Climate management: Persevering through the economic cycle. CDP Italy 100 Climate Change Report December 2013

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1 1 Climate management: Persevering through the economic cycle CDP Italy 100 Climate Change Report December 2013 Report writer Scoring partner

2 02 The evolution of CDP With great pleasure, CDP announced an exciting change this year. Over ten years ago CDP pioneered the only global disclosure system for companies to report their environmental impacts and strategies to investors. In that time, and with your support, CDP has accelerated climate change and natural resource issues to the boardroom and has moved beyond the corporate world to engage with cities and governments. The CDP platform has evolved significantly, supporting multinational purchasers to build more sustainable supply chains. It enables cities around the world to exchange information, take best practice action and build climate resilience. We assess the climate performance of companies and drive improvements through shareholder engagement. Our offering to the global marketplace has expanded to cover a wider spectrum of the earth s natural capital, specifically water and forests, alongside carbon, energy and climate. For these reasons, we have outgrown our former name of the Carbon Disclosure Project and rebranded to CDP. Many of you already know and refer to us in this way. Our rebrand denotes our progress as we continue to catalyze action and respond to business, finance, investment and environmental needs globally. We now have a look and logo that reflects the scale of the work we must undertake in the coming years to move the markets ahead of where they would otherwise be on these issues and realize truly sustainable economies. Over 5,000 companies from all over the world have been asked to report on climate change through CDP this year; 81% of the world s 500 largest public companies listed on the Global 500 engage with CDP to enable effective measurement of their carbon foot print and climate change action; CDP is a not-for-profit organization. If you would like to support our vital work throught donations or sponsorship opportunities, please paul. or telephone +44 (0)

3 Contents CDP CEO Foreword Accenture Foreword Environmental Ministry Foreword Executive Summary Investor Perspective Criteria for 2013 leaders 2013 Leaders Key Statistics The CDP initiative for non-listed companies IMQ Insights on Verification Interview with Fiat Sector Analysis Consumer Discretionary Financials Industrials Materials Utilities Appendix Non-responding companies Responding companies Investor members Signatory Pages Important Notice The contents of this report may be used by anyone providing acknowledgement is given to Carbon Disclosure Project (CDP). This does not represent a license to repackage or resell any of the data reported to CDP or the contributing authors and presented in this report. If you intend to repackage or resell any of the contents of this report, you need to obtain express permission from CDP before doing so. Accenture and CDP have prepared the data and analysis in this report based on responses to the CDP 2013 climate change information request. No representation or warranty (express or implied) is given by Accenture or CDP as to the accuracy or completeness of the information and opinions contained in this report. Company scoring was prepared by IMQ on the basis of CDP s own methodology, without any Accenture involvement. Accenture does not take any responsibility for ranking accuracy. You should not act upon the information contained in this publication without obtaining specific professional advice. To the extent permitted by law, Accenture and CDP do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this report or for any decision based on it. All information and views expressed herein by CDP and/or Accenture and/or any of its contributors is based on their judgment at the time of this report and are subject to change without notice due to economic, political, industry and firm-specific factors. Guest commentaries where included in this report reflect the views of their respective authors; their inclusion is not an endorsement of them. Accenture and CDP and their affiliated member firms or companies, or their respective shareholders, members, partners, principals, directors, officers and/or employees, may have a position in the securities of the companies discussed herein. The securities of the companies mentioned in this document may not be eligible for sale in some states or countries, nor suitable for all types of investors; their value and the income they produce may fluctuate and/or be adversely affected by exchange rates. Carbon Disclosure Project and CDP refer to Carbon Disclosure Project, a United Kingdom company limited by guarantee, registered as a United Kingdom charity number Carbon Disclosure Project. All rights reserved.

4 04 CEO Foreword As countries around the world seek economic growth, strong employment and safe environments, corporations have a unique responsibility to deliver that growth in a way that uses natural resources wisely. The opportunity is enormous and it is the only growth worth having. 1 New York State Hurricane Sandy Damage Assessment; Governor Andrew Cuomo; November 12, governor.ny.gov/ press/ damageassessment 2 Based on findings from the report Natural Capital at Risk: The Top 100 Externalities of Business, published by TEEB for Business Coalition in April 2013 This year we passed a significant landmark of 400ppm of carbon dioxide in the atmosphere and are rapidly heading towards 450ppm, accepted by many governments as the upper limit to avoid dangerous climate change. The Intergovernmental Panel on Climate Change (IPCC) 5th assessment report (AR5) strengthens the scientific case for action. Fears are increasing over future climate change impacts as we see more extreme weather events, Hurricane Sandy the most noted with damages totalling some $42 billion 1. The unprecedented melting of the Arctic ice is a clear climate alarm bell, while the first 10 years of this century have been the world s hottest since records began, according to the World Meteorological Organization. The result is a seismic shift in corporate awareness of the need to assess physical risk from climate change and to build resilience. For investors, the Carbon Bubble has been brought to the fore by the work of Carbon Tracker. They calculate around 80% of coal, oil and gas reserves are unburnable, if governments are to meet global commitments to keep the temperature rise below 2 C. This has serious implications for institutional investors portfolios and valuations of companies with fossil fuel reserves. The economic case for action is strengthening. This year, we published the 3% Solution report showing that the US corporate sector could profitably reduce emissions by 3% per year, meeting its share of GHG emissions reductions in line with the 2 degree target. 79% of US companies responding to CDP report higher ROI on emission reductions investments than on the average business investment. This has been noted by the US Administration and reflected in the launch of their Climate Action Plan. Other governments are taking action: China is developing air pollution measures and moving toward pilot cap and trade schemes; the UK government has mandated greenhouse gas emissions reporting for all large listed companies; the EU is looking at improving environmental and other reporting. The pressure on corporations, investors and governments to act continues. At CDP, we have broadened our work to add forests to climate and water so our programs now extend to an estimated 79% of natural capital, by value 2. To reflect this, we rebranded at the start of the year from the Carbon Disclosure Project to CDP and are increasing our focus on projects to accelerate action. One explores how corporations influence public policy on climate change both positively and negatively. Some corporations are still acting both directly and through trade associations to prevent the inevitable: nations need sensible climate regulation that protects the public interest over the long term. As countries around the world seek economic growth, strong employment and safe environments, corporations have a unique responsibility to deliver that growth in a way that uses natural resources wisely. The opportunity is enormous and it is the only growth worth having. Paul Simpson CEO CDP

