And then we make that available to the market through things like our website, cdp.net, go and have a look yourself, download the response from McDonald's or Coca-Cola or Toshiba, whatever you want. But also most importantly, we sell that data to the Bloomberg network. We sell it to MSCI, to Standard and Poor’s. It's inside every environmental product. We met, Mike, because you wrote a paper in, I think it was 2006, maybe, something like that.

Mike Toffel:
Probably around that.

Paul Dickinson:
And you were a little bit surprised that we were achieving very high degrees of disclosure without the government or the law behind us. But the point being that it is entirely legitimate when you've got an enormous issue like climate change, that the corporations should report on this. So let me just fast forward to 2021, which is the last full year of CDP. That was our 19th annual cycle. And about 13,000 of the world's largest corporations reported directly into our databases. They represent more than 60% of global emissions. They represent more than 64% of global market capitalization. So it's a huge, huge group of companies. About 3000 of them reporting to their shareholders through CDP. And about 10,000 of them are reporting to their customers through CDP. And this is how we managed to get reports. From non-public companies. I'm just going to add in there that we've had a cities program for about 10 years and more than a thousand of the world's largest cities also report through CDP. But that's the basic idea.

Mike Toffel:
Okay, great. So back when I was looking at the data the first time, I mean, I was intrigued because of the companies that CDP was approaching at the time. Roughly half responded and half didn't. And I thought, "Oh, that's an interesting thing to try and explore." My observation over time is that within a particular company, as you ask them over time, the chances of them responding goes up quite a bit. And therefore like the S&P 500, it used to be a half and now it's much higher. And yet you keep expanding the scope of who you're asking, other indices around the world, members of other indices, as well as now private companies and cities. And is that pattern continuing, that you get maybe a low uptake the first year, but then every subsequent year it's increasing in prevalence as to the popularity of reporting?

Paul Dickinson:
Yeah, no, that's exactly right. But I mean, it speaks to persistence delivering results. Perseverance works. So, I mean, I can think of a giant example of this, which is Walmart. They didn't respond to us for the first couple of years, and then they responded to us and they started discovering amazing things like they were the largest purchase of electricity in the US, pretty much. And they weren't negotiating on their electricity prices. Or they discover they had more emissions from their refrigerators than they did from their truck fleet. And it was actually an intern at Walmart, she had the idea of sharing this extraordinary insightful tool with the supply chain of Walmart, and that led to our whole supply chain activities. So, yeah, it can take a while for companies. I used to get a very polite letter from the management of the shipping company Maersk saying that they weren't going to respond to CDP. And then finally, they did respond to CDP. Forty-eight million tons of CO2. More than Denmark. Okay. The shipping company Maersk, the Danish shipping company's emissions are bigger than Denmark. So I met the chief executive at an event and I said, "Look, thank you so much for responding." And he got some bad press. And I said, "Look, I'm sorry that there was bad press." And he said, "No, it was exactly the right thing to do to respond to CDP," because if you actually look now, Maersk is one of the global leaders in terms of decarbonizing the shipping industry. And one of the things that's been most exciting and positive for me to see is the degree to which we've got so much extraordinary political support. So for example, the Secretary General of the United Nations has written introductions to our reports. Both at the beginning of her leadership and at the end, Angela Merkel either wrote the introduction to our German report or spoke at our German events. The last two prime ministers of Japan have spoken at our Tokyo events. Politicians understand that we represent the creation of new norms in society around this absolutely pivotal issue of climate change. And it's so exciting to be part of that unfolding process. And yes, back to your question, it does increase over time. On the one hand, because CDP is persistent and because investors are more and more interested in it. And I'm sorry to say on the other side, not only do you have increasing civil interest in this from the children's strikes and all the rest of it to, and this is the one that's really disturbing, extreme weather. Just before this call, I was looking, the BBC are warning us that Monday, Tuesday could be 40 degrees in London. We've never had more than 37 degrees in the history of measuring the weather. And of course, this is now going on all over the world. California burns, people drown in their basements in Brooklyn and trains in China. All of that drives us towards focusing on the corporate involvement in this critical issue.

