IBM, Tesco and Dell Receive Top Scores in First-Ever Ranking of Consumer & Tech Companies on Climate Change Strategies
Submitted by: Sarah Cohn, Communications
Today Ceres and the Investor Network on Climate Risk published a study, authored by RiskMetrics Group, titled, Climate Change and Corporate Governance: Consumer and Technology Companies. The report is the first comprehensive assessment of how 63 of the world's largest consumer and information technology companies are preparing to deal with the challenges and opportunities posed by climate change. The report spans 11 industry sectors: Apparel, Beverages, Big Box Retailers, Grocery & Drug Retailers, Personal & Household Goods, Pharmaceuticals, Real Estate, Restaurants, Semiconductors, Technology and Travel & Leisure.
While progress is being made, consumer and technology companies still have more to do in confronting the business challenges posed by climate change. With millions of customers and massive operations and supply chains, consumer and technology companies face broad impacts from climate change, whether from higher energy costs due to emerging climate regulations or growing global demand for products that use less energy and contribute fewer greenhouse gas (GHG) emissions.
The Ceres report found that select companies in various consumer and technology sectors are responding to the risks and opportunities presented by climate change, primarily by setting GHG emissions reduction targets, boosting energy efficiency efforts, expanding renewable energy purchases and integrating climate factors into product design. But the report found that many other companies are still largely ignoring climate change, especially at the board and CEO level. For example, only 11 of the 63 companies have their boards receive climate-specific updates from management, only seven of the CEOs among these firms have taken leadership roles on climate change initiatives and none of the companies have linked C-suite executive compensation directly to climate-related performance. The mixed performance was evident in the report's final scores.
Using a 100-point scale, the three highest scoring companies were IBM, UK-based grocery retailer Tesco and Dell, with 79, 78 and 77 points, respectively. More than half of the 63 companies scored under 50 points, with a median score of 38 points.
The scoring methodology behind the report utilizes a Climate Change Governance Framework, developed by RiskMetrics, and which is comprised of 14 indicators to evaluate five main governance areas: board oversight, management execution, public disclosure, emissions accounting and strategic planning. For this report the framework has been adapted to highlight companies' climate change performance in three key areas particularly salient to the 11 sectors reviewed: energy efficiency and renewable energy; product design and promotion; and supply chain management. Individual scores are based on a 100-point scoring system.
To access the full report and key findings, please visit here.
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Tuesday, December 2, 2008 |
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More Technology Firms Will Face Climate Proposals
Submitted by: Heidi Welsh, ESG Research Team
As You Sow, a San Francisco-based advocacy group that urges companies to act responsibly toward the environment, has filed the first of several 2009 sustainability reporting proposals at Apple.
The group is expanding its focus from e-waste recycling to ask information technology (IT) companies for sustainability reports that specifically address climate change, targeting companies that did not respond to the Carbon Disclosure Project. As You Sow plans to file resolutions at Broadcom, Jabil Circuit, Microchip Technology, Micron Technology, Novell, and SanDisk. None of these firms, like most companies in the electronics sector, has received similar proposals in the past.
In March, a resolution from investor John Harrington to establish a board-level sustainability committee received 7.8 percent support at Apple. In contrast, five more broadly worded sustainability reporting proposals--which are similar to As You Sow’s new proposal--fared better, averaging just under 30 percent support.
Over the last several years, As You Sow has focused on electronic waste and recycling issues. One of its recent successes is an “electronics take-back” program run by Best Buy that is in place at the company’s 900 stores nationwide, after an initial run at 130 test stores. A critical component of e-waste recycling is chain-of-custody monitoring for recovered toxics—an issue that could spawn shareholder proposals in the future.
Building on its e-waste recycling in a new effort for 2009 makes sense, says Conrad MacKerron, director of As You Sow’s corporate social responsibility program, because the IT industry contributes significantly to climate change. MacKerron told RiskMetrics that greenhouse gas emissions from IT firms are estimated to make up 2 percent of all carbon emissions globally, “on par with the aviation industry,” and that electronics firms need to take action. “We will seek to link the impact of e-waste to climate change,” MacKerron explained, because “increased recovery of e-waste can reduce the need for the carbon-intensive process to mine and process new metals for electronics.”
For example, he pointed to an Environmental Protection Agency estimate that the gold in 100 million cell phones yields 3.4 metric tons of recovered gold, which avoids the need to mine and process 5.5 million tons of soil and rock. The related energy and fuel use savings could “dramatically reduce GHG emissions” in the electronics industry supply chain, MacKerron concluded.
As You Sow is continuing its dialogue on emissions reporting and reduction with industry leaders Dell and Hewlett-Packard, MacKerron said, examining how the companies calculate their emissions and obtain data from global supply chains.
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Wednesday, October 1, 2008 |
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Survey Finds Declining EEO-1 Disclosure
Submitted by: Peter DeSimone, Labor Standards Researcher
RiskMetrics Group, in coordination with the Sustainable Investment Research Analyst Network (SIRAN) and Walden Asset Management, today released the results from a second survey of Equal Employment Opportunity (EEO) disclosure among S&P 100 firms. A follow-up on a benchmark study from 2005, the second EEO survey suggests the disclosure rate among S&P 100 companies has diminished over the past two to three years.