5 Accenture Foreword 05 When it comes to the management of climate change challenges... competitively pursuing short-time profit is irrational, especially today when the community competitiveness challenge unveils, more than ever, the supremacy of cooperative models against competitive ones. It is widely recognized that some opportunities require a systematic approach to be solved. Being able to look at the world with unexpected, out of the box thinking can spark innovation and apply it successfully and with profit. This belief is the result of our daily work with our clients in defining and executing the strategy to creatively grasp business opportunities. To be fully identified and leveraged, these opportunities need an overall view of the common good and a knowledge of cooperative models. Only in this way can the maximum benefit be reached for both the individual and the community. Nobel prize winner John Nash mathematically proved cooperative behaviors allow reaching the highest benefit for each individual. When it comes to the management of climate change challenges, Nash would say that competitively pursuing short-time profit is irrational, especially today when the community competitiveness challenge unveils, more than ever, the supremacy of cooperative models against competitive ones. Even Michael Porter, the author of Competitive Advantage said that while many companies may still think of global warming as a corporate social responsibility issue, business leaders need to approach it in the same hard headed manner as any other strategic threat or opportunity. For all of the above reasons, the results of the latest survey 3 - conducted by Accenture with the UN Global Compact - were not surprising. The research involved more than 1000 CEOs worldwide and revealed that CEOs see sustainability as an opportunity to increase their competitive advantage: 93% of CEOs see sustainability as important to the future success of their business and 78% see sustainability as an opportunity for growth and innovation. But, at the same time, they are aware that they are not doing all they can: only 33% report that business is making sufficient efforts to address global sustainability challenges and only 38% believe they can accurately quantify the value of their sustainability initiatives. Considering these results, we foresee two main streams to follow. The first is to work on the development of appropriate tools and processes to manage the issue of climate change from a business perspective. If, as CEOs declare, companies still have difficulties in understanding the business case, it will be hard to push the issue forward. The second main stream is to leverage the cooperative model. Following these two streams, we believe companies should invest more in developing internal structures to manage climate change issues and in trying to understand what other companies are doing. They should share experiences and try to leverage on those without necessarily shaping initiatives from scratch. Therefore, as the joint Accenture and CDP working group, we are pleased to participate in the process of creating a sharing platform. To begin, we included some best practices and suggestions on possible new ways to look at business opportunities in the Sector analysis of the report. Danilo Troncarelli Sustainability Lead Italy, Central & Eastern Europe, Russia, Middle East 3 UN Global Compact Accenture CEO Study On Sustainability 2013

6 06 Environmental Ministry Foreword The Italian Ministry for the Environment is committed to promoting carbon management in both the public and private sector, in order to reduce emissions and to foster an Italian transition towards a low carbon economy. Last April we signed with CDP a landmark agreement, in order to mutually endorse each other s activities and together drive action to promote sustainable lowcarbon growth through the voluntary disclosure and measurement of environmental performance in the public and private sector. In this regard, the CDP report plays a significant role in monitoring where we stand. There is growing awareness among companies of the need of designing and producing with low energy consumption and low carbon emissions. Many Italian firms have established that they should put these topics at the core of their business in order to combine sustainability and competitiveness. As the CPD report says, the Italian companies are implementing more advanced management strategies and indicators of climate related activities. Nevertheless, the report explains that companies decreased total investments in carbon reduction initiatives, shifting to projects with shorter payback periods. We need to adjust this trend, leveraging on Public initiatives and fiscal policies designed to encourage the improvement of environmental performance. Since 2009, the Ministry for the Environment has been developing a National Program for the evaluation of the environmental footprint (carbon footprint and water footprint) of industrial processes, products, goods and services. It is a large scale test, involving more than 200 companies, to evaluate the methodologies to assess environmental performances, with the final aim of harmonizing them and making them repeatable. Identifying and testing procedures of carbon management whether through the development and use of low-carbon technologies or the implementation of best practices in production processes and the life cycle management of goods and services the program is a step forward for the green economy in Italy. Companies decreased total investments in carbon reduction initiatives, shifting to projects with shorter payback periods. We need to adjust this trend, leveraging on Public initiatives and fiscal policies designed to encourage the improvement of environmental performance. Corrado Clini Director General of the Department for Sustainable Development, Climate and Energy Ministry of the Environment, Land and Sea

