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.

Continue reading "2008 Preview: Social Issues
Submitted by: Carolyn Mathiasen, Social Issues Service" »

Monday, March 17, 2008

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.

Continue reading "Carbon Trading Exchanges – New Players in the U.S. and International Markets
Submitted by: Megan Good, Climate Change Research Team" »

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Wednesday, March 12, 2008

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

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

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.”

Continue reading "Climate Change is in the Wind
Submitted by: Emily McAteer, RiskMetrics Group Climate Change Research Group" »

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Tuesday, January 29, 2008

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.

Continue reading "Investors Face Big, Emerging Risks from Sea Level Rise
Submitted by: Doug Cogan, Climate Change Research Group" »

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Thursday, January 10, 2008

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

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

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

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

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

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

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

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 managers to report on holdings in US companies with business ties to Sudan, as well as Iran, North Korea and Syria. Louisiana’s legislation requires reporting on holdings of foreign companies with ties to Sudan, Iran, North Korea, Syria, and Libya. Louisiana is considering legislation that would change the reporting requirement to a divestment requirement and expand the scope of the current legislation from foreign companies only to both foreign and domestic companies.

There has also been action at the municipal and educational institution level with a number of cities and colleges/universities (San Francisco, Philadelphia, Yale University and Dartmouth College among others) implementing policies or regulations that address the investment of endowment/retirement assets in companies with ties to Sudan.

The latest trend that we are seeing in the divestment movement is legislation addressing companies with operations in Iran, either through legislation aimed specifically at Iran or through hybrid Sudan/Iran legislation. This tends to target companies that are invested in Iran's Oil & Gas sector and/or Mining & Metals sector, that supply arms to Iran, that supply goods/services to Iran’s nuclear development program, or that that do business with Iranian organizations that have been labeled as terrorist organizations by the U.S. government. Currently, Florida is the only state that has such legislation passed and signed. However, similar legislation is under consideration in California, Ohio and Illinois.

As the trend in divestment legislation continues to gather steam, the implications for asset managers handling assets for state public funds is significant – ranging from new reporting requirements to actually dealing with divestment and ongoing compliance monitoring. These challenges are multiplied when managing assets for numerous states that have enacted legislation, which may differ somewhat from state to state. At the moment, this trend shows no sign of letting up.

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Wednesday, May 23, 2007

Uncovering the Hidden Risks and Opportunities Associated with ESG Research and Scoring
Submitted by: John Deosaran, ISS Vice President, ESG Research Analytics

Traditional "socially responsible investing" has been around for many years, often most noticeable in the form of firms wholly dedicated to this strategy. In its most familiar form, SRI involves screening a universe of companies and eliminating those that violate one of a number of ethical tenets, such as involvement in the production of tobacco products, weapons, or adult entertainment.

Recent articles in the New York Times and the Washington Post suggest that an SRI approach is tantamount to investing with your heart rather than with your head. Both pieces assert that investors necessarily sacrifice returns when following an SRI strategy.

However, it would seem that both articles miss the larger point when it comes to evaluating the way in which investors now seek to incorporate environmental, social and governance factors (ESG) into the investment process. This approach is no longer the exclusive domain of traditional SRI firms. Rather, a large, and still growing number of investment managers, representing the spectrum of institutional investors, are beginning to consider ESG as part of the research process—with an eye towards uncovering hidden risks as well as opportunities.

Instead of striking entire sectors (think utilities, energy, resources) from consideration, investors are as likely to focus on identifying leaders across all sectors and placing bets on those companies that have gone well beyond their peers in managing the risks associated with environmental and social issues. Indeed, there is growing sentiment that such companies will outperform over time.

This means that an analysis of ESG factors is shaping investment decisions for portfolios well beyond those labeled as "SRI Funds." Even among the traditional SRI community, longtime leaders have shifted from the traditional approach to one in which they are focused on identifying companies that are leaders in operating their businesses in a sustainable manner based on the notion that these companies will be long term winners—in both sustainability and performance.

Climate change, resource scarcity, human rights, and a host of other issues have driven many investors to undertake a broader evaluation of companies as part of a growing focus on the use of extra-financial indicators to uncover risk. As we are witnessing rapid change around the incorporation of ESG in the investment process, it will be interesting to see how this approach continues to evolve. And, just as we now recognize that companies ignore ESG issues at their peril, so it would appear that investors can ill afford to discount ESG when making investment decisions.

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Wednesday, April 11, 2007

Berkshire Agrees to Hold First U.S. Shareholder Vote on Sudan
Submitted by: Meg Voorhes, Director, Social Issues Service

Shareholders at Berkshire Hathaway will vote on a Sudan divestment proposal in May--the first time a socially responsible investing (SRI) proposal regarding the violence-beleaguered African country will be on the proxy at a U.S. company.

The proposal, submitted by stockholder Judith Porter, asks the company to consider divesting its shares in PetroChina, a Chinese oil subsidiary whose parent company has mining, refinery, and pipeline operations in Sudan.

Porter, who owns 10 class-B Berkshire shares, wants the company to stop investing in "any foreign corporation or subsidiary thereof that engages in activities that would be prohibited for U.S. companies by Executive Order of the President of the United States."

Since 1997, U.S. firms have been forbidden to operate in Sudan, but the law says nothing about investment in foreign companies that conduct business there.

Berkshire originally obtained permission from the Securities and Exchange Commission to exclude the proposal on the grounds that the wording was "vague and indefinite." However, Berkshire Chief Executive Warren E. Buffett, who has said that he opposes the proposal, decided to put it on the proxy at the company's May 5 annual meeting to assess investors' views on this issue.