Mike Toffel:
Yeah. One of the things your Walmart story reveals, and it's a point that I think is underappreciated about CDP. I think folks at first glance think, oh, this is a decision about whether to disclose or not that companies need to make. But what I viewed CDP as doing is driving actual measurement. Folks, you have to measure before you can disclose. And so if a company fails to disclose, it might be they've got the data and just decide not to reveal it. But as many times I think it's just, they don't have the data yet. And so that's one of the reasons where I think it takes companies, sometimes a couple of years of being asked, to actually reveal the data. Is it took them a little while to figure out how to gather that data in a credible way, that they can feel comfortable releasing those numbers with any real authority that they might be traceable and legitimate? Is that something that you're seeing as well?

Paul Dickinson:
I mean, it's super scary. If you go right back, CDP was a very small organization and it was my job to phone the companies up and get them to respond. They would say to me, "Well, look, we don't collect this data." And I would say, "Yeah, that wasn't the point. We didn't ask you if you collected the data. We asked you to collect the data." And this is one of the unique powers of CDP, which I think is something I'm very proud of being part of building is that we cause new data to come into existence. Back in the first ever CDP, I think it was the first or the second one, that would be my cell phone number on the documentation. I got a phone call from a big logistics company that will remain nameless. And they said, "Look, you made a mistake because we haven't got any emissions." And I said, "You haven't got any greenhouse gas emissions?" They said, "No, we haven't got any emissions." I said, "None." They said, "No." I said, "Are you sure?" And they said, "Well, only the vans, the lorries and the airplanes. But apart from that, we haven't got any emissions." And I said, "Well, why don't you just measure those?"

Mike Toffel:
Yeah. Well, I think this brings up the point of which emissions do you want to focus on? Scope one, the onsite operations. Scope two, the purchase of electricity. Or scope three, everything else in the supply chain upstream and downstream.

Paul Dickinson:
Rewind, by the way. One of the things that made CDP possible was pioneering work before we began by the World Resource Institute and the World Business Council for Sustainable Development to develop the GHG protocol. And this scope 1, 2, 3 thing is absolute genius. Scope one, the fossil fuels you purchase. By the way, that's in your audited accounts already because you've got purchase invoices for it. Your use of electricity. Once again, in your audited accounts, you got purchase invoices for that. And then yeah, scope three, the wild west, everything else. But I mean, it's good stuff though. You can get going with it.

Mike Toffel:
Yeah. Yeah. So I'm imagining companies start with scope two, even. That's probably the easiest because that's purchased electricity. You just need to know grid factor to multiply by your kilowatt hours consumed. And then scope one, not that much harder either. And then eventually they start plucking away at elements of scope three, the everything else bucket. Is that what you're seeing, that trend?

Paul Dickinson:
Yeah, I mean, one of the easy ones on scope three to get your head around is your supply chain emissions. And the reason I said that is because we have a growing, I think more than 250 major companies, we gather data from their supply chains. I was giving a little talk at one of our launch events and I said, "Who pays your supplier's energy costs? You do." So it's perfectly legitimate for a company to require data on the greenhouse gas emissions from suppliers. I mean, we used to be called Carbon Disclosure Project. Now we're called CDP. We could have been called the Total Cost of Energy Management Project, because you can say it's greenhouse gas emissions, I'm very worried about climate change, and you should be, or you can say energy is a cost we need to manage like any other cost. And by the way, we're bringing a bit of discipline and order to managing that cost. The other one to look at is, for example, product use and disposal. And here, actually for decades and decades, people have been increasing margin, winning market share by having more efficient products. A classic example right now with gas prices so high, you've got a more efficient vehicle that you're selling than a comparative one, you're going to win. Electric vehicles suddenly look far less expensive than petrol vehicles when you're looking at gas prices, the way they are at the moment. So this kind of get ahead of the technology, get ahead of the price, come up with better products, innovate. This is all part of the way CDP delivers value to the market.

Mike Toffel:
So CDP has been increasing the amount of information they've been asking over time. They initially were asking about emissions levels and reduction targets and qualitative narrative around how's climate change going to affect your risk and opportunities. And I remember several years back, we talked about, well, it's interesting to know what they're doing in the terms of their operations and their supply chains. But meanwhile, some of these companies are lobbying for and others against climate policies. And CDP added some information that they requested companies to reveal about their political strategies through their own strategies and through their trade associations. Can you talk a little bit about that and what the uptake on that information's been?