7 There is growing awareness among companies of the need of designing and producing with low energy consumption and low carbon emissions. 07

8 08 Executive Summary CDP requests climate change data on behalf of 722 institutional investors that is used by financial decision makers in their investment, lending and insurance analysis. Accenture, as report writer, has been supporting CDP in analyzing Italian companies responses and identifying key trends in the last three years. This year s report aims to accomplish three main goals: first, to provide insight into key macro trends among our respondents; second, to provide an in-depth look at the behavior of companies in the main sectors; and third, but not least important, to provide insights on best demonstrated practices to bring sustainability to the heart of business. The report is based on 46 responses from companies to the CDP Climate Change Programme the same number as in Out of these, there were 44 unique responses 4, compared to 43 last year, with Banca Generali and Enel Green Power referring to their parent company s response. It should be noted that these 46 responses represent about 77% of the market cap of the top 100 listed companies in Italy and 83% of the FTSE MIB 5. While reviewing results of companies responses, we asked ourselves a couple of main questions. Are companies scaling back measurement, reporting and action in the face of economic headwinds? Do climate issues take a back seat to more traditional bottom line issues? Most people would expect the answer to be an unequivocal yes to both of those questions, but our respondents proved that it is not quite so straightforward. A few main trends emerged, including from the non-responding companies. Climate change is one of those long term issues that need to be addressed now. It has not stopped during the crisis. Europe has not become energy independent. And our energy infrastructure has not become younger This is why reporting through CDP is such an important tool. It can tell investors whether companies integrate climate change challenges into their corporate strategies. It can make companies discover new potential for reducing their own energy use and carbon emissions. It can make new investments more climate-proof. Connie Hedegaard, European Commissioner for Climate Change Action Among firms that declined to participate, in fact, the most common refrain was that they would like to be involved, but they are only just beginning the climate management process and thus do not yet feel comfortable reporting on their activities. Another common response was that firms were funneling resources elsewhere or had downsized the position that would ordinarily be tasked with climate change management and reporting. At a high level, three main trends emerged from the responses of the companies that did participate: 4 These two responses are included to provide a full picture of the response rate, while the remaining analysis in this report is based on the lower total of 44 that excludes these 2 companies 5 FTSE MIB is made of the top 40 listed companies per market capitalization on the Italian Stock Exchange { Companies are becoming more sophisticated in the management and measurement of climate related activities; { Firms are decreasing their total investments in carbon reduction initiatives and are shifting to projects with shorter payback periods; { Improvements struggle to arrive: despite emissions reduction activities and investments reported in the latest years, carbon emissions are not decreasing.

9 09 1. Companies are becoming more sophisticated in the management and measurement of climate related activities. The first key theme is the growing sophistication of Italian respondents, as their responses demonstrate a more comprehensive and involved approach to managing climate change. This maturation is reflected in the scores, as respondents performed markedly better than last year (Fig.1). Indeed, the average 2013 disclosure score for respondents from the 2012 panel qualifies as a high score, a first for Italy. These respondents improved their scores by an average of more than ten points, with 27 firms improving their scores compared to just eight firms whose scores declined. All of this is to say that respondents are getting savvier when it comes to climate change management and reporting, demonstrating that the practice is really beginning to gain traction. Figure 2 shows that more companies across the board are identifying risks and opportunities. In that context, it makes sense that more companies are setting emissions reductions targets (29 in 2013, vs. 25 in 2012), although most have a timeframe of less than five years. More firms are also providing incentives for the management of climate change issues (26 vs. 20). Furthermore, they are undertaking more emissions reduction initiatives (221 vs. 180) and providing more information on their initiatives, adding details about carbon savings, financial savings, and payback period. They also identified more relevant sources of Scope 3 emissions. Translating this sophistication into action is crucial, and as we discuss below, has not quite happened yet. 2. Compared to last year, firms are decreasing their total investments in emission reduction initiatives and are shifting to projects with shorter payback periods. Companies are continuing their quest to reduce emissions, albeit with a slightly different approach that is likely in response to current economic conditions Fig 1. Disclosure scores Average disclosure score in Improvement for 2012 panel 10 Average disclosure score in 2013 for 2012 panel 72 Drop by new companies 6 Average disclosure score in Fig 2. Most commonly reported risks and opportunities Most common risk drivers Risks Opportunities Most common opportunity drivers 77% 72% Regulation Fuel/Energy Taxes (56%) International agreements (48%) Fuel/Energy Taxes (48%) International agreements (42%) 74% 84% 80% 63% Physical 50% Change in precipitation extremes (66%) Change in average temperature (18%) 44% Change in precipitation extremes (63%) Change in average temperature (23%) 66% 60% Other Reputation (52%) Changing consumer behavior (55%) Reputation (47%) Reputation (49%) 63% 73% 80% 60% 40% 20% 0% 20% 40% 60% 80%