The report finds companies that confirmed a policy to provide investors with comprehensive EEO-1 data, either in public reports or on request, decreased from 54 percent in 2005 to 36 percent of responding companies in 2007-8. While partial EEO data providers increased from 13 to 21 percent, those confirming that they do not disclose such information increased from 33 to 43 percent over the same period.
However, even these low reporting rates are likely overstated, as those electing not to participate—approximately half of S&P 100 companies—are assumed to be much less likely to disclose EEO information. Also, the companies surveyed are among the largest in the United States and have likely been under more scrutiny for their employment practices and pressure to disclose EEO-1 data than smaller firms.
There are several possible explanations for the precipitous fall in reporting rates. Shareholder pressure on this issue, in the form of resolutions filed during proxy season, has declined in recent years, as calls for broader global sustainability reporting—not aligned with U.S. EEO-disclosure requirements—have increased.
In addition, as of September 2007, the revised EEO-1 Report requires, among other changes, companies to separate the “Officials and Managers” job classification into two levels based on responsibility and influence, “Executive/Senior Level Officials and Managers” and “First/Mid-Level Officials and Managers.” Therefore, given that employment disparities by race and gender tend to increase at higher management levels, companies may be more reluctant to share the EEO-1 Report.
You can access the full report by clicking here.
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Monday, May 5, 2008 |
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RiskMetrics Group Finds One in Five Large Firms Set Labor Supplier Standards
Submitted by: Peter DeSimone, Head of Labor and Human Rights Research
RiskMetrics Group just completed a year-long pilot project assessing more than 1,800 global companies-the S&P 500, the Toronto Stock Exchange 300 and the Morgan Stanley EAFE index excluding Japan—on more than 200 policy and performance indicators, including more than 60 on supplier labor standards. Findings from the report reveal a fifth of all large cap companies have codes addressing their suppliers’ compliance with labor standards. Still fewer, though, monitor their suppliers on their adherence to these standards.
The labor issues most frequently addressed by companies in their supplier codes were child and forced labor and workplace discrimination; 15 percent of all the companies surveyed set standards for their suppliers on these points. The next most common provisions in supplier codes were freedom of association (12 percent) and harassment, health and safety and wages (all tied for 10 percent). However, far fewer companies set standards for their suppliers on these labor issues that were as stringent as the corresponding core conventions of the International Labor Organization (ILO) with regard to barring child labor, forced labor, and discriminatory practices, and upholding freedom of association, the right to organize and collective bargaining.
For example, while 15 percent of the companies RiskMetrics analyzed had anti-discrimination policies, only 3 percent met the standards outlined in ILO conventions 100 and 111. Most fell short of ILO 100 by not specifically stating in their supplier EEO policy that it applies to pay. On ILO 111, those disqualified for meeting this standard did not include all of the classifications listed in the convention (i.e., race, color, sex, religion, political opinion, national extraction or social origin).
While 20 percent of the surveyed companies set labor standards of some kind for their suppliers, only 14 percent mentioned that they actually monitored their suppliers for compliance. Even fewer—12 percent—outlined consequences for suppliers found in violation, or whether they would engage the facilities in implementing corrective actions (11 percent). Meanwhile, fewer than half of the companies with supplier codes acknowledged training workers on these policies and programs (7 percent) or reporting on the findings from these efforts (4 percent). Likewise, 10 percent of the firms had supplier codes with a health and safety statement, but only 2 percent addressed workers’ contact with hazardous chemicals.
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Friday, April 11, 2008 |
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Survey Assesses Director Views on Political Disclosure
Submitted by: Valentina Judge, Social Issues Service
A survey of U.S. corporate directors commissioned by the Center for Political Accountability, the Washington, D.C., group that has advised a five-year shareholder campaign for better disclosure and governance of corporate political contributions, finds evidence that its message is taking root in corporate boardrooms.
The survey, conducted by Mason-Dixon Polling & Research, showed corporate political giving to be a significant issue for directors, a strong majority of whom also support disclosure. However, the survey also indicated that directors possess considerably less knowledge about campaign finance rules and their own companies’ policies and activities than they say.
Read more about the survey results and corporate political giving here.
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Friday, March 28, 2008 |
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2008 Preview: Social Issues
Submitted by: Carolyn Mathiasen, Social Issues Service
The following is a preview of proposals on political contributions, health care, product safety, and other social issues filed by shareholders at U.S. companies this year.
For the 2008 proxy season, the second-leading category of social issues proposals--after those concerning climate change--asks companies to disclose and better monitor their political contributions, including, in many cases, their political activities through trade associations. So far, proponents have filed more than 50 such resolutions.
This season also features an expanded campaign on health care issues and new proposals that target product safety. Proposals also abound on long-standing concerns for socially focused investors, including those seeking to expand equal employment protections to employees regardless of sexual orientation.
The shareholder effort to obtain more information on corporate political contributions is now in its fifth year. The proposals ask companies to issue semi-annual reports on all political contributions, as well as providing the guidelines for those contributions and identifying the persons involved in making contribution decisions. The resolutions include a request for information on contributions to so-called “527 committees”--groups formed for the purpose of influencing elections, but not overtly supporting or opposing specific candidates. In 2007, the average support for these proposals climbed to 25 percent. Moreover, proponents achieved 22 withdrawal agreements; they had worked out only nine in the first three years of the campaign.