Berkshire management said in a Feb. 21 statement that PetroChina does not do business in Sudan. However, Berkshire acknowledges that PetroChina's parent company, the China National Petroleum Company (CNPC), does.

CNPC, which is owned entirely by the Chinese government, owns a 90 percent stake in PetroChina. At the end of 2006, Berkshire maintained 2.3 billion PetroChina "H" shares, or 1.3 percent of the oil company's equity, making it the largest U.S. owner of PetroChina stock.

Berkshire management says that divesting from PetroChina would have little effect on the continuing operations by CNPC in Sudan. However, investor advocates from the Sudan Divestment Task Force (www.sudandivestment.org) wrote on Feb. 23 that CNPC's revenue-sharing agreement with the Sudanese government funnels most of the money made through oil production to Sudan's military.

The task force recommended that Berkshire begin constructive dialogue with PetroChina and CNPC to address the actions of the Sudanese government that the U.S. Congress declared in July 2004 to be "genocide."

*This article originally appeared in the April 5 edition of Governance Weekly.

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Tuesday, April 3, 2007

2007 Proxy Season Preview: Social Issues
Submitted by: Carolyn Mathiasen, Editor, Social Issues Service

This article is the second in a two-part look at environmental and social issue proposals filed by shareholders for the 2007 U.S. proxy season. This preview focuses on social issue filings. An article on environmental resolutions appears in the March 23, 2007, edition of Governance Weekly.

For the 2007 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 60 such resolutions. 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 and those to improve animal welfare.

For the fourth year, shareholders have mounted a major campaign seeking information on corporate political contributions. The proposals ask companies to issue semi-annual reports on all political contributions, as well as provide the guidelines for those contributions and to identify the persons involved in making contribution-related decisions. The resolutions include a request for information on contributions to so-called “527 committees,” or groups that do not directly contribute to political campaigns but are allowed by federal law to raise unlimited donations from corporations or individuals. In addition, most of the resolutions contain a clause asking for a reporting of dues paid to trade associations.

The resolutions follow a template developed by the Washington-based Center for Political Accountability, which focuses on corporate political spending. The shareholder campaign was initially spearheaded by labor unions, but SRI funds, church groups, and the New York City pension funds are now filing extensively. Last year saw a doubling of average support for the proposals to 20 percent from 10 percent in 2004 and 2005.

Political contributions has not been a particularly fruitful area for withdrawals in the past, but proponents have so far worked out 13 withdrawals at target companies this year: Aetna, American Electric Power, Chevron, Cigna, Dominion Resources, General Electric, Hewlett-Packard, Home Depot, Limited Brands, Lockheed Martin, Monsanto, Pfizer, and WellPoint.

The resolution remains pending at 3M, AT&T, Bank of America, Caremark, Citigroup, Clear Channel Communications, Colgate-Palmolive, Comcast, ConocoPhillips, Corrections Corp. of America, DuPont, EMC, Entergy, ExxonMobil, FirstEnergy, General Motors, Halliburton, Lyondell Chemical, Marsh & McLennan, McGraw Hill, Medimmune, Charles Schwab, Southern, Torchmark, TXU, Union Pacific, Unisys, United Technologies, Wachovia, Wal-Mart, Wyeth, and Xcel Energy.

In addition, Trillium withdrew a proposal at Ford Motor that was filed late, while Lehman Brothers and Merck were able to omit proposals from the Central Laborers Fund; the Securities and Exchange Commission agreed that the proposals were substantially similar to the ones shareholder activist Evelyn Y. Davis already submitted to the companies. For years, Davis has been asking companies to disclose contributions in major newspapers.

Continue reading "2007 Proxy Season Preview: Social Issues
Submitted by: Carolyn Mathiasen, Editor, Social Issues Service" »

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Thursday, March 29, 2007

Commentary: Dynegy Merger Raises Climate Policy Questions
Submitted by: Doug Cogan, Deputy Director, ISS' Social Issues Service

When it comes to climate change, as Texas goes, so goes the nation.

That's why it was a big deal when Irving-based ExxonMobil announced last fall that it was cutting off funding of groups casting doubt on climate change--and pledged to step up its support of federal policy discussions.

It was an even bigger deal when Texan George W. Bush acknowledged in his State of the Union address in January the "serious challenge" posed by global climate change.

The biggest deal of all--at least in money terms--came last month, when Kohlberg, Kravis Roberts and Texas Pacific Group announced their $45-billion takeover bid of Dallas-based TXU Corp. As part of this largest-ever private equity offer, TXU has agreed to scale back its coal plant expansion plans from 11 plants to three, in favor of more investments in wind and solar power and conservation to save on CO2 emissions.

Another big deal lies ahead today, when shareholders will vote on the proposed $4.1 billion merger of Dynegy and LS Power. If approved, Houston-based Dynegy would become one of the nation's largest power companies--and among the top five U.S. carbon-emitting utilities.

The proposed terms of the TXU buyout leave Dynegy and LS Power with the nation’s most ambitious coal-plant expansion plan.

Eight new coal plants proposed by LS Power would add nearly 7,000 megawatts of generating capacity and produce approximately 60 million tons of carbon dioxide emissions annually. That's equal to almost half of ExxonMobil's CO2 emissions from its far-flung global operations.