Paul Dickinson:
We get a lot of information now because we've been asking about these political questions for about 10 years. It is absolutely critical to the whole climate change issue. And I'm going to give you a very practical example. Back in 2002, American Electric Power reported to us about 150 million tons of CO2. I checked last year, actually, and they reported about 137 million tons of CO2. So it's been kind of floating down from 150 million tons to 137 million tons over 19 years, but it's a big number. Pretty much entirely through that period it's been a hundred and something million tons multiplied by $0 equals $0. So without taxation and regulation of greenhouse gas emissions, these data are interesting, but they haven't got the compelling force of high cost or high opportunity. So that's why the regulation and the taxation and the political responses are absolutely critical. We're now at a point where you can see the EU is just going forward with major taxation and regulation of greenhouse gas emissions, feeling very comfortable with carbon border tax adjustments, to protect our industry from paying a carbon penalty. So we're going to be putting those taxes on US or Chinese goods that have no comparable levy on greenhouse gas emissions. It's all kind of getting quite real now. That would be my point. But if you look at net zero targets, for example, or science based targets, science based targets require science based policy. Net zero targets require net zero policy. There's no way, for example, industry can reduce emissions at 7% a year without the state causing the free to wear greenhouse gas emissions to have costs necessary to get reductions. So you can look at the Supreme Court saying that the EPA can't regulate greenhouse gas emissions. Whatever. The US is a idiosyncratic. It does nothing for a long time, and then it hopes it can follow fast. But the rest of the world is locked in responding to climate change at significant scale. Climate change is like the internet. It is getting bigger every year. It is never going away. Industry needs to learn to make money from it or it's going to get eaten for lunch. And certainly industries in Europe, industries in China, industries in Japan are going gangbusters to build the low carbon solutions for the future. And I hope and believe US industry will catch up. But it's actually the government that decides if industry's got a chance.

Mike Toffel:
Well, it'd be interesting to see whether the policy is evolving in the EU where low carbon will convey a comparative advantage because it's being taxed, will actually change strategies, not just of European companies, but it should change the strategies of companies that are exporting into the EU. So that could easily have a spillover effect to even countries that don't regulate, whether that be China or the US or Brazil or so on. So just for those listeners who aren't familiar with border adjustments, can you explain how it works in both directions? So EU exports, as well as say, American imports into the EU?

Paul Dickinson:
Well, I think there's not necessarily a penalty the other way. So let's just assume to simplify the world down to the US and the EU. And let's say there's some reasonably carbon intensive traded product. Say glass or something like that. And if European glass manufacturers have got to pay a pretty big cost for their greenhouse gas emissions from the energy used, then they will be protected from imports of glass from, for example, the USA, by having a border tax adjustment put on. And that's stopping the US glass makers who haven't got this tax from undercutting EU production. Conversely, EU glass manufacturers who are selling to the US would not expect to receive any kind of penalty when exporting to the US. They might be hoping for some kind of subsidy from EU governments to support them, offsetting their energy costs. These things are new and so I can't speak with authority about what's not happened yet, but you could see both. And I think that's where you're going. And you might know more about this than I do, Mike.

Mike Toffel:
Well, one of the interesting things about border adjustments going into the EU, so an American glass company is selling glass into the EU. It has to pay some proxy for what the carbon tax of a domestic producer in the EU has to pay. And what's interesting is that the EU collects that money.

Paul Dickinson:
Yep.

Mike Toffel:
If the US had a carbon tax, then the US government would be collecting that money.

Paul Dickinson:
Yep.

Mike Toffel:
So in either case, if the EU puts a border adjustment tax on products like that, the company in the US will have to think about whether they can compete on the basis of taxed carbon in the EU. And the big policy question for US policy makers is, who should collect that money? Should we collect it, or should we donate that to the EU government? And it'll be interesting to see what that does to the political dynamics in the US.