The 2008 resolutions contain a clause asking for a reporting of dues paid to trade associations, defined in the proposal as “payments made to any tax exempt organization that is used for an expenditure or contribution if made directly by the corporation would not be deductible under Section 162 (e)(1)(B) of the Internal Revenue Code.” The resolutions follow a template developed by the Center for Political Accountability, a research group in Washington that focuses on corporate political spending. The shareholder campaign was initially spearheaded by labor unions, but social investment funds, church groups, and New York City’s funds are now filing extensively.
At this point the number of withdrawals of political contribution proposals is not reaching the heights of 2007 but is still substantial. Calvert Asset Management has reached a withdrawal agreement with Xerox, and Domini Social Investments withdrew a similar proposal at American Express. In addition, Walden Asset Management has reached agreements with Adobe Systems, Praxair and United Parcel Service. Other withdrawals on this topic include AFL-CIO resolutions at Johnson & Johnson and Bristol-Myers Squibb, a New York City funds resolution at United Technologies, an International Brotherhood of Teamsters proposal at Capital One, and a Sheet Metal Workers' International Association resolution at Prudential Financial.
Health Care Principles
This is the second year that activist shareholders have waged a campaign for universal health care. In 2007, a coalition of church groups and the Nathan Cummings Foundation, with advice from the AFL-CIO, proposed a resolution asking seven companies to report on “the implications of rising health care expenses and how it is positioning itself to address this public policy issue without compromising the health and productivity of its work force.” Only two of those resolutions went to a vote.
The 2008 campaign, which includes 28 resolutions from the AFL-CIO and church groups, is considerably larger. The proposals’ resolved clauses list five Institute of Medicine principles, which state that health care coverage should be universal, continuous, and affordable. Church groups submitted proposals at CVS Caremark and other health care firms that focus on corporate lobbying efforts to maintain the status quo. The AFL-CIO and church groups also filed proposals that stress the impact of health care costs on the U.S. economy at Wendy’s International and other corporations outside the health care industry.
Proponents have withdrawn resolutions at Abbott Laboratories, Aetna, Bristol-Myers Squibb, Eli Lilly, General Electric, IBM, Johnson & Johnson, McDonald’s, Medco, WellPoint, ExxonMobil, Merck, Target, and Waste Management after many of the companies agreed to post statements on health care reform on their Web sites. The AFL-CIO withdrew the resolution at IBM after the company issued a two-page letter on its health care position, supporting universal coverage. At this point, it appears that 12 resolutions on the health care principles will come to a vote.
For the second year in a row, the SEC staff has issued confusing “no action” letters on health care resolutions. The staff of the agency’s Division of Corporation Finance has traditionally allowed companies to exclude health care proposals on “ordinary business” grounds, based on the reasoning that they relate to employee benefits. This year, a number of companies argued that they should be able to omit resolutions on these grounds. Among them, United Technologies characterized the proposal as “seeking modifications to the company’s employee benefit programs,” while Boeing argued that “the proposal, concerning health care costs, should be treated as relating to the company’s ordinary business of providing employee benefits,” and CVS Caremark argued that it would “impact how the company determines employee health care benefits issues.”
While the SEC staff rejected the omission requests from United Technologies, Wendy’s, and Boeing, the agency allowed CVS Caremark and Wyeth to exclude the church groups’ resolution that mentioned lobbying on ordinary business grounds. The SEC staff letter defined ordinary business in this case as “employee benefits.” Why the SEC staff allowed the omission of the proposals that mentioned lobbying, but not the other health care proposals, is unclear.
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Monday, March 17, 2008 |
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Carbon Trading Exchanges – New Players in the U.S. and International Markets
Submitted by: Megan Good, Climate Change Research Team
This may be the year when carbon trading enters center stage. Growing interest in emissions trading is emerging not just in Europe, but also in the United States and globally. This still young market could see a shake-up as experienced exchange operators, such as Climate Exchange plc and Nord Pool, are challenged by a host of newcomers.
Today, NYMEX Holdings, in partnership with several investment banks and brokers, launched carbon derivatives trading on a new “Green Exchange” in New York. This is the first real challenge to U.S.-based Chicago Climate Exchange, owned by Climate Exchange plc, and is bound to spark new interest in potential growth for the U.S. carbon market. Last month, New Carbon Finance, a research firm, predicted that the U.S. carbon market could be valued at $1 trillion by 2020 if Congress passes a federal “cap-and-trade” system after the next presidential election.
Emissions trading markets allow polluting companies in countries regulated by the Kyoto Protocol to pay others to cut greenhouse gas (GHG) emissions on their behalf to meet emissions reduction targets. Companies in unregulated markets can also make voluntary commitments to reduce their emissions and trade on exchanges such as the Chicago Climate Exchange.
As pressure mounts for negotiators to agree on a post-2012 successor agreement to the Kyoto Protocol, exchange operators and banks are quickly seizing new opportunities. The value of global carbon markets grew by 80 percent from 2006 to 2007, reaching $60 billion in 2007, according to consulting group Point Carbon. This market is expected to continue to grow rapidly, and extend from Europe to the United States.