Assuming the merger goes through, and these power plants are built, the "new Dynegy" would nearly double its generating mix from coal to almost 40 percent. This may come as a jolt to "old Dynegy" shareholders who presently own a company with power coming mainly from cleaner-burning gas-fired power plants.

Given the volatility of natural gas prices, Dynegy's diversification into other energy sources may not be such a bad thing. But the question is whether diversification into more coal is the right move going forward.

When former Vice President Al Gore testified before Congress last week, he called for a moratorium on new coal plants that aren't designed to sequester carbon dioxide. LS Power's plants are based on older technology that can't do this efficiently.

Given that 50 percent of our nation's power comes from coal, Gore's proposal represents a radical departure from business as usual. Yet a new report from the Massachusetts Institute of Technology backs this conclusion. Even more companies are willing to take dramatic steps, acknowledging the "inconvenient truth" that business will have to pay for the right to produce greenhouse gases as we enter an era of carbon emission constraints.

Just last week, Kansas City Power & Light, in an agreement with the Sierra Club, pledged to offset all CO2 emissions from a new coal-fired power plant in Missouri by making additional investments in wind energy and conservation programs. This "carbon neutral" plan one-ups the deal that two other environmental groups, Environmental Defense and the Natural Resources Defense Council, helped.KKR worked out with TXU.

In January, on the eve of President Bush's State of the Union address, 10 major U.S. industrial companies announced their support for a federal mandatory program to cap and trade program CO2 emissions. These companies include industrial powerhouses General Electric, Caterpillar, Duke Energy and BP America. They want more certainty over their strategic planning decisions. TXU now is seeking to join this group.

Dynegy, in recent securities filings, acknowledges that greenhouse gas controls could have "far-reaching and significant impacts on the energy industry." But it hasn't yet stated how such controls might impact its merger with LS Power. It says only, it "cannot predict the potential impact of such laws or regulations on our future financial condition."

This may be a fair assessment of the current federal impasse on climate change regulations. But it isn't especially forward-looking. Given how minds are changing in Texas--and throughout the nation--on climate change, if shareholders can't get these answers before Dynegy's merger with LS Power, they likely will be asking for them shortly thereafter.

*The author's views do not necessarily reflect those of ISS or its clients.

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Friday, March 23, 2007

2007 Preview: Environmental Issues
Submitted by: Carolyn Mathiasen, Editor, Social Issues Service

This article is the first in a two-part look at environmental and social issue proposals filed by shareholders for the 2007 proxy season. This preview focuses on environmental issues, while next week's article will address political contributions and other social issues.

Shareholders concerned with how U.S. companies manage environmental and social issues have already filed more than 340 proposals this season. The number of resolutions point to a busy proxy year that could beat the all-time high of 367 resolutions offered in 2006.

As a barometer of the times, one out of every 10 of these proposals deals with how companies should best respond to challenges posed by global warming. Climate change-related proposals, along with proposals on reducing the use of toxic chemicals or seeking action on other environmental issues, account for more than 70 of the proposals filed for this year’s meetings. In addition, 39 proposals have been filed so far asking companies to issue sustainability reports, nearly double the 20 submitted last year.

Climate change continues to be a major concern of proponents of environmental resolutions, as evidenced by the submission of 45 proposals focused directly on greenhouse emissions or indirectly on renewable energy.

Proponents have submitted a new proposal to Chevron, ExxonMobil, Ford Motor, General Motors, and TXU asking the companies to adopt quantitative goals for reducing their greenhouse gas emissions. Other shareholders have filed four more climate change proposals at ExxonMobil, all of which are awaiting decisions on the company's no-action challenges at the U.S. Securities and Exchange Commission (SEC). ExxonMobil acknowledges the need to improve energy efficiency and decrease emissions but argues the pursuit of specific projects--such as establishing quantitative goals--is not something that shareholders should decide at the annual meeting.

New York City's pension funds withdrew the quantitative goals proposal at TXU. Still, two other greenhouse emission proposals are pending at the company, according to the proponents, but none may come to votes if a proposed $44 billion buyout goes through. Two private buyout firms seeking to acquire TXU have told environmental groups that they would scale back the utility company's plans to build 11 new coal-fired plants to three such plants.

Calvert Asset Management filed resolutions at Bemis, Hartford Financial, Prudential, and Teradyne asking for company reports on the effects of climate change on their operations. The investment firm reports that it withdrew all four proposals after reaching agreements with the companies. The American Federation of State, County, and Municipal Employees said it withdrew a similar resolution at another insurance company, Chubb, in return for a promise of future discussions before the SEC agreed to the company’s no-action request. Insurance companies have always been able to get SEC permission to omit greenhouse-emissions-related shareholder resolutions by arguing that assessing greenhouse risks is an ordinary business issue for that industry.

In addition, the Service Employees International Union has filed a new resolution with Wells Fargo asking for emissions reduction goals for the company's own operations and the activities of its corporate borrowers, advisory, and project finance clients. A new church-sponsored resolution at Starwood Hotel & Resorts Worldwide asks for a report on the feasibility of developing policies that will minimize the company's impacts on climate change.

On the related issue of renewables, Trillium Asset Management reports it has filed a proposal at ConocoPhillips that seeks a report on how the company will respond to rising pressure to develop renewable energy sources. The Nathan Cummings Foundation is continuing to file this proposal with property development companies and retailers. The foundation re-filed at Standard Pacific, where the resolution got 39.3 percent support in 2006, a record for proposals related to climate change.