Paul Dickinson:
And it kind of answers itself. By the way, glass is probably a terrible example to choose, so let's choose aluminum, which is the perfect one. Very high energy, very transportable, not heavy, super expensive. The US situation, I think you described very, very well. I just want to say something about Indian situation. So it has been discussed that India, for example, is a developing economy and it's pretty rich for the EU to be taxing aluminum coming from India and then keeping that tax. I have heard it said that EU policy makers may be thinking of taxing that aluminum at the point of entry, but then hypothecating all of that tax back to India as grants to assist them in decarbonizing the Indian grid. So the US, rich nation, we don't quite know what's going to happen. I think you described it well. But in terms of avoiding penalizing emerging markets, they may well see those border taxes going back to the country to decarbonize.

Mike Toffel:
That's interesting. I hadn't heard that before. Let's talk more about what happens with the data that's collected. So to start, CDP itself uses the data or the disclosure extent to create its own ratings. And traditionally its ratings have been, they created a leadership index and it's about how much disclosure the company has conveyed in the survey that CDP requests.

Paul Dickinson:
That's what it was. We evolved it in the early 90s into performance.

Mike Toffel:
Yeah. So can you talk about that evolution of that strategy?

Paul Dickinson:
Well, very hard. I don't think I'm betraying any secrets when I say that we were scoring on the completeness of disclosure. And I remember somebody saying to me, "So if I'm awful and I say I'm awful, I can get a hundred percent." And it was kind of like, "Yeah, that's true." I mean, there is a validity to that kind of disclosure. But it's not really helping people evaluate responses. So that component still exists in CDP scoring, but it's much smaller. You have to be complete to be able to move up the grades towards A, which is the highest, from F, which is you didn't submit. But we were being advised at the time by PWC and we had a very deep relationship with PWC for many years and we said to them, "Look, it should be possible to move from scoring the completeness of disclosure to scoring performance." And they were like, "Yeah, it's really going to be hard." We were like, "Yeah, but it's kind of got to be done." And over two or three years, we trialed it, we piloted it, and then we introduced it and obviously we've been evolving it ever since. But I mean, it is very hard to evaluate corporations because they're big, they're complicated, they're multinational. And between corporate strategy A and corporate strategy B, no one can necessarily say, "Today, which one is the correct one?" But we do the best we can to provide a performance score. But I think the most important thing we do is we give data to the market. So a whole bunch of other people can provide performance scores. I mentioned MSCI, S&P will put these data into their credit ratings. And indeed, any analyst studying any company can think about this. And this notion of ESG is very interesting. If I was an ESG analyst, for example, in a big fund manager in 2010, I would be running around telling all the auto sector fund managers that they should be looking at electric vehicles. But in 2022, I wouldn't be doing that because they're already looking at electric vehicles. So I mentioned that little story to show that we're talking about emerging investment themes and the CDP data feeds into the capital markets. So the capital markets can best come to collective judgments of these emerging investment themes. We know about renewable energy, we know about electric vehicles, but there are huge new sectors like food. And we could talk a lot about that.

Mike Toffel:
Yeah, academics also try and develop schemes on how to rank and rate based on these data sets. And boy, it is complicated. You have to think about, are we comparing absolute, or are we comparing some sort of normalized figure like per dollar spent or something. Because if you're just comparing absolute, well then pretty much you're penalizing the large companies and giving a pass to the smaller ones. You have to think about are we comparing within the same industry or across all industries? So are we ranking all companies from top to bottom or are we ranking within a sector like within the auto?

Mike Toffel:
And then you have to think about, are we doing scope one and scope two or all these scopes, and scope three is we mentioned already is the wild west. So the comparability questions are quite complicated there. So it's a really challenging thing to do to rate performance. Are you measuring current performance or trajectories? Are those trajectories actually credible when people talk about their targets? And so that's another area which others are now taking on, the rating process to say, not just how are you doing now, but how ambitious are your goals, and are you making annual progress toward those goals? And part of that's using CDP data as well.

Paul Dickinson:
and that's where the iterative process comes in. Because on the one hand, we can't be frivolous and change the CDP questionnaire every year. When you've got 13,000 corporations reporting to you, you have to be very careful. But at the same time, for all the reasons you've just described, I think the great power we have is to be able to iterate towards better and better supply of data as the market increases its sophistication. As it gets to understand what it really wants, we can then feed that into CDP. So yeah, we're constantly moving towards where we need to go.