10 10 Executive Summary continued Fig 3. Reduction initiative payback periods 45 (34%) 34 (26%) 33 (25%) 19 (15%) 131 (100%) < 1 year 1-3 years 4-10 years >10 years Total and reduced internal resources. The investments have been reshaped, as there is a greater number of smaller investments with quicker payback periods. The number of initiatives with a payback period shorter than three years has increased to 79 from last year s value of 60. The total number of investments increased to 221 from 180 in 2012, while the amount invested decreased by 25% year-over-year, from 3,600 million to 2,700 million. This decrease is strongly related to a reduction in investments by the Materials, Telecommunication Services and Utilities sectors. The increased focus on projects with a payback period of less than one year (Fig. 3) indicates a number of things. Foremost, we believe it is a result of the economic downturn. Capital is limited and firms cannot afford to wait as long for a return on their investments. The second thing this may indicate is that these projects are easier for management to approve. Lastly, this could be a reflection on the difficulty of predicting long term consequences of actions related to climate change. Fig 4. Reduction initiative investment types 104 (48%) 32 (15%) 30 (14%) 16 (7%) 14 (6%) 5 (2%) 4 (1%) 16 (7%) 221 (100%) Another major investment theme revolves around the type of projects firms are undertaking. Energy efficiency projects gained ground in 2013, increasing to 47% from 42% in 2012 (Fig. 4). These projects are broken down into three categories: Building fabric, building services, and processes. Nearly 50% of the energy efficiency initiatives are in the processes category. Energy efficiency projects tend to follow the trend in payback period, with most projects paying off within three years (>60%). 3. Improvements struggle to arrive: despite reduction activities and investments reported in the latest years, GHG emissions are not decreasing. Energy efficiency Low Carbon Transportation Behavioural change Process emissions reductions Product design Fugitive emissions reductions Other Total Taking into account all responding companies, overall reported Scope 1 and Scope 2 emissions 6 decreased (Fig. 5 7 ). However, only a very small portion can be attributed to reduction initiatives. Indeed, this year s respondents reported reductions of only 2.4 million tco 2 e through initiatives, less than 1% of total emissions. Our analysis suggests that the year-over-year decrease in total reported Scope 1 emissions is due to the change in the composition of the panel of respondents, not company improvements; similarly, the decrease in Scope 2 emissions is mostly due to a change in perimeter reporting and a reduction in output, not due to reduction initiatives. Reported Scope 3 emissions increased, though this is likely a result of more accurate reporting and not an increase in emissions. The Utilities sector - in particular power generation - is still the biggest Scope 1 emitter, accounting for over 55% of emissions. These results should drive further reflections: despite the investments, the growing sophistication and integration in company processes, companies emissions are not

11 11 decreasing. Ultimately, the changes cannot be directly attributed to a single cause, like an increase in output. Though this is certainly part of it, a number of other factors also contribute, including acquisitions, changes in boundary, and changes in methodology. Notably, sectors whose emissions increased the most are Consumer Discretionary and Utilities. A few recent events serve to illustrate just how important it is to reverse the trend and decouple emissions from growth. First, in May 2013, the earth surpassed the level of 400 parts per million (PPM) of carbon dioxide in the atmosphere, a level that has not been seen for over one million years. At the time, the Arctic was ice free. For more current context, scientists estimate that at 450 PPM there will be severe and irreversible effects to the climate. Then in September, the Intergovernmental Panel on Climate Change (IPCC) released its fifth climate assessment report, in which it for the first time confirmed with 95% certainty that human activity is responsible for the temperature increase. The report also demonstrates that at the current rate of emissions, we will exhaust our carbon budget by In the IPCC summary for policy makers, the scientists go on to point out that, due to the length of time CO 2 remains in the atmosphere, most aspects of climate change will persist for many centuries even if emissions of CO 2 are stopped. 8 So what can be done to improve the situation? First and foremost, the onus is on the companies themselves to respond to pressure both from investors and from increasingly aware consumers who are beginning to migrate to more eco-friendly companies and products. Though encouraging, investments to date have not been enough to affect real change: it is therefore necessary to further strengthen the business case for sustainability strategies in order to induce more significant and long-term actions. More and more, consumers must exercise their market power by rewarding the more virtuous companies. Investors, with particular regard for long-term investments, must focus more on firms that promote green products and services they must offer easier access to capital and better interest rates for projects designed to reduce our environmental footprint. And finally, the government must create a stable regulatory environment that encourages and incentivizes the achievement of each economic sector s goals, and, ultimately, the collective goal of a sustainable society. The external pressures should be viewed as an opportunity for the firms to become more competitive, providing opportunities for savings in the short run and greater stability in the long run, especially through access to investor capital dedicated specifically to sustainability initiatives. Leaders There are a few companies, however, that have been able to distinguish themselves through exemplary scores in performance and disclosure. This year, three companies made the Climate Performance Leadership Index (CPLI), including Fiat, Yoox, and Assicurazioni Generali. These firms translated action into results, with all three reducing their year-over-year emissions by at least 4% through targeted reduction initiatives, one of the requirements for inclusion in the CPLI. Companies receiving top disclosure scores demonstrate a commitment to climate reporting and transparency. Ten firms made the Climate Disclosure Leadership Index (CDLI) this year, including Buzzi Unicem, Eni, Fiat, CNH Industrial 9, Intesa Sanpaolo, Italcementi, Pirelli, Snam, STMicroelectronics, and Terna. Fig 5. Emissions overview 300 million tco 2 e Scope 1 Scope For the purpose of this report, emissions are global emissions reported by Italian firms in the CDP questionnaire. 7 Scope 2 figures for 2013 are not directly comparable with 2012 as companies can now incorporate the specific emissions factors associated with renewable energy purchases where supported by appropriate tracking instruments. 8 climatechange2013. org/images/uploads/ WGIAR5_WGI- 12Doc2b_FinalDraft_ TechnicalSummary.pdf 9 This year s response can be found online on the CDP site under the company s former name, Fiat Industrial.