This year, Standard challenged the resolution successfully at the SEC, pointing to a June 2005 staff bulletin that sanctioned the omission of environmental and health resolutions if they would entail an evaluation of business risk (the supporting statement asserted that ignoring the issue of renewables could expose the company as an industry laggard and open it to competitive and industry risk). Pulte Homes was allowed to omit the proposal for the same reason.

Nevertheless, renewable energy proposals are being looked at by other companies. The issue has already been voted on at Whole Foods for a second year, and a mix of proponents have filed it for the first time at Boston Properties and CVS. The resolution has been withdrawn after agreements at D.R. Horton and Toll Brothers, proponents say.

A handful of the resolutions filed this year on climate issues come from individuals and organizations that question the scientific consensus on climate change. Carl Olson has re-filed resolutions with Ford and Occidental Petroleum asking for a detailed scientific report on how the companies measure "global warming/cooling." The SEC staff had allowed companies to omit the resolution in 2004 and 2005, but did an about-face, without explanation, last year.

Climate change skeptic Action Fund Management is re-filing a resolution to General Electric asking for a report on, among other things, whether climate-related change is necessarily undesirable and whether a cost-effective strategy for mitigating any undesirable change is practical. That proposal survived a challenge at the SEC, but a second Action Fund proposal was omitted at Hewlett-Packard. The resolved clause was similar, but the supporting statement raised the question of business risk by asserting that the company risked being sued in California for reporting its greenhouse emissions to the Carbon Disclosure Project.

Continue reading "2007 Preview: Environmental Issues
Submitted by: Carolyn Mathiasen, Editor, Social Issues Service" »

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Wednesday, October 11, 2006

A Global Framework for Climate Risk Disclosure
Submitted by: Doug Cogan, ISS' Deputy Director of Social Issues Services

A brand new initiative-the Global Framework for Climate Risk Disclosure-hopes to build on the progress made by the Carbon Disclosure Project (CDP) and Global Reporting Initiative (GRI) to help form a consensus around corporate reporting on climate change. The framework was formally unveiled at press events taking place in Boston and London today. It has four key reporting elements:

* Total GHG emissions from operations and projects-historical, current and projected
* Strategic analysis of climate risk and GHG emissions management
* Assessment of the physical risks of climate change
* Analysis of risks related to emerging GHG emission regulations

Eighteen months in the making, this framework has backing from 14 leading investor groups and other organizations, including CDP and GRI. Pension funds in California, Connecticut and the United Kingdom served on a steering committee, along with representatives from the United Nations Environment Programme Finance Initiative, Ceres and the Investor Network on Climate Risk, among others. More than 50 reviewers commented on this disclosure framework as it was being drafted.

The Global Framework for Climate Risk Disclosure is available for download at the CERES website.

Continue reading "A Global Framework for Climate Risk Disclosure
Submitted by: Doug Cogan, ISS' Deputy Director of Social Issues Services" »

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Monday, September 25, 2006

Support Grows for Social Proposals
Submitted by: Meg Voorhes, Social Issues Service Director, and Carolyn Mathiasen, Social Issues Service Editor

Investors are looking with increasing favor on shareholder proposals asking companies to disclose and monitor their political contributions, to report on their fair employment policies, and to issue broad-based reports on sustainability. Investors also gave greater support to selected proposals on labor rights and environmental issues in the 2006 proxy season.

While shareholder proposals on social issues historically have not fared as well as governance resolutions, social proposals have received increased support this year. In fact, 27 percent of the social issues proposals that came to a vote through June 30 were supported by more than 15 percent of the shares voted; only 15 percent of the social proposals in 2004 and 2005 achieved this level of support, according to ISS data.

In contrast, investors overwhelmingly rejected proposals asking companies to drop equal treatment protections for gay employees, to review or improve animal welfare, and--in the case of tobacco companies--to restrict their marketing or to support smoking bans. Proposals along these lines averaged less than 6 percent support.

Continue reading "Support Grows for Social Proposals
Submitted by: Meg Voorhes, Social Issues Service Director, and Carolyn Mathiasen, Social Issues Service Editor" »

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Thursday, August 24, 2006

Insurance Companies and Climate Change
Submitted by: Doug Cogan, Deputy Director of ISS' Social Issues Service

One year ago today, Hurricane Katrina formed in the Atlantic Ocean. Within a week, it became the nation's worst natural disaster, causing $45 billion in insured property losses. Since Katrina and the record number of hurricanes that followed, the insurance industry has raised rates and pulled back coverage along the East and Gulf Coasts. But is this a sustainable strategy? A new CERES Report released on Tuesday estimates that the insurance industry has turned down $3 billion in premium renewals rather than face the risk of added losses.

Making matters worse, global warming is implicated in spawning not only more intense hurricanes like Katrina, but also in exacerbating a range of other weather-related disasters, including drought, wildfire, floods and life-threatening heat waves -- all of which have hit portions of the country this summer. Instead of remaining passive in the face of rising damage claims, the insurance industry is becoming more proactive. The Ceres report highlights dozens of ways that the industry is starting to address global warming by encouraging actions that cut down on greenhouse gas emissions. These range from reducing insurance premiums for "green buildings" and people who drive their cars less to providing insurance for new alternative energy and energy-saving projects.

The takeaway point of the study -- and a Fortune article written yesterday by Mark Gunther -- is that addressing global warming can be smart and profitable for companies that are looking ahead, while those who ignore the problem are as vulnerable as those who think they can ride out a storm like Katrina.

Do you believe the insurance industry is doing an effective job managing climate change? We welcome your thoughts.