Several factors are driving this trend. For one, the likely presidential nominees in each party are backers of cap-and-trade legislation. After Sen. John McCain emerged as the Republican candidate for president on the Feb. 5 “Super Tuesday” primary, the price of carbon dioxide traded on the Chicago Climate Exchange jumped from $2.70 for $4.50 per ton. Like his Democratic counterpart, Sens. Clinton and Obama, McCain has pledged to make passage of climate change legislation a hallmark of his presidency. In addition, this bolsters the chance that the United States will be an active participant in the “Bali Roadmap” for a new global climate agreement, and open the door to new carbon trading markets at home and abroad.
Europe vs. the United States
Even without an international post-2012 agreement, Europe is committed to moving ahead on its own. In January, the European Commission announced its proposal for emissions reduction targets to 2020 as well as an update to the European Union Emissions Trading Scheme (EU-ETS). Given that carbon prices for the first phase of trading (2005-2007) collapsed in 2006 due to an oversupply of emissions allowances to affected entities, Europe is now focused on tightening targets, reducing the free allocation of permits and expanding coverage to new industries, including airlines, in the next round (2008 2012), which coincides with the first binding limits under the Kyoto Protocol. The Commission’s proposal still needs approval from national governments and the European Parliament, and extensive debate is likely to continue.
Meanwhile, as the United States awaits adoption of its own federal climate legislation, the focus is on voluntary markets, including the Chicago Climate Exchange and a market in Renewable Energy Certificates (RECs) that is meant to spur alternative energy investment. Twenty-seven states plus the District of Columbia have Renewable Portfolio Standards in place that drive the REC market. Additionally, 10 states in the Northeast and Mid-Atlantic region have agreed to a cap-and-trade program to control power generation emissions starting in 2009 under the Regional Greenhouse Gas Initiative (RGGI). And finally, the Chicago Climate Exchange also announced plans in May 2007 to launch the California Climate Exchange, which will support that state’s mandatory reductions under the California Global Warming Solutions Act, or AB32. At the same time, several states, including participants from Canada and Mexico, have moved towards standardized corporate emissions reporting through The Climate Registry, a non-profit agency that aims to provide transparency in emissions accounting.
This range of trading options has created a wide variance in carbon prices. A ton of carbon dioxide traded voluntarily on the Chicago Climate Exchange now trades for just over $5, for example, while an equivalent contract on the European Climate Exchange, also managed by parent company Climate Exchange plc, fetches around $35. The main reason for the disparity is that the European trades count toward emissions reductions under the Kyoto Protocol, whereas the U.S. trades do not.
But this all could change after this fall’s national elections, and several U.S. banks are already preparing for the future. As one the world’s two largest GHG emitters (along with China), the United States is expected to quickly surpass Europe in carbon trades as its key industries become regulated. Banks are eager to step in as intermediaries, and many are buying up carbon credits to sell to industry and national governments later on. Morgan Stanley, for one, has announced plans to commit approximately $3 billion over the next five years to buying carbon credits and developing emissions reduction projects. Several other U.S. and international banks are also building carbon credit portfolios and offering brokerage services for clients, including Barclays plc, Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch and Morgan Stanley.
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Wednesday, March 12, 2008 |
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Sub-Prime and Carbon: an Eerie Similarity
Submitted by: Doug Cogan, Head of Climate Change Research
I recently submitted an article to Responsible Investor on the similarities between the sub-prime fallout and the climate change crisis. The article, Sub-Prime and Carbon: An Eerie Similarity, covers why banks may be failing to account for underlying risks to a huge class of assets, with tremendous repercussions for the global economy going forward.
While the banking sector itself is not a big emitter of greenhouse gases that contribute to global warming, it is the primary financier of industries that are the major emitters. As regulatory controls and market prices are put on these emissions, this will have a tremendous influence on how banks price securities, assess credit risks and make future investment and lending decisions. At the same time, banks face new opportunities to engage in carbon trading, develop new climate-focused products and services, and invest in the emerging clean technology sector.
To read the article on Responsible Investor, please visit here.
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Friday, February 15, 2008 |
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Investor Group Confronts Mutual Funds Over Sudan
Submitted by: L. Reed Walton, Publications
Shareholders at several dozen mutual funds will likely be able to vote on whether the funds should withdraw their investments from companies operating in or supporting Sudan.
The Securities and Exchange Commission ruled Jan. 24 that Boston-based Fidelity, the nation’s largest mutual fund company, could not exclude a proposal that urges 11 Fidelity funds to adopt procedures to screen out investments in companies that contribute to genocide. The resolution, submitted by non-profit group Investors Against Genocide (IAG), cited Fidelity’s investments in PetroChina, which has ties to the Sudanese government through its parent, China National Petroleum Company.
More than 400,000 people in Sudan’s Darfur region have died from violence or starvation, and an additional 2.3 million have been forced from their homes since fighting between ethnic Sudanese and Arab militias backed by the country's government began in 2003, according to the Save Darfur Coalition.
Twenty-two U.S. states and 58 colleges and universities have adopted Sudan-related divestment policies, and 15 companies have completely divested or have publicly announced plans to do so, according to the Sudan Divestment Task Force. Last year, Warren Buffett’s Berkshire Hathaway, which was once PetroChina’s third-largest shareholder, began reducing its stake in the company.
On Dec. 31, President George W. Bush signed the Sudan Accountability and Divestment Act, which allows mutual funds and private pension funds to more easily drop their investments in companies that support the government of Sudan. The increased government and press attention to Darfur does not seem to have affected the mutual fund industry, Eric Cohen, chairman of IAG, told Risk & Governance Weekly.