Mike Toffel:
So CDP has also diversified not only by asking directly companies to answer the questionnaire on behalf of investors. As you've already mentioned, you launched a supply chain project where you're now similar questionnaire, but asking on behalf of their large buyers. And then you're also doing this city program. And is this an evolutionary strategy that as you've been engaging with companies who are like, "Hey, how about doing something quite adjacent?" And then you're saying, "Yeah, that sounds like something we could handle." Is that how those conversations arise?

Paul Dickinson:
I mean, it's all about money. I work in an NGO and it's all about money. So we could do so much more. The only thing that ever constrains us is money. Our income has grown, but it's still pretty small, kind of 50 million US dollars we have about. We have to use that money to support about more than 500 people out of eight offices in the most expensive cities in the world. Plus we have to pay for all of the IT. About half our money comes in philanthropy. Half of our money comes from corporations and investors selling them services and data and all the rest of it. But I mean, shout out to the billionaires listening or the a hundred billionaires. If we had some serious money dropped on us, we could do all kinds of things. We've built the machine. The problem we have is the utility we deliver is really identical to the utility that's delivered, for example, by the SEC through the EDGAR database. Or to the UK government through what's called Company's House. Or every single government with a developed capital market has somewhere that the financial accounts are registered. And by the way, 100% of them are funded by the taxpayer. So we've actually built the mother of all of these for environmental accounting, but unfortunately we've had to also go off and hustle for the money whilst every single, very wealthy institution interested in climate change and ESG plunders us, our staff, by offering them far more money. So it's very tough to run our organization. But there's no limit to the imagination of what we can do. I'll now stop playing the world's smallest violin, but it's really executing on the potential of it in a not-for-profit structure. Now you might say, well, why don't we flip to a for-profit structure? And the answer to that is, there is no incentive for the public interest to be served by a for-profit structure. That's why every single public interest registry of financial accounts in the world is funded by the taxpayer because there is no business case for restricting information the market needs.

Mike Toffel:
Right. Now you've diversified into water. You're collecting data on water, collecting data on forests. So if you had this extra hundreds of millions of pounds, what would you do?

Paul Dickinson:
Well, that's an absolutely great question. I mean, the story of both water and forests are interesting. I mean, we obviously wanted to do them a long time ago. It was actually NBIM, the Norwegian government's Sovereign Wealth Fund, that funded us to do water originally and continues to do so. Water security as we call it. And on forests there's an NGO called the Global Canopy Project that kept asking us to do forests. We said, "Look, we simply can't. But you can license our stuff for free. And if you can build something up big enough, then we can take it over." And that's what they did. And then that's what we did. You don't have to be a rocket scientist to know that we have significant problems with biodiversity, oceans, plastic, waste. Actually, as a key sector, potentially, the outputs are turning into the inputs. So we have well articulated plans to expand into the sectors. That's the first place the hundred million would go. You look further down the line, there are actually S issues, social issues, so to say. There is a kind of social CDP called the Workforce Disclosure Initiative, which is run out of an NGO in the UK called ShareAction. They have 173 big companies reporting through them with 12 and a half million workers. That data's freely available, so go look at the Workforce Disclosure Initiative. And so you can see the beginnings of an S.

Paul Dickinson:
But I think if I stand right back and you said to me, "Well, let me explain what sustainability is, very simply," because everyone thinks it's mysterious. It's not mysterious. I'm going to give you three big global issues. And only one of them is sustainability. First big global issue, the COVID-19 pandemic. That's not sustainability because the government locks us up in our homes, stops the airplanes flying. The second one is the invasion of Ukraine. That's not sustainability. NATO bounces up, starts supplying weapons to Zelensky. That's not sustainability. Climate change. You look through the government like they weren't even there and you say, "Oh, Is this sustainability?" So sustainability, as far as I'm concerned, is significant issues of concern to citizens, corporations, and the capital markets that the government can't solve. And I'm afraid to say it isn't just water, climate, and forests. So as we look ahead over the next 10, 20, 30, 40, 50 years, you can clearly see that there will be legitimate areas where the capital markets, the global business system, if you will, wants to gather information regarding the performance of the corporation with regard to a key system condition. Biodiversity is a very good example. And here, CDP can evolve. So I hope that gives you a sort of sense of how we would travel through. And just by the way, to say that there's a lot of talk of the SEC's going to mandate some kind of basic disclosure, the EU may well do the same. We, of course, are in a position to remove questions from the CDP questionnaire when they become legal requirements in annual reports. So it's a kind of a process whereby CDP provides. We provide a massive regulatory impact assessment whereby governments can then have the confidence to regulate. And we will then move on to the next area of data in a constant dialogue with the purchasing organizations and the investors that provide the authority for the CDP system.