12 12 Investor Perspective Things have changed. In 20 years, from Rio to Rio+20 ( ), climate change has become much more than an environmental issue. It is a global challenge whose repercussions are felt in all facets of our society. Climate change threatens, for example, biodiversity and eco-systems, health and food security, with the capacity to affect human well-being and economic development. Isabella Falautano, Chief Corporate Responsibility Officer, AXA Italy 10 The 2013 Earth Overshoot Date, the approximate day when human resource demand exceed nature s budget, fell on August 20th, with a negative trend of an average of 3 days ahead per year since org/psi/ flipbuilder.com/server/ AXA-Paper04/ 14 In the last nine months, we consumed more natural resources than the planet can produce in a year 10, and notably it would take 4 times Italy s area to support our current national rate of consumption. On the one hand, we have an ecological deficit but, on the other, the green economy represents an increasing area of opportunity for innovation and growth. As a leader in the insurance industry, AXA has the responsibility to leverage its expertise to help find solutions to the climate challenge. We have chosen to be active not only in the elaboration of its insurance products by proposing reliable solutions and managing risks, but also by better understanding climate risks and sharing this knowledge with others. AXA, therefore, aims to contribute to increasing society s resilience to climate change and its risks with the ultimate ambition of protecting people, especially the most vulnerable. Since 2003 AXA has supported the CDP by namely taking part in its annual questionnaire. This year, AXA obtained the highest score for the insurance industry (moving from 88 to 94/100) and have been included in the Climate Disclosure Leadership Index (CDLI) for the third year. This index highlights companies within the FTSE Global Equity Index Series (Global 500) which have demonstrated a strong commitment to climate change strategy, governance, stakeholder communications and emission reduction in their CDP responses. In 2012, AXA signed the Principles for Sustainable Insurance 11 at the UN Conference on Sustainable Development. These 4 principles provide a common framework for integrating environmental, social and governance (ESG) criteria into the insurance business. This is one amongst the many ways the private sector, and notably the insurance one, can take action and start implementing solutions. The insurance value chain also includes the investment and asset management activities of our business. AXA is also a long-term global investor with the duty to act in the best interests of its policyholders, shareholders and other stakeholders, which means understanding the risks and the opportunities related to ESG issues in our portfolios. The Group indeed also publicly committed to the United Nations Principles for Responsible Investment 12 (UN PRI), which invite signatories to better ESG criteria into their investment decisions and ownership practices, as well as promote disclosure. Both AXA Investment Managers and AllianceBernstein, the Group s asset management entities, have been UN PRI members since, respectively, 2007 and 2011(as well as the AXA Group in 2012). This complementary Group-level signature indicates an asset owner commitment to integrating responsible investment practices on behalf of AXA s companies. Our role is, as well, underlined by a fast evolution in societal expectations. The comparative 2012 AXA-IPSOS survey, involving more than 13,000 people in 13 countries in Europe, Asia and America, shows clearly that climate change is now a reality that causes people concern regarding its impact on their day-to-day lives.the results for our country, included in the Italian AXA Paper n.4 13, reinforce this key message: in Italy 9 out of 10 people polled (92%, the highest level among in Europe) believe that climate changed significantly in the past 20 years. Far from being fatalistic, 93% of respondents believe that it is possible to limit the consequences of climate change and that each stakeholder has a role to play: insurers should also help in mitigating climate risk -according to the majority of Italian people surveyed (65% vs 61% of the overall average)- while the expectations the most frequently expressed were for insurance products to promote more environmentally conscious behavior, high-level scientific research on climate change and the collaboration with public sector to tackle climate change. These results are very encouraging for us to enhance our work in promoting climate risks research and knowledge-sharing across the general public - as with the AXA Research Fund 14, which, since 2007, has supported globally 139 independent research projects on environmental risks with more than 20M, in Italy the Fund has committed over 7M in nearly 30 projects a third of which linked to climate change and earthquake - as well as to continue addressing climate risks in every aspect of the insurance value chain.