The SEC ruling likely clears the way for the IAG resolution to appear on the ballots at many mutual funds this year. IAG has filed the proposal at 28 of Fidelity’s mutual funds, 20 Vanguard funds, and several others--totaling more than 50. The non-profit group, encouraged by the recent SEC decision in the Fidelity case, plans to file the proposal at hundreds of additional mutual funds in the coming months, Cohen said.
Investors Against Genocide, previously known as the Fidelity Out of Sudan campaign, is a Boston-based organization that has received support from 46 Massachusetts legislators, the National Council of Churches, and the American Jewish World Service, among others.
U.S. mutual funds do not often receive shareholder proposals, and IAG is targeting these investment vehicles almost exclusively, making the large number of filings this year unprecedented. SEC spokesman John Nester declined to comment on how the agency would rule on requests by other mutual funds to exclude the IAG proposal, according to the Boston Globe.
Fidelity told the Globe that it disagrees with the commission’s decision. “Although the SEC staff has not concurred with our position, we continue to believe the proposal deals with matters relating to a fund's ordinary business operations, and contains false and misleading statements,” Fidelity spokesman Vince Loporchio said. The proposal will first go to a vote at several Fidelity funds on March 19.
On Feb. 11, the agency proposed regulations to implement the Sudan divestment legislation. The rules would require registered investment companies to tell shareholders how many shares were divested and when, as well as the name of the company that was the target of divestment and its ticker symbol.
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Friday, February 8, 2008 |
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Climate Change is in the Wind
Submitted by: Emily McAteer, RiskMetrics Group Climate Change Research Group
Although Super Tuesday did not resolve who will be our 2008 Presidential nominees, it did make one thing almost certain: the United States will embrace climate change legislation in the next administration. All three leading candidates—Sens. Clinton, McCain and Obama—have made it clear this issue would be high on their agenda after entering the White House. Congress is also getting ready to act, with the introduction of no less than seven congressional bills proposing greenhouse gas (GHG) controls in the past year. This leaves little doubt that the U.S. is gearing up to follow Europe—albeit belatedly—in placing a price on carbon emissions.
This change in political winds hasn’t been lost on U.S. chief executives, including in the banking sector. A price on carbon will inevitably alter costs of production, the pricing of securities and the assignment of credit and asset valuations. It will also bring new opportunities for banks to engage in carbon trading, develop new climate-focused products and invest in the burgeoning clean technology sector. As Mindy Lubber, president of the investor and environmental group coalition Ceres, said at the RiskMetrics Governance Conference held in New York City this week, “it is unimaginable that the banks will be anything other than one of the most important players” in addressing climate change.
A month ago, RiskMetrics Group produced a report commissioned by Ceres that examined how 40 of the world’s largest financial institutions are preparing themselves for climate change. The study found that while banks are not high emitters of greenhouse gasses themselves, they are the primary financiers of the world’s most carbon-intensive industries. And while most banks are beginning to focus on their own emission footprints—and in many cases pledging to go “carbon neutral”—only a handful are factoring a price for carbon in their lending and investment decisions.
As a recommendation, the report, Corporate Governance and Climate Change: The Banking Sector, called on banks to “explain how they are factoring carbon costs into financing and investment decisions, especially for energy-intensive projects that pose financial risks as carbon-reducing regulations take hold worldwide.”
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Tuesday, January 29, 2008 |
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Investors Face Big, Emerging Risks from Sea Level Rise
Submitted by: Doug Cogan, Climate Change Research Group
The latest news out of Antarctica should send shock waves around the globe. Or perhaps I should say a tidal wave, because some of its glaciers are melting surprisingly fast and could start to swamp our coastal cities, where half the world’s population lives, as the sea level rises. Owners of long-lived coastal assets—and those who insure them—should take heed.
As the last unpopulated and undeveloped continent on Earth, Antarctica hardly seems like a place worthy of much attention, but it is our world’s canary in a coalmine. Just as the discovery of the “ozone hole” over Antarctica 20 years ago led to a ban on man-made chlorofluorocarbons, the latest discovery speaks to the need to clamp down on greenhouse gas emissions from fossil fuels that are contributing to this melting.
Until recently, scientists thought that Antarctica’s climate and ice sheets would remain relatively stable and withstand the effects of global warming for at least many centuries. Now signs are that altered wind and ocean currents already are bringing warmer water to the continent’s perimeter, eating away at Antarctica’s frozen edges.
Especially vulnerable is the West Antarctic Ice Sheet, an area about the size of Texas, whose terrain is flat, shallow and mainly under sea level. As its boundary starts to melt, the effect is much like popping a cork from a bottle—unplugging a flow of ice that is hard to stop once it gets going. If all of the West Antarctic Ice Sheet were to melt, it would release enough freshwater to raise the global sea level by nearly 25 feet, flooding major urban areas like New York City, Florida’s “Gold Coast” and California’s Sacramento delta, to name but just a few U.S. examples.
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Thursday, January 10, 2008 |
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What You Need to Know for 2008--Corporate Governance and Climate Change: The Banking Sector
Submitted by: Sarah Cohn, Marketing and Communications
Today, Ceres and the Investor Network on Climate Risk released a new report on Corporate Governance and Climate Change: The Banking Sector, authored by RiskMetrics Group. The report examines how forty of the largest banks are preparing to face the challenges of minimizing climate risks, and utilizes a Climate Governance Index, developed by RiskMetrics Group in conjunction with Ceres and the Investor Network on Climate Risk. The index is comprised of fourteen indicators to evaluate five main corporate governance areas.