Mike Toffel:
Yeah. I was actually going to ask that next about movements in institutions like SEC and the EU. And there's also the evolution of the TCFD in terms of standard setting. So how are these all playing out from CDP's perspective? Is CDP contributing institutional knowledge to those groups to help guide what they're asking? And then you just mentioned you'll move on, if those become standard, then you'll do what beyond the standards as opposed to replicating the standards?

Paul Dickinson:
Exactly. I'll give you a little update on four things. TCFD, the ISSB, the SEC and the EU.

Mike Toffel:
Great.

Paul Dickinson:
On the TCFD, I mean, the genius of Mark Carney, governor of the Bank of England at the time was to recognize that we were doing a great job. And in his first major speech on this, where he talked about the Tragedy of the Horizons, he referenced what was then 5,000 companies reported through CDP, but he was like, "Come on, government. This is our job." And of course, he's right. When the TCFD was formed, CDP was immediately supportive of it, part of it. We put our Climate Disclosure Standards Board, which was our accounting body, fully behind TCFD. We supported them every single way we could. When their findings came out, when the TCFD gave its guidance in 2018, we redesigned the whole of CDP to ensure that we'd included TCFD. So essentially, all those 13,000 corporations that are reporting to CDP are essentially providing TCFD reports. So we love that. Now, if you come onto the next major development, it's all a bit geeky accounting talk, but outside of the US, the accounting status for most countries in the world are set by something called the IFRS Foundation, or the International Financial Reporting Standards body. And they produce international accounting standards. And what's amazing about those standards is they're in the legislation of many, many countries already. And you can change those accounting standards and it just changes the law in pretty much every country outside of the US. So inside the IFRS foundation, a new body has been formed called the International Sustainability Standards Board, the ISSB. And of course, CDP loves that. And we showed how much we love it because we transferred our climate disclosure standards board into the ISSB so they would have all of our experience. We launched that with the World Economic Forum in 2007, and we transferred it into the IFRS in 2021. So was it 13 years of experience working with the big four on what part of a CDP response would make its way into an annual report? So we're very excited about the development in the ISSB. And as soon as they've got new standards, CDP wants to introduce them immediately so we can get pretty much most companies in the world reporting to them, most big companies. So then they feel more comfortable to make those into standards. Just say a little word about the EU and the SEC. They're both coming forward with strong reporting standards. We're very excited about that. We support it a hundred percent. There can be quite a bit of pushback in the EU from industry. It can be that the SEC get kind of whacked by, "No, you don't." So we are very hopeful that those regulations will be coming in soon, but it can take longer than you might think.

Mike Toffel:
Yeah. Even if they back down, I mean, how much pressure are institutional investors placing on companies to disclose, even if the SEC doesn't follow through with its draft? Either because they back down or because the Supreme Court says, "Hey, that's too big for a regulatory agency to manage. We need laws first," or something like that. Are the pension funds and the institutional investors, are they saying like, "Hey, we're getting this information from other venues like perhaps the EU. We want that same information before we're really ready to be comfortable to invest in you US companies."