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Thursday, June 29, 2006

Walking the Talk: Big Box Retailers Commit to Review Energy and Climate Performance
Submitted by: Doug Cogan, Deputy Director of ISS' Social Issues Service

In light of the annual meeting today at Bed, Bath and Beyond (where certain BBB shareholders have submitted a proposal requesting that the company report on its response to rising regulatory, competitive, and public pressure to increase energy efficiency), the below article on energy and climate performance is an interesting and timely read...

Walk into any Home Depot or Lowe's department store and you're sure to find hundreds of Energy Star(R) appliances. But what if you're in the market for an energy efficient "Big Box" retailer or real estate investment trust? Soon investors will have information to help shop for those, too.

Thanks to a new shareholder campaign, The Home Depot in Atlanta, Ga., and Lowe's in North Wilkesboro, N.C., will report in coming months on their strategies and progress to make their operations more energy efficient and less harmful to the environment.

Continue reading "Walking the Talk: Big Box Retailers Commit to Review Energy and Climate Performance
Submitted by: Doug Cogan, Deputy Director of ISS' Social Issues Service" »

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Tuesday, June 20, 2006

Sudan Divestment Moving to Targeted Approach
Submitted by: Nancy Coelho, Senior Director of Marketing

No one disputes the facts about the horrific genocide occurring in the Darfur region of Sudan. However, deciding how to influence change in this troubled region has been the source of significant debate, resulting in a variety of divestment strategies among many states' public pension funds as well as many college and university endowment funds.

ISS has been working on this issue since 2001 and has worked with many public pension funds, colleges and universities to meet the regulatory criteria of their respective states. ISS has also worked with student leaders who have been very successful in getting the issue on the agenda at Trustee meetings and state legislatures. What is significant about the students' approach is their thoughtfulness in recommending a targeted approach to divestment by making a distinction between companies that are financially benefiting the Sudanese government versus those that are benefiting Sudan's citizens.

By taking a more targeted approach to divestment, institutional investors have the flexibility to pursue the most effective approach that balances their funds fiduciary obligation to their shareholders while also influencing change in the Sudan region.

A recent story in the Chronicle of Higher Education discusses this move to a more targeted approach regarding Sudan Divestment. To read the story, Download file

We welcome your comments on the Sudan Divestment movement.

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Wednesday, June 7, 2006

Interesting Column on Climate Change in Today's WSJ
Submitted by: Meg Voorhes, Director of Social Issues Services

A column in today's Wall Street Journal by Alan Murray titled "Frustrated 'Greens' Turn to Boardrooms," highlights the gravity of the climate change issue. Murray underscores for Journal readers that climate change is an urgent problem that requires action by the U.S. government. And, while Murray goes on to say that businesses "do best when they stick to business," and the issue of climate change belongs in Washington, the messages from both the Ceres report and ISS webcast emphasize that climate change is a business issue, one that poses varying risks and opportunities to individual companies.

Please send along your comments to let us know your views on the connection between climate change and corporate governance.

Continue reading "Interesting Column on Climate Change in Today's WSJ
Submitted by: Meg Voorhes, Director of Social Issues Services" »

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Thursday, May 18, 2006

CalPERS Makes Sudan Divestment Decision
Submitted by: Jan Fetter-Degges, Senior Research Analyst

Yesterday, the California Public Employees Retirement System (CalPERS) board announced that it would not permit its fund managers to buy shares in nine companies that do business in Sudan. (CalPERS does not currently own stock in any of the companies.) The list of prohibited companies (Bharat Heavy Electrical Ltd., China Petroleum and Chemical Corp., Nam Fatt Co., Oil & Natural Gas Co., PECD Bhd., PetroChina Co., Sudan Telecom Co., Tatneft OAO; and Videocon Industries Ltd.) is identical to that released by the University of California Regents in March. These companies, a CalPERS position statement said, "were clearly shown to be providing monetary or military support to the Sudan government, while showing little or no interest in the violence in Darfur or in helping to improve the welfare of the Sudanese people."

Companies associated with atrocities in Sudan pose "a serious risk to creating sustainable and responsible long-term value," a CalPERS Investment Committee staff memo dated May 15 reads. These risks include "federal and international sanctions, substantial fines and penalties imposed by authorities, an impairment of [companies'] ability to raise capital in public markets as well as long term reputational damage," the memo continued. "There is no place in for these companies in our portfolio until the atrocities and human rights violations end," CalPERS Board president Rob Feckner said in a press release.

Continue reading "CalPERS Makes Sudan Divestment Decision
Submitted by: Jan Fetter-Degges, Senior Research Analyst" »

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Friday, May 12, 2006

Why Companies Must Act on Climate Risks
Submitted by: Doug Cogan, Deputy Director of ISS' Social Issues Service

With the launch of the Kyoto Protocol and the E.U. Emissions Trading Scheme, managing greenhouse gas emissions is now a part of doing business in global trading markets. As the United States catches up to this international effort to combat global warming, climate governance practices will assume an increasingly central role in corporate and investment planning.

A new report commissioned by CERES and written by Doug Cogan of ISS' Social Issues Service employs a "Climate Change Governance Checklist" to evaluate how companies are addressing climate change through board oversight, management execution, public disclosure, emissions accounting and strategic planning.

Join Doug Cogan and representatives of the pension and investment community for a one-hour ISS webcast beginning at noon EDT on Tuesday, May 16 for a discussion of this new report and how it can be used by company executives, board members, investors and Wall Street analysts to employ effective climate governance strategies. To register for the webcast, click here.