The full findings from the report will be revealed in a RiskMetrics Group webcast on Friday, January 11 at 11 a.m. EST. Part of RiskMetrics Group’s What You Need to Know for 2008 program, the webcast panelists Mindy Lubber, President of Ceres, and Doug Cogan, Head of Climate Change Research at RiskMetrics Group, will share why European banks lead in climate governance responses and how corporate governance and board directors are addressing the governance controls needed to minimize climate risks. Panelist Bruce Gillander, Division Director at the Florida Department of Financial Services Division of Treasury, will discuss how the Florida Division of Treasury is engaging with investment managers on climate change.
This report and webcast are the latest in a series of research projects by RiskMetrics Group that provide investors with actionable insights into how climate change will affect companies and financial markets. We've collected these efforts on a page in the RiskMetrics Group Knowledge Center dedicated to climate change.
To register for the webcast and download the paper, please visit here.
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Monday, January 7, 2008 |
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RiskMetrics Group Webcast—Corporate Governance and Climate Change: The Banking Sector
Submitted by: Sarah Cohn, Marketing and Communications
With nearly $6 trillion in market capitalization, the global financial sector will play a vital role in supporting timely, cost-effective solutions to reduce global greenhouse gas emissions. Ceres, a leading coalition of investors, environmental organizations and other public interest groups working to address sustainability challenges such as global climate change, and the Investor Network on Climate Risk will soon publish a groundbreaking report, authored by RiskMetrics Group's Climate Change Research Group, that reveals how forty of the world's largest banks are preparing to face the challenge of minimizing climate risks.
Please join Mindy Lubber, President of Ceres, and Doug Cogan, Head of Climate Change Research at RiskMetrics Group, as they share the findings from the report, Corporate Governance and Climate Change: The Banking Sector. The forum will also provide insight into how corporate executives and board directors are addressing the governance controls that will be needed to minimize climate risks while maximizing climate-friendly opportunities.
Register for the webcast here.
Click here to view the full What You Need to Know for 2008 Educational Series.
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Tuesday, December 18, 2007 |
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Looking Beyond the Bali Climate Change Talks
Submitted by: Doug Cogan, Head of Climate Change Research
Many of you probably saw the headlines over the weekend that the United States has agreed to formally participate in a successor treaty to the Kyoto Protocol, which is set to expire in 2012.
This is being heralded as big news, because the Bush administration had opted out of this climate treaty in 2001. But the reality is that tough negotiations on a new agreement are not going to take place until 2009, after President Bush leaves the White House. And virtually all of the candidates to succeed him have acknowledged the need to re-enter the post-Kyoto negotiating process.
So, in effect, the Bush administration is running out the clock on its term in office, while sparing the U.S. further ignominy of being the last industrialized nation to embrace the need for greenhouse gas controls. (Australia had been the other holdout, but it endorsed Kyoto last month after holding federal elections.)
The other thing that happened at Bali—or actually didn’t happen, I should say—is that no agreement was reached on the how much to cut future greenhouse gas emissions. The European Union had been calling for industrialized countries to achieve a 25 to 40 percent cut below 1990 levels by 2020. But the U.S., Canada and Japan insisted that this figure should be worked out in the next two years of negotiations, not decided at Bali. These are among the industrialized nations whose emissions have grown the most since 1990, so they’ll have the hardest time achieving such cuts.
Nevertheless, the U.S. delegation at Bali did agree to language that calls for “deep cuts in global emissions,” as called for in the latest report from the Intergovernmental Panel on Climate Change (IPCC), whose authors share the 2007 Nobel Peace Prize with former Vice President Al Gore. And by deep cuts, the IPCC means really deep cuts!
If the goal becomes to hold the global temperature increase below 5.5 degrees F (or 3 degrees Celcius), the IPCC says industrial nations will need to achieve emissions cuts in a range of 40 to 90 percent below 1990 levels by 2050. And if the goal is to hold the increase below 3.6 degrees—which the IPCC believes would be much better for the climate and global environment—then industrialized nations would need to achieve cuts of 25 to 40 percent below 1990 levels by 2020, as the E.U. is recommending, and cuts of 80 to 95 percent by 2050. For all practical purposes, this would mean a virtual “de-carbonization” of industrial economies over the next half-century.
One final thing that came out the Bali climate negotiations—and a sticking point that almost derailed these talks—is that industrialized nations agreed to provide technical and financial assistance to developing nations so that their greenhouse gas emissions also are reduced from baseline forecasts as their economies grow. The U.S. delegation objected to this language, but finally relented after other delegates accused it of abrogating its leadership role in these talks.
So why does all of this matter to investors? First, it means that global warming is no longer a debate about science, but rather one about politics and economics. Second, it means that carbon emissions are going to become a big factor in global trade, with industrial countries earning credits for clean technologies that they help finance and deploy in emerging markets. And third, and most important, it means that carbon will come with a market price on emissions, which will have a profound effect on future investment decisions.