13 Criteria for 2013 Leaders 13 Each year, company responses are analyzed and scored against two parallel scoring schemes: disclosure and performance. The disclosure score assesses the completeness and quality of a company s response. Its purpose is to provide a summary of the extent to which companies have answered CDP s questions in a structured format. A high disclosure score signals that a company provided comprehensive information about the measurement and management of its carbon footprint, its climate change strategy and risk management processes and outcomes. The performance score assesses the level of action, as reported by the company, on climate change mitigation, adaptation and transparency. Its intent is to highlight positive climate action as demonstrated by a company s CDP response. A high performance score signals that a company is measuring, verifying and managing its carbon footprint, for example by setting and meeting carbon reduction targets and implementing programs to reduce emissions in both its direct operations and supply chain. The highest scoring companies for disclosure and/or performance enter the Climate Disclosure Leadership Index (CDLI) and/or the Climate Performance Leadership Index (CPLI). Public scores are available in CDP reports, through Bloomberg Terminals, Google Finance and Deutsche Boerse s website. What are the CDLI and CPLI criteria? To enter the CDLI, a company must: { Make its response public and submit via CDP s Online Response System { Achieve a score within the top 10% of the Italy 100 population (10 companies in 2013) To enter the CPLI (Performance Band A), a company must: { Make its response public and submit via CDP s Online Response System { Attain a performance score greater than 85 { Score maximum performance points on question 12.1a (absolute emissions performance) for GHG reductions due to emission reduction actions over the past year (4% or above in 2013) { Disclose gross global Scope 1 and Scope 2 figures { Score maximum performance points for verification of Scope 1 and Scope 2 emissions { Furthermore, CDP reserves the right to exclude any company from the CPLI if there is anything in its response or other publicly available information that calls into question its suitability for inclusion. How are the CDLI and CPLI used by investors? Good disclosure and performance scores are used by investors as a proxy of good climate change management or climate change performance of companies. Investors identify and then engage with companies to encourage them to improve their score. The Aiming for A initiative which was initiated by CCLA Investment Management is driven by a coalition of UK asset owners and mutual fund managers. They are asking 10 major UK-listed utilities and extractives companies to aim for inclusion in the CPLI. This may involve filing supportive shareholder resolutions for Annual General Meetings occurring after September Investors are also using CDP scores for creation of financial products. For example, Nedbank in South Africa developed the Nedbank Green Index. Disclosure scores are used for selecting stocks and performance scores for assigning weight. For further information on the CDLI and the CPLI and how scores are determined, please visit Note: Companies that achieve a performance score high enough to warrant inclusion in the CPLI, but do not meet all of the other CPLI requirements are classed as Performance Band A- but are not included in the CPLI.

14 Leaders Climate Discloser Leadership Index (CDLI) Companies with a score greater than 70 are considered high scorers, though they are not necessarily Climate Disclosure Leaders. Being a high scorer demonstrates a commitment to environmental transparency, as well as the competence to measure and interpret how the firms impact the environment. The number of high scorers continues to improve, as it went up from 13 in 2011, to 20 in 2012, and now 27 in 2013 (Table 1). Snam in particular makes a significant leap in disclosure performance, jumping from 50 to 95. Disclosure scores are measured across six categories: emissions management, emissions reporting, governance & strategy, opportunities, risks, and verification/stakeholder engagement. CDLI firms outperform their counterparts by at least 20 points per category, though the biggest differences lie in identifying opportunities and risks, where CDLI members score 47 and 43 points higher, respectively. This indicates that CDLI members have given more thought to how climate change will affect them, going beyond mere disclosure. Climate Performance Leadership Index (CPLI) Like 2012, three companies made the CPLI this year, including Assicurazioni Generali, which also made the CPLI Global 500. Fiat continues to lead by example, as this is its third consecutive year in the CPLI. Yoox, in just its second year participating, also joined the ranks of the top performers (Table 2). Though the number of CPLI members remained constant, there was an improvement in general performance, as 21 firms made the top two performance bands, vs. 13 in 2012 (Fig. 7). CPLI members outperform their colleagues by at least 33 points per category, though the largest difference is in emissions performance, where the difference is 57 points. The leaders all demonstrated significant reductions to emissions through the use of reduction initiatives, and in the case of Fiat, even in spite of a significant increase in output. The average disclosure score for firms in the CDLI was 95, demonstrating true leadership in climate reporting. The Consumer Discretionary, Materials, and Utilities sectors were each represented by two firms. The two representatives in the Utilities sector were new this year, as Enel and A2A failed to make it and were replaced by Snam and Terna instead. There is generally a wide range of scores within each industry, though carbon intensive sectors (i.e. Energy, Materials and Utilities) have both smaller ranges and higher averages, indicating that climate management and reporting is particularly important for them (Fig ). Table 1. Italy 100 Climate Discloser Leadership Index 2013 Sector Company Name CDLI 2013 Italy 100 Climate Disclosure Score 2013 CDLI 2012 Italy 100 Climate Disclosure Score 2012 Consumer Discretionary Fiat Pirelli Energy Eni Financials Intesa Sanpaolo Industrials CNH Industrial Information Technology STMicroelectronics Nv Materials Buzzi Unicem Italcementi Utilities Snam Terna 91 82

