Active investment commentary & analysis

Carbon Disclosure Project: Data diminishes as submission becomes time consuming and onerous

  • Business travel a big carbon issue for multinationals – opportunity for more rapid change now
  • Investors must step in on carbon disclosure as Carbon Project hits problems

With many admirable ESG credentials, such as life saving drugs and the provision of affordable healthcare to those most in need, global pharmaceutical Roche does not appear as the most obvious candidate to raise environmental concerns. Scrutiny of the company’s 2019 annual report, however, reveals some reasons for further investigation.

Our sectoral Green House Gas indicator shows the pharmaceutical industry to be relatively benign in terms of Green House Gas emissions, especially when compared to many other energy intensive industries, but there are still many areas where improvement can be made. For Roche this is brought into stark contrast when studying the specific breakdown of their CO2 emissions. Understandably for a company of its size, with facilities in over 100 countries housing some 93,734 staff, purchased electricity has a sizeable impact on the company’s environmental profile, with 195,766 tonnes of CO2 being emitted in 2019. What is more surprising is the 201,522 tonnes of CO2 emitted from business travel alone, clearly exceeding the entire purchased electricity emissions for this large multi-national company. When challenged Roche acknowledged the issue and have committed to a -15% reduction in GHG emissions from business flights between 2020 and 2025.

This is not a particularly satisfactory answer in terms of the quantum of the target and, more worryingly, is based on KG of CO2/employee. Such intensity-based targets could still see an overall increase in CO2 emissions should the employee base increase over the 5-year period. We will continue to challenge Roche on this matter.

Unfortunately, challenging companies such as Roche on their environmental credentials may soon become more difficult for some. Our research highlights that the company’s disclosure on environmental issues has diminished year on year and the reason for this is surprising as the CDP, or Carbon Disclosure Project, appears to be the catalyst.

The CDP is a non-profit organisation that takes submissions from companies, cities, states and regions and rates them on their level of environmental transparency and disclosure. A coveted ‘A’ List rating is awarded to those that are best in class.

For 2019 Roche tell us that they are simply not willing to submit data to the CDP as the whole process has become too time consuming and onerous. Ominously they have spoken to several other multi-nationals about the issue suggesting this step backwards may become more widespread. Over the past decade giant steps have been made in terms of company disclosure making this retrospective step particularly concerning.

Interestingly Roche used the term “cost/benefit” when describing the situation. This indicates to us that investors will remain a key player in the push for environmental, social and governance disclosure as the economic rational for companies to co-operate is clear cut and the data demanded will be used for the specific purpose of making better informed investment decisions. Our hope is that the CDP will listen to the concerns of Roche and others but in the meantime SVM will continue with their own focussed in-house ESG research.