One investment banking analysis released just yesterday projects that carbon dioxide emissions now being traded in Europe will rise to 35 euros ($50) per tonne for allowances traded in 2008 and beyond. In the power sector, that would have the effect of making new gas-fired power plants competitive with new coal-fired ones, even though coal fuel costs are 50 percent cheaper than natural gas. The ripple effects would be felt throughout many industries that are heavy electricity or fossil energy consumers.
At the same time, carbon pricing is also going to have a profound effect on commodities trading, investment and lending decisions, asset liabilities and credit ratings. Just last week, four major banks teamed up with the New York Mercantile Exchange to announce the formation of the Green Exchange, a new commodities exchange that will offer a range of environmental futures, options and swap contracts for climate change-focused markets, starting in early 2008.
Also stay tuned for a RiskMetrics report to be released next month—commissioned by Ceres and the Investor Network on Climate Risk, an investor coalition with $4 trillion in assets under management—that analyzes how climate change will affect all facets of the banking industry. We’ll be holding a webcast with Ceres in early January to discuss the report.
*This commentary expresses the views of the author alone and does not purport to represent the views of RiskMetrics Group or its clients.
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Monday, November 26, 2007 |
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Investors and Boards – Encouraging or Restraining ESG?
Submitted by: Stephen Deane, Governance Institute
Who is advancing ESG onto corporate agendas, and who is putting on the brakes – CEOs, boards or investors?
If you believe that investors are demanding that companies take action on environmental, social and governance issues (ESG), while corporate executives are resisting it, you may be surprised by the findings of a McKinsey & Co. survey of CEOs at companies participating in the UN Global Compact. McKinsey describes its findings in Shaping the New Rules of Competition: UN Global Compact Participant Mirror as well as in an October article in McKinsey Quarterly online titled “CEOs on strategy and social issues.”
“Chief executives around the world increasingly believe that they have a strategic rationale for taking on environmental, social, and governance issues,” according to the MQ article. (That’s not surprising, given that these execs lead companies that have already signed on to the UN Global Compact. ) CEOs feel pressure from increasing societal expectations – especially from employees and consumers.
But where do investors and corporate boards fit in this picture?
Turns out, investor short-termism ranks as a big-time barrier. Companies need a long-term horizon to invest in ESG, but shareholders demand short-term financial performance. And that leads to competing strategic priorities, which the CEOs ranked as the top barrier. CEOs on Strategy explains:
Shareholder demands for strong short-term performance, for example, compete with environmental, social, and governance investments that are longer term by nature. The absence of clear and consistent metrics that could relate such investments to (or correlate them with) investor returns exacerbates this conflict. In fact, fewer than one-fifth of the CEOs we surveyed believe that financial markets account for the way a company approaches environmental, social, and governance issues when they value it.
The survey also revealed gaps between what CEOs thought companies should do and what they actually do. Two gaps jumped out at me:
• 69% of surveyed CEOs believe that companies should “have the board, as part of its risk-management and fiduciary responsibilities, discuss and act on these issues.” But only 45% say that boards actually do this.
• 51% of the CEOs believe that companies should “embed these issues into investor relations strategy by incorporating them into discussions with mainstream financial analysts.” But only 31% say that companies do so.
Nonetheless, McKinsey sees promise in investment initiatives underway to encourage ESG activity. These include investment firms that support the UN Principles for Responsible Investing, pension funds that base investments on those principles, and Goldman Sachs’ Global ESG Framework. Still, McKinsey observes:
These initiatives still have to gain further traction – sustainability reports rarely highlight the most financially relevant issues, and investment initiatives and frameworks have yet to become part of the capital market mainstream – but current activity is promising.
What do you think? What are your views on these three questions:
* By demanding short-term returns, are investors part of the problem? Or, by pressing companies to fulfill ESG responsibilities, are investors part of the solution?
*And what about boards? Are they doing their job to discuss and act on ESG as part of their oversight role? Are they a positive influence or a constraint on company actions on ESG?
* Last but not least, what can all parties do to enhance the role of both investors and boards in encouraging companies to address ESG issues?
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Thursday, November 15, 2007 |
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New Study Identifies Large Differences in Global Sustainability Governance
Submitted by: Heidi Welsh, ESG Research Analyst
RiskMetrics Group’s Environmental, Social and Governance (ESG) team just released a new study today which identifies large differences in global sustainability governance. The extent to which large cap global companies are regulating themselves with regard to ethics, climate change, other environmental concerns, and labor and human rights varies significantly by nationality and industry sector. These findings emerge from RiskMetrics Group's year-long project assessing more than 1,700 global companies--including the S&P 500, the Toronto Stock Exchange 300 and the Morgan Stanley EAFE index excluding Japan--on more than 200 policy and performance indicators.
EAFE companies clearly outperform S&P 500 firms on both climate change and other environmental issues, but U.S. firms have the edge on ethics policies. For labor and human rights, overall performance between EAFE and S&P 500 did not differ substantially. Canadian firms (the TSX 300), overall, lagged companies in the other two indices, but did best on labor and human rights. In addition, while some individual companies stand out as clear leaders, overall average performance by sector and industry stood at less than 50 percent of the ideal defined in the research model.
To access the study, please visit here.