15 15 Table 2. Italy 100 Climate Performance Leadership Index 2013 Sector Company Name CPLI 2013 Italy 100 Climate Performance Band 2013 CPLI 2012 Italy 100 Climate Performance Band 2012 Consumer Discretionary Fiat A A YOOX A Not Public Financials Assicurazioni Generali A B Fig 6. Range and average of disclosure scores Utilities 87 Telecommunication Services 95 Materials 82 Information Technology 94 Industrials 68 Health Care 25 Financials 52 Energy 87 Consumer Discretionary Disclosure Score Fig 7. Climate performance bands companies per band A B C D 15 Fig 6. The Information Technology and Health Care sectors are each represented by only one company

16 16 Key Statistics 16 They have a higher than average response rate but are represented by fewer companies in the overall sample 17 Fig 8. UTIL = Utilities, MAT = Materials, EGY = Energy, CD = Consumer Discretionary, IT = Information Technology, FIN = Financials, TCOM = Telecommunications, IND = Industrials 18 The number of companies disclosing Scope 1 or 2 emissions includes those that have disclosed their emissions as zero This year, Financials and Consumer Discretionary companies represent over 50% of the respondents but contribute less than 1% of total Scope 1 emissions. Conversely, Utilities, Materials and Energy firms make up less than 30% of the respondents 16 but account for over 95% of reported Scope 1 emissions and over 50% of reported Scope 2 emissions (Fig ). Of total reported extra boundary Scope 1 emissions, 71% occurred outside of Italy this year (Fig. 9). Combined, the 2013 respondents represent nearly 77% of the market capitalization of the 100 firms in our selection. Respondents continue to place significant emphasis on the management of climate change issues, as demonstrated in Figure 10. The percentage of companies assigning top management to the task decreased to 89% from 95% as a result of two new respondents without executive responsibility. Similarly, the percentage of firms providing incentives to achieve specific climate related measures fell to 43% from 47% as a result of no incentive offerings from the six new respondents. Further evidence of progress can be seen in the rates of public disclosure, as 35 companies chose to make their responses public, compared to 29 last year. Moreover, 77% of all respondents voluntarily disclose data to the public via other means than the CDP report, ensuring their stakeholders have access to their climate management data. By being transparent, firms can create an open dialogue with external stakeholders, which is key to advancing the goals of climate management. The number of companies disclosing Scope 1 or Scope 2 emissions was stable in , with five sectors having every company disclose. In total, 82% of the respondents disclose emissions data, providing a near complete picture. Nearly 60% of them also identify at least one source of Scope 3 emissions, though Figure 13 shows that business travel, which should be one of the least relevant sources as not properly linked to the business, is currently the most reported. Evaluating supply chains is a difficult task, though this presents perhaps the greatest opportunity for companies to build their climate management capabilities and identify opportunities to reduce emissions. 91% of Scope 3 emissions are tied to the use of sold products, but it is worth highlighting that this is related to one company only. The key takeaway is that the graph is not representative of actual Scope 3 emissions but instead of the potential impact Scope 3 emissions can have; it demonstrates that the measurement and management Scope 3 emissions needs to play a fundamental role in climate management strategies (Fig ). Landmark agreement signed between Italian Ministry for the Environment and CDP to boost corporate action on environment In April 2013, the Italian Ministry for the Environment, Land and Sea and CDP signed a landmark agreement to mutually endorse each other s activities and together drive action to promote sustainable growth and protect the natural environment via the voluntary disclosure and measurement of environmental information by both the public and private sector. This agreement is the first of its kind in Europe and a direct call for corporate action by the government. From the next disclosure cycle on, Italian companies in the CDP sample will receive an additional invitation by the Ministry, accompanying the official CDP Climate Change Programme, to monitor and manage their carbon emissions. CDP is delighted to support the Italian Ministry for the Environment in the joint efforts to promote emissions reduction activities on a voluntary basis by the private sector as well as public institutions in order to foster an Italian transition towards a low carbon economy.

17 17 Fig 8. Scope 1 and 2 Emissions by sector Scope 1 Scope % 20% 40% 60% 80% 100% million metric tco 2 e UTIL MAT EGY CD IT FIN TCOM IND Fig 9. Extra boundary scope 1 emissions Fig 10. Climate change governance { Italy { Rest of World 89% (39) Board or senior executive oversight (2012: 95%, 41) 29% 69 MtCO 2 e 43% (19) 73% (32) 41% (18) 43% (19) Monetary incentives (2012: 47%, 20) 41% (18) 77% (34) Integrated strategy (2012: 79%, 34) 71% 169 MtCO 2 e