Continue reading "Why Companies Must Act on Climate Risks
Submitted by: Doug Cogan, Deputy Director of ISS' Social Issues Service" »

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Tuesday, May 9, 2006

ISS 2006 Global Investor Study: Is Corporate Social Responsibility the Next Frontier?
Submitted by: Stephen Deane, Vice President of ISS' Corporate Governance Center

Another interesting trend which emerged ISS' 2006 Global Investor Study is how investors are integrating corporate social responsibility (CSR) measures into their investment decision-making. The topic of corporate social responsibility produced diverse investor views, drawing passionate responses and splitting investors along geographic fault lines as well as investor groups. ISS found the strongest support among pension funds and in Europe, Canada, and Australia. While investors are far from consensus on CSR, its advocates contend that it represents the next frontier in corporate governance.

Continue reading "ISS 2006 Global Investor Study: Is Corporate Social Responsibility the Next Frontier?
Submitted by: Stephen Deane, Vice President of ISS' Corporate Governance Center" »

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Friday, May 5, 2006

$4 Trillion of Investment Assets Back Principles for Responsible Investment
Submitted by: Doug Cogan, Deputy Director of Social Issues Services

Is it one small step for a group of progressive fund managers or a giant leap for the global investment community? That is the question raised by a new set of investment principles unveiled at ceremonies at the New York Stock Exchange on Apr. 27 and the Palais Brongniart in Paris on May 2.

At these launch ceremonies, 50 institutional investors with $4 trillion in assets signed on to the Principles for Responsible Investment. These principles contain six pledges and 35 action items that investors can take to integrate environmental, social and governance (ESG) issues into their portfolio management practices. (Download file here to read more about the six pledges.)

The Principles for Responsible Investment were more than a year in the making, with over 20 institutional investors and 70 experts involved in drafting this voluntary code. United Nations Secretary General Kofi Annan convened the process, with coordination by the U.N. Environment Programme Finance Initiative and the U.N. Global Compact. Mercer Investment Consulting was hired by the U.N. to help facilitate the development of the Principles, and the Ceres environmental coalition served as an advisor.

Continue reading "$4 Trillion of Investment Assets Back Principles for Responsible Investment
Submitted by: Doug Cogan, Deputy Director of Social Issues Services" »

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Thursday, May 4, 2006

Emerging Sudan Divestment Debate
Submitted by: Nancy Coelho, Senior Director of Marketing

Sudan divestment regulation continues to grow, having added Maine as the most recent state requiring divestment by 2008. Two additional states, Vermont and Ohio, have joined California by passing broad-based resolutions that suggest but do not require divestment. And, cities have gotten into divestment, as Providence, RI and New Haven, CT, have become the first two cities to mandate Sudan divestment.

Concurrently, a debate is beginning to develop. Both fund managers and business groups are starting to question the impact that the various laws are having on fund performance on the people of Sudan. Yesterday's Wall Street Journal article by Jane Spencer below (continue reading) raises the question about whether divestment actually helps or hurts. We'd like to invite opinions from all sides of the issue.

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Submitted by: Nancy Coelho, Senior Director of Marketing" »

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Thursday, April 27, 2006

Earth Day-Progress and Perils
Submitted by: Doug Cogan, Deputy Director of Social Issues Services

Thirty six years after the first Earth Day, there is much environmental progress to celebrate. Since 1970, lead emissions are down 98 percent, particulate emissions are down nearly 80 percent and sulfur dioxide emissions have been cut in half. All of this has been accomplished despite a doubling of the number of cars on the road and a 75 percent increase in coal-fired power generation. Progress since Earth Day is living proof of what can be achieved when governments, companies, investors and consumers all pull together.

Yet on global warming, there is no such harmony of thought or will. Some are still not convinced that the problem is real or serious, or that if it is, the remedies are too costly to implement. Meanwhile, carbon dioxide emissions have climbed relentlessly since 1970 -- up almost 20 percent -- and global temperatures have risen by 1 degree Fahrenheit.

And here's the most troubling part. In the decades leading up to Earth Day, fossil fuel emissions were completely unfiltered -- no scrubbers on power plants, no catalytic converters on cars. The result was visible air pollutants that shrouded the atmosphere in haze and produced reflective clouds that allow less sunlight to reach the Earth. This "cooling effect" has been measured at 1.5 watts per square meter, offsetting more than half of the warming effect of greenhouse gases, now equal to 2.6 watts per square meter.

As we rid the atmosphere of these visible pollutants in our post-Earth Day world, the warming effect of invisible greenhouse gas emissions is growing more apparent. This may be one reason why all 10 warmest years on record have occurred since 1990 (in a temperature record dating back to 1861). And why the rate of warming is accelerating, with global temperatures projected to rise possibly five or even 10 degrees higher by the end of the 21st century.

So despite all of the accomplishments since Earth Day, the problem of global warming isn't going away; in fact, steps being taken to clean our air may be making it worse. Ways must be found to get at the root of this problem -- and soon -- in order to slow and eventually reverse the growth of carbon dioxide and other greenhouse gases. This will require energy and technology innovations that dwarf the remarkable environmental achievements of the last third of a century. And once again it will require governments, companies, investors and consumers all pulling together.

If there is a silver lining in this, it is that tremendous investment opportunities await those who anticipate a world less reliant on carbon-emitting fossil fuels. With new concerns expressed about "addiction to oil" and $3 per gallon gasoline, the marshalling of forces in this country to address the larger problem of global warming finally may have begun.