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Monday, September 24, 2007 |
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The Carbon Disclosure Project Releases Fifth Annual Report on Global Climate Change
Submitted by: Sarah Cohn, Marketing and Communications
The Carbon Disclosure Project (CDP), a collaboration of over 315 institutional investors with assets under management of more then $41 trillion, released today its Fifth Annual Report on Global Climate Change. CDP has sent a questionnaire to the world’s largest publicly-owned companies each year since 2002, which elicits detailed information on the risks and opportunities posed to the companies by climate change. The companies’ responses to the questionnaire, and an analysis of the responses, will be published today in the CDP reports and on the CDP website. RiskMetrics Group is honored to have authored the U.S. S&P500 Report.
The S&P500 Report summarizes key trends identified in S&P500 companies’ responses to the CDP5 survey and highlights commercial risks and opportunities that climate change is presenting to these widely held firms. Through increased support and improved quality of responses, CDP5 shows that the private sector in the US is increasingly engaged in addressing the global challenges presented by climate change. In fact, 81 percent of S&P500 respondents consider climate change as presenting commercial risks for their businesses, compared to only 60 percent that see it as presenting commercial opportunities.
To access the report, please visit the "In the Spotlight" section on RiskMetrics Group’s Web Site. To hear Doug Cogan, RiskMetrics Group's Head of Climate Change Research, discuss the findings from the S&P500 Report, please visit "Leadership Interviews" on the ESG section of RiskMetrics Group's Knowledge Center.
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Friday, September 21, 2007 |
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Investors Ask the SEC to Mandate Climate Risk Disclosure
Submitted by: L. Reed Walton, Staff Writer
A group of 22 state pension funds, environmental groups, and other investors are calling on the Securities and Exchange Commission to require public companies to report on their financial risk from global climate change.
The coalition--which includes Ceres, the California Public Employees’ Retirement System, F&C Asset Management, and New York City Comptroller William C. Thompson--sent a petition on Sept. 18 to the SEC asking for more comprehensive disclosure of what it calls “climate risk” in public companies’ earnings and operations statements. Accounting for climate risk would mean detailing new regulatory costs and procedures, reporting on physical damage to facilities because of changing weather, and citing any shifts in demand for products or services related to climate change.
“The days are long past when climate risk can be treated as a peripheral or hypothetical concern,” the petition reads. “Companies’ financial results increasingly depend on their ability to avoid climate risk and to capitalize on new business opportunities by responding to the changing physical and regulatory environment.”
Specifically, the coalition, which manages more than $1.5 trillion in assets, would like to see detailed disclosure of physical risks material to financial condition, risks and opportunities associated with greenhouse gas regulation, and legal proceedings relating to climate change. The petition explicitly states that disclosure would be different for each company, depending on industry and operations.
While companies now are required to provide “material” information to investors, the coalition contends that corporate disclosures on climate change have been “scant and inconsistent.” The petition urges the SEC’s Corporation Finance Division to “begin closely scrutinizing the adequacy” of these disclosures.
The coalition pointed to ExxonMobil as an example of a company where more disclosure would be helpful for investors. The oil giant’s 2006 annual report noted that its worldwide operations could be affected from time to time, by factors like “laws and regulations related to environmental or energy security matters, including those addressing alternative energy sources and the risks of global climate change …” ExxonMobil’s filing mentioned the effects of severe weather, though it was not specifically tied to climate change.
Linking catastrophic events like hurricanes or wildfires to climate change can be difficult when trying to assess causation.
“I think the issue is partly [theoretical] and partly factual,” said David Snyder, vice president and assistant general counsel for the American Insurance Association (AIA), an advocacy association for property and casualty insurers. “There are many scientists who believe that it’s all linked; other scientists aren’t so sure.”
The AIA has not officially taken a position on the investor petition, but Snyder said that qualitative rather than quantitative disclosure on the material effects of weather events may be easier for companies to make accurately.
Environmental groups, including Ceres, have written to the SEC twice before--in 2004 and again in 2006--requesting more disclosure on climate change risks.
The SEC has not indicated what specific action it will take in response to the petition. "The SEC is committed to robust disclosure by companies of material environmental issues," commission spokesman John Nester told The Washington Post. "The key requirement for triggering disclosure is that the impact or potential impact will be material to a company and is therefore material to investors."
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Tuesday, July 3, 2007 |
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Divestment Legislation Gaining Momentum
Submitted by: Alex Gallimore, ESG Team Leader
Developments in the Sudan divestment movement, approximately a year and half old now, continue to gain momentum, particularly in the last several months. This trend is due in large part to the success that the Sudan Divestment Task Force (SDTF), the primary Sudan divestment advocacy group, has had in getting divestment legislation passed. In April, Colorado and Iowa passed Sudan divestment legislation based on the SDTF model, followed by Kansas, Minnesota and Indiana in May, and Florida, Texas and Hawaii in June. These states join California and Vermont, both of which previously passed divestment legislation based on the SDTF model. Not waiting for legislative action, New York State Comptroller, Thomas DiNapoli, announced on June 11th, 2007, that the New York State Common Retirement Fund would implement an investment policy, also consistent with the SDTF model, that would apply to companies with business ties to Sudan.
Other states that have enacted legislation addressing Sudan and the investment of state retirement funds include Maryland, New Jersey and Oregon. Illinois has revamped Sudan legislation under consideration to replace the previous Illinois Sudan Act that was struck down in Feb. 2007 after the National Foreign Trade Council filed suit.
Arizona requires ma