18 31,82% 25,00% 18,18% 18,18% 18 Key Statistics continued Fig 11. Sources of scope 3 emissions 100% 80% 60% 40% 38,69% 20% 13,64% 11,36% 11,36% 2,27% 2,27% 2,27% 2,27% 0% Business travel 0,22% 2,63% 3,15% 0,79% 1,34% 91,14% 0,03% 0,06% 0,09% 0,01% 0,39% 0,15% Purchased goods and services Fuel-and-energy-related activities (not included in Scope 1 or 2) Upstream transportation and distribution Downstream transportation and distribution Use of sold products Waste generated in operations Employee commuting Capital goods Upstream leased assets End of life treatment of sold products Downstream leased assets Total Scope 3 emissions % Companies reporting the Scope 3 source % 19 Fig 11. Only companies reporting Scope 3 emissions using the Greenhouse Gas Protocol Scope 3 Standard named categories have been included below. Whilst in some cases Other upstream or Other downstream are legitimate selections, in most circumstances the data contained in these categories should be allocated to one of the named categories. Reporting companies are encouraged to use these specific categories where appropriate as not doing so and using Other greatly affects data quality and therefore the utility of the data for investors. An attempt to subjectively attribute categories where companies have selected Other has not been undertaken. In addition, only those categories for which emissions figures that are greater than zero and identified as relevant have been provided have been included. >90% of reported Scope 3 emissions are attributed to the use of sold products.

19 The CDP initiative for non-listed companies 19 What about non-listed companies in CDP? Traditionally, only stock market listed companies are requested to respond to CDP. But what about non-listed companies and family owned businesses that want to measure, manage and disclose their climate change data and compare themselves to their peers or customers? For these companies - which anticipate opportunities from responding to CDP - we created the CDP non-listed initiative: Current members: { CTT Portuguese Post { Delipaper { Evonik { Flughafen München { Gesobau { Hermes { HSE { Infraserv { Jean Müller { Robert Bosch { Sofidel Group { Tetra Pak { Werra Papier { Wiedemann Wachswaren This initiative allows non-listed companies of all sizes to evaluate their emissions management and their understanding of potential climate change impacts by using the leading international CDP reporting standard. Members receive support from CDP in-house experts as well as coaching from our consultancy partners. In a second step, the companies results will be subject to a detailed evaluation, highlighting areas of potential improvement and comparative analyses with relevant competitors and/or customers. The focus of the initiative is support our members. Launched in Germany in 2011, CDP decided to expand the initiative to the whole of Europe this year. We currently have two Southern European companies participating: CTT Correios de Portugal who started off with a first-time score of 86 B and the Sofidel Group, an Italian paper manufacturer, who achieved a score of 73 C. 5 good reasons to report voluntarily: { Compare yourself with over 5,000 companies worldwide by using the established CDP reporting standard { Evaluate your emissions management and discover new opportunities in your internal reporting infrastructure { Anticipate climate change related risks (e.g. mandatory GHG-reporting in your country) { Be named in the prestigious local annual report (CDP Iberia Report/CDP Italy Report) { Become an active member of the CDP network and participate in the local launch events and spring workshops

20 20 IMQ - GHG emissions verification, the trend is taken The greenhouse gas (GHG) emissions data that companies quantify and disclose to CDP have become increasingly material for their users, ranging from boardrooms and investors, through business customers, to governments and regulators. The quality and accuracy of GHG emission estimates are therefore regarded by CDP as paramount, and accordingly incentivised by the scoring approach, i.e. through the weight of the score awarded to third party verification or assurance (hereafter, verification) of reported emissions. Third party verification involves a systematic, independent and documented process for obtaining audit evidence (records, statements of facts and other verifiable information), and evaluating it objectively, to determine the extent to which the audit criteria are fulfilled. The audit criteria that CDP accepts to assign full points to the verification questions on its questionnaire are clearly identified as accepted verification standards on its website 20. In 2013 questionnaires, 66% of responding companies reported that they have had (or were having) their Scope 1 and 2 emissions verified, confirming last year s growing trend and highlighting that those companies who had verified their data in 2012, found it beneficial and repeated the process in 2013 (Fig ). In our experience as a conformity assessment body, the benefits of having the reported data verified are both internal to the company, and external. Internally, accurate and reliable figures prove to be necessary to include climate change and environmental sustainability into strategic and development plans. Moreover, being able to discuss the work carried out with a verification team of carbon management experts, is always the best option to understand strengths and weaknesses, to find out where processes can be improved, to provide a sound basis for pushing internal investments and business decisions. Externally, third party verified figures definitely add value to any kind of data analysis, collection and comparison, by assuring that the figures are correct, scientifically sound and that the accounting boundaries have been clearly identified and communicated. Looking at 2013 data in detail, 28 companies verified their Scope 1 and 2 emissions, while 18 verified at least one category type of Scope 3 emissions, generally the scope 3 source(s) stated in the corporate sustainability report and therefore included in the report s assurance process. The discrepancy is mainly due to the lack of data, as 16 companies out of 44 responding ones did not report any Scope 3 emissions, while Scope 1 and 2 emissions data Fig 12. Year on year comparison of companies reporting and obtaining full points for third party verification/assurance of Scope 1 and/or Scope 2 emissions 20 https://www. cdproject.net/en-us/ Respond/Pages/ verification-standards. aspx 21 Fig 12. CDP has been working to encourage greater levels of third party verification/assurance of data in response to demands for higher levels of data quality. The term reported and approved refers to the fact that the number of companies with verification is based on the scoring of the verification statements attached to their response. Where companies report verification/assurance of more than one scope, they are only counted once in the statistic provided on the right Companies with third party verification/assurance approved (full points) Companies reporting verification/assurance underway - first year it has taken place

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