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Earth Day-Progress and Perils
Submitted by: Doug Cogan, Deputy Director of Social Issues Services

Thirty six years after the first Earth Day, there is much environmental progress to celebrate. Since 1970, lead emissions are down 98 percent, particulate emissions are down nearly 80 percent and sulfur dioxide emissions have been cut in half. All of this has been accomplished despite a doubling of the number of cars on the road and a 75 percent increase in coal-fired power generation. Progress since Earth Day is living proof of what can be achieved when governments, companies, investors and consumers all pull together.

Yet on global warming, there is no such harmony of thought or will. Some are still not convinced that the problem is real or serious, or that if it is, the remedies are too costly to implement. Meanwhile, carbon dioxide emissions have climbed relentlessly since 1970 -- up almost 20 percent -- and global temperatures have risen by 1 degree Fahrenheit.

And here's the most troubling part. In the decades leading up to Earth Day, fossil fuel emissions were completely unfiltered -- no scrubbers on power plants, no catalytic converters on cars. The result was visible air pollutants that shrouded the atmosphere in haze and produced reflective clouds that allow less sunlight to reach the Earth. This "cooling effect" has been measured at 1.5 watts per square meter, offsetting more than half of the warming effect of greenhouse gases, now equal to 2.6 watts per square meter.

As we rid the atmosphere of these visible pollutants in our post-Earth Day world, the warming effect of invisible greenhouse gas emissions is growing more apparent. This may be one reason why all 10 warmest years on record have occurred since 1990 (in a temperature record dating back to 1861). And why the rate of warming is accelerating, with global temperatures projected to rise possibly five or even 10 degrees higher by the end of the 21st century.

So despite all of the accomplishments since Earth Day, the problem of global warming isn't going away; in fact, steps being taken to clean our air may be making it worse. Ways must be found to get at the root of this problem -- and soon -- in order to slow and eventually reverse the growth of carbon dioxide and other greenhouse gases. This will require energy and technology innovations that dwarf the remarkable environmental achievements of the last third of a century. And once again it will require governments, companies, investors and consumers all pulling together.

If there is a silver lining in this, it is that tremendous investment opportunities await those who anticipate a world less reliant on carbon-emitting fossil fuels. With new concerns expressed about "addiction to oil" and $3 per gallon gasoline, the marshalling of forces in this country to address the larger problem of global warming finally may have begun.

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Friday, March 17, 2006

Update: University of California Divests of Some Sudan-Related Investments
Submitted by: Jan Fetter-Degges,Senior Research Analyst, Social Issues Service

Yesterday, the University of California became the latest--and, as measured by the number of students in its system, the largest--educational institution to divest from companies doing business in Sudan. The university system's regents voted unanimously to divest of nine companies in various portfolios held by the university. These nine companies, all of which have equity invested in Sudan and two-thirds of which are involved in Sudan's oil industry, were "clearly shown to be providing monetary or military support to the government, while showing little or no interest in the situation in Darfur or in helping to improve the welfare of the Sudanese people," a statement by the Regents said.

Full divestment of these nine companies will take place over an 18-month period, beginning only after California's legislature has passed a bill that would free individual Regents and the university system as a whole for any liability resulting from divestment.

The Regents declined to divest of all companies in the system's portfolio with Sudan ties. Instead, they pledged to engage in continued dialogue with some companies whose presence in Sudan the Regents believe can benefit the Sudanese people as well as or instead of benefiting Sudan's government. A policy of limited divestment appears to be a trend in university divestments from Sudan: Harvard, Stanford and Yale have also adopted limited divestment strategies.

A new bill, mandating divestment by CalPERS and CalSTRS from Sudan, has been introduced in California's legislature. A similar bill was introduced last year, but was edited before passage, changing a divestment requirement to a recommendation.

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Monday, March 13, 2006

Sudan Divestment Campaign Continues
Submitted by: Jan Fetter-Degges, Social Issues Service Senior Research Analyst

Pending Legislation
The Sudan divestment campaign, which included the consideration of divestment bills in one-fifth of U.S. state legislatures in 2005, shows no signs of tiring in 2006. Bills introduced in 2005 in New York, North Carolina and Vermont are still pending, and new bills could be introduced in Maryland (where a bill died in committee in 2005) and Massachusetts. In 2005, Illinois and New Jersey enacted laws mandating divestment of state funds from companies doing business in Sudan, while Arizona, Louisiana and Oregon passed laws encouraging divestment, and the California legislature passed a resolution encouraging the state's public pension systems to encourage companies doing business in Sudan to work to safeguard human rights. California's Public Employee Retirement System (CalPERS) has been studying the issue, meeting this winter with representatives from several companies with major investments in Sudan.

University Update
In the past four weeks alone, Yale and Brown have agreed to divest of some of their assets in Sudan, with Brown pledging total divestment and Yale divesting from seven oil companies and Sudanese government bonds (but retaining the possibility of holding stock in other companies with business in Sudan). Later this month, the University of California regents will meet to discuss Sudan divestment. Schools including Harvard, Stanford, Amherst and Dartmouth have already enacted divestment policies (in many cases choosing to divest of only a handful of companies that are major players in Sudan's oil industry), and students are pressuring the administrations of many other schools to consider divestment.

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Thursday, March 9, 2006

Interesting Article on Whole Foods Annual Meeting
Submitted by: Doug Cogan, Social Issues Services Deputy Director

An interesting article by Phyllis Plitch of Dow Jones Newswires caught my eye. The piece, which ran a few days ago, talks about Whole Foods Market's recent annual meeting. We invite comments...