Paul Dickinson:
Well, I think you may remember in your paper back in the day you quoted a chap called Barron from Stanford who talked about private politics situations, a conflict in their resolution without recourse to government or law. That's a very interesting concept. And I think you suggested CDP was a leading example of that. I would say absolutely right. I think we are. So we're in a situation whereby we're representing the majority of the capital markets, $130 trillion. All of those pension funds and all the big asset managers, we represent them all. We've got like 80% of the S&P 500 reporting on climate change into our databases. And that's been going on for years. Some of them have been reporting literally for 20 years. So which part of this does the SEC not get? I mean, it's true that there's a lot of money in US politics. And let's not forget that since the Citizens Reunited ruling in 2010, there is unlimited money in US politics. So corporations can spend without limit to essentially stop the regulatory process. And of course that's happening. So unfortunately, we'll just carry on representing a massive consensus of everybody getting on with real life whilst unfortunately the US Congress tries to work out in the US Securities Exchange Commission and the executive branch, try and work out how to deal with the fact that the biggest threat to national security is actually lobbying by the fossil fuel industry.

Mike Toffel:
Well, I think one of the ways that the private sector can overcome that is if they not just make these lofty statements that say, "Please disclose this information to CDP or on your website or in sustainable reports or in your annual report. But if you don't, then we're going to walk away from this investment." And actually, where the rubber hits the road is those types of decisions. And I'm not that familiar with examples where investors are going that far. Are you?

Paul Dickinson:
Yeah, I think walk away from the investment the Wall Street walk, that's there somewhere. And there are quite a few examples of people who ignored major climate change exposure. Did not walk away from the investment, and ended up losing a lot of money. But I think that before you get to the end of the line, we're selling the shares, you're a lot more likely to engage. I mean, we've got to remember, a third of the world is in indexes and a lot of other investment management is near index strategy. So a sense of the terror of increasing volatility has caused basically everybody to be invested in everything. And nobody buys or sells anything anymore. But we are starting to see shareholder resolutions more and more and more that are increasingly assertive regarding this. And yeah, it can be about reporting of greenhouse gas emissions, but if you're really getting climate change wrong, the name on everyone's lips was Engine No. 1. Tiny little hedge fund who made such a good presentation they got three directors on the ExxonMobil board. That kind of intervention of the active owner, I think, is the probably more relevant route to the achievement of disclosures and the change in corporate behavior than necessarily saying, "Oh, we're going to sell the shares. And the cost of capital's going to fall so much that you're going to bankrupt." That's that's not very fast or effective route.

Mike Toffel:
Right. So CDP is transitioning from its long serving CEO, Paul Simpson. You mentioned him earlier. What's new for CDP in the next administration? Do you have a sense of a crystal ball of where CDP might pivot now it will be under new leadership?

Paul Dickinson:
That's a great question that I'm completely unprepared for. So I'll probably say something interesting. You never know. I would say that it's so great to be on this podcast with your amazing audience. And it's actually something I've been saying for 22 years. And Paul Simpson was saying, and to hear other people in CDP say it, "You tell us where we should go, what we should do." CDP is the most crowdsourced piece of infrastructure in the world. We are an NGO, we're extremely open and it's literally true for two decades, people have been coming up to me and saying, "You know what, Paul, you know what you ought to do is X, Y, Z." And I'm like, "Could you just write down X, Y, Z and put that in an email to me?" And do you know what very often it ends up being what we do. However, having given that general answer. The specifics of our strategy right now are to expand into these related environmental themes. And we are looking very seriously at plastics and waste, biodiversity, oceans, and air quality. We will look at other related issues. We are also seeking to increase the ability of the city system to utilize technology. We would like to have continuous emissions reporting, basically through the CDP system. We'd like to be much more real time. We would like to be better at providing our data to people. We would like to continue to evolve around science-based targets, net zero pledges, supporting societies and investors moving towards achieving these goals. And yeah, we are very strong supporters of regulations. So we also want to put ourselves out of a job. I mean, it's not going to happen, unfortunately, but we will be continuing to support regulators to make the CDP market-led disclosures into mandatory disclosures. That's likely to keep us busy for a very long time. But the way we partner and who we partner within the market to achieve our goals is something that's under permanent review. But it's not too difficult to get hold of us. To be completely honest with you, paul@cdp.net will work. So tell us.

Mike Toffel:
All right, great. That's a great call for crowdsourced ideas from our listeners. So one of the questions we like to ask all of our guests is, and this is particularly pertinent for you because you've worked over these past 20 years with corporates. You've worked with investors, you've worked with policy makers at the local and national and international levels, and you're engaged in the NGO space. As you're thinking now about opportunities for those who are thinking about jumping into the business and climate change space, whether they be MBA students or folks who are looking to career switch, where do you think the most exciting opportunities are and what resources might you have to suggest to them of how they can learn more about them?