Continue reading "Interesting Article on Whole Foods Annual Meeting
Submitted by: Doug Cogan, Social Issues Services Deputy Director" »

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Wednesday, March 8, 2006

Update on Shareholder Resolutions on Climate Change
Submitted by: Doug Cogan, Social Issues Services Deputy Director

Faced with record warmth, unprecedented hurricane activity and rapid shrinking of polar ice caps, investor and industry attitudes about confronting climate change are shifting. Skeptics no longer question whether human activity is warming the globe, but how fast. Companies at the vanguard no longer question how costly it will be reduce greenhouse gas emissions, but how much money they can make doing it. Financial markets are starting to identify companies that are moving ahead on climate change, while those lagging behind are being assigned more risk.

In line with these changing attitudes, more shareholder resolutions on climate change are resulting in withdrawal agreements, whereby companies agree to disclose information on the financial risks and opportunities they face from climate change. Last year, 16 of the record 33 climate change resolutions filed ended in withdrawals. Already in 2006, eight companies have agreed to issue reports or expand dislosure on ways to reduce their greenhouse gas emissions and increase energy efficiency. Another dozen or so resolutions remain pending for the 2006 proxy season. (The eight companies with 2006 withdrawal agreements are Alliant Energy, Anadarko Petroleum, Great Plains Energy, Home Depot, Lowes, MGE Energy, Simpon Property Group and WPS Resources.)

The launch of the Kyoto Protocol in 2005 has made managing greenhouse gas emissions a fact of life for American companies doing business in key markets abroad, like Europe, Canada and Japan. As the United States moves to join this international effort in the years ahead, climate governance practices will assume an increasingly central role in corporate and investment planning. How effective companies are in managing these new risks and opportunities will also have a growing impact on shareholder value and the bottom line -- two things that matter to all investors.

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Monday, March 6, 2006

2006 Season Preview: Social Issues
Submitted by: Carolyn Mathiasen, Social Issues Service Editor

Shareholders concerned about social and environmental issues have filed more than 300 proposals so far for U.S. companies' annual meetings in 2006---down slightly from the 330 social issues proposals tracked at this point last year.

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Submitted by: Carolyn Mathiasen, Social Issues Service Editor" »

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Thursday, March 2, 2006

Golden parachute proposals reaching new heights
Submitted by: Rosanna Weaver, ISS Governance Research Services Analyst

Shareholder focus on severance packages continues to grow, and companies are listening. In 2000, only seven such proposals came to a vote and received average support of 30.8 percent; 2005 saw 22 such proposals and average support grew to 54.9 percent. (Support levels reached a high in 2003 when an average of 57 percent of votes cast were cast in favor of the proposals.) ISS' Governance Research Services (GRS) is currently tracking 30 proposals filed for 2006, but don't expect to see them all on proxy statements: four have already been withdrawn and proponents report that they are in negotiations with a number of other companies.

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Submitted by: Rosanna Weaver, ISS Governance Research Services Analyst" »

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Wednesday, March 1, 2006

The Governance Characteristics of Vonage
Submitted by: Paul Wanner, Ratings Manager

Vonage IPO to raise $250 million

In tandem with this month's review of governance practices in the Telecommunications industry, CGQ View studies the corporate governance characteristics of Vonage Holdings Corp. (Vonage). Vonage, a leading provider of Voice over Internet Protocol (VoIP) phone services, recently filed an IPO registration statement with the Securities and Exchange Commission (SEC). The IPO is expected to raise $250 million.

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Submitted by: Paul Wanner, Ratings Manager" »

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Thursday, February 23, 2006

Disclosing Political Contributions
Submitted by: James Letsky, ISS Senior Analyst

Every year, millions of dollars pass from corporations into the political process. While the Bipartisan Campaign Reform Act of 2002 applied some increased restrictions on these funds, including the prohibition of unlimited contributions to national political parties or committees controlled by federal office holders, it has done little to address funds that move through other channels. Corporations are free to contribute so-called "soft money" through industry and trade associations, certain state and local political committees, and nonprofit political organizations known as "527s" that generally report to the Internal Revenue Service rather than the Federal Election Commission (FEC).

Disclosure of some types of contributions is required by the FEC, as well as by certain state and local regulations; however, some shareholders are concerned that loopholes and limitations in this disclosure result in a lack of accountability at the corporate level. Shareholders advocating increased disclosure of corporate political contributions file dozens of shareholder resolutions each year calling for transparency into this information, raising the question: do existing regulations and disclosure requirements provide shareholders with adequate insight into their companies' involvement in the political process?

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Tuesday, February 21, 2006

State Sanctions on Sudan
Submitted by: Nahla Ivy, Environmental and Social Analytics Director

Recently enacted legislation by state regulators requires investment managers to either divest from companies with ties to Sudan because of the Sudanese government's involvement with state sponsored terrorism, or to report on those companies they hold in their public pension fund portfolios.

Illinois, New Jersey, Oregon, Arizona and Louisiana already have Sudan screening mandates in place with differing guidelines affecting investment managers, who manage public pension funds. For example Arizona requires state pension funds to report all holdings in companies doing business with state sponsors of terrorism, while Illinois requires public pension funds to divest securities with ties to the Sudan in phases beginning in January 2006. Sudan divestiture and reporting legislation has also been introduced in New York, North Carolina and Vermont and is expected to be implemented in the coming months. Learn more about the various states legislation.

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Submitted by: Nahla Ivy, Environmental and Social Analytics Director" »

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