Paul Dickinson:
Okay. So two areas I'm going to mention on that that I think are what's next. I think the end game of ESG, particularly with regard to climate change is actually taxation and regulation of emissions. So now is the time actually to think about these are regulation-driven markets. Think about the interface between the new laws we're going to have and the taxes, direct taxes on greenhouse gas emissions and the new business models. And who's going to gain? And how can you be at that nexus of being in a company that does incredibly well through changed regulation? That, I think, is probably going to be one of the key markets. And if you look at the unicorn, certainly we are looking, I was looking at a rating of unicorn companies in the UK. And about quarter of them were climate change companies. I mean, this is a complete bonanza. And I mentioned food earlier, but just one thing I'm going to mention to you is food science. It's the opposite of cooking. We've been cooking for thousands of years. Cooking is making the same things taste different. Food science we've only been doing for a couple of years. It is making different things taste the same. But there is so much money and technology going into food science. And how would that link, for example, to taxation and regulation on grounds of health, on grounds of greenhouse gas emissions? The chief executive of Beyond Meat told me that if we took meat out of the food system, we would liberate 90%, nine-zero percent of farmland. I mean, that's just mind blowing. All right. So that's one area, the nexus of corporate strategy, technology and legislation. The other one I want to mention is the so called S or social issues. And I think that the key here is to understand that it's not that the environment is separate to social, but they're actually the same thing. There's a famous quote by someone called Gus Speth who founded NRDC and WRI and he said, "Thirty years ago, I thought our problems were biodiversity loss, climate change, desertification," or whatever. I haven't got quote exactly right. And he said, "But with good science, we'd be able to solve these problems." And he said, "I was wrong." He said, "Thirty years later, what I've realized is our problems are greed, selfishness, and apathy. And to solve those problems, we need a cultural," and he said, "Spiritual transformation." And he said, "We scientists don't know how to do that." But I think there really are issues. It was really interesting when you were talking about the tax that might be levied either by the US government or the EU government on trade. Let's think about the response to climate change, which is inevitable, by the way, in terms of how policies work. Are we going to have tax, for example, removed from labor and put on resources? And particularly emissions and pollution. That seems incredibly logical. But I think people have not yet managed to combine their thinking about the environmental problem of climate change with the social issues. Whether it's some coal miners, or President Macron had his Gilets Jaunes protest because he was not taking the tax that was coming in and directing it to people on lower incomes. So it's both a kind of chemical, technical, physical problem, climate change, but it's also a deeply political one. And I guess in both of the things I've talked about that are the next phase of this movement are related to that political challenge.

Mike Toffel:
Yeah. So very multi-stakeholder problems where we need to think about the relationships between corporate strategy, the social sector, and government. Complicated combination of topics, and therefore good opportunity to do joint degree programs, or come back for skill upgrading at your local university, or millions of opportunities online now to gain skills in these other sectors as well.

Paul Dickinson:
No, I think it is absolutely a moment for academia, for study, for enhanced understanding, for discussion, debate. We're doing something completely new here and your great institution at Harvard, the leading intellectual institution in the world, and many others like it, we need your capacity to grasp these holistic issues. The problem with the Enlightenment is that we learn more and more about less and less, and now we know everything about nothing, if you see what I mean. We need to grasp these complex interconnected issues. And I'm going to ground that rather lofty and ethereal statement in something very practical. We were producing investor research a while ago, and you get reports on electric utilities, or you get reports on the auto industry, or you get reports on the oil and gas industry. If you want to understand climate change, you need a combined report on all three, because the car industry, the electric utilities and the oil and gas industry are affecting each other at the moment with regard to the change from gasoline to electric on vehicles. It's that kind of integrated thinking that I think the universities, your great institution, deliver and we need it desperately.

Mike Toffel:
Great. Well, Paul, thank you so much for joining us on Climate Rising. I always learn a ton by speaking with you.

Paul Dickinson:
Aw, it's such a pleasure to be with you, Mike. Thank you for your amazing work and great to have the opportunity to be with you today. Much appreciate it.