03/10/09

Investors Want More Disclosure of Climate Risk Data from Corporations
    by Robert Kropp

CDP survey of signatory investors finds that integration of climate risk considerations into investment decisions is growing.

SRI World Group -- Investors that are signatories of the Carbon Disclosure Project (CDP), a nonprofit organization which acts as an intermediary between shareholders and corporations on climate change issues, want the companies in which they invest to do more than just disclose climate and carbon information. The CDP signatories, who manage $55 trillion in assets, want companies to take such additional actions as adopting emissions reductions targets and developing low carbon solutions as well.

This was among the findings of a survey of institutional investors by the CDP. Among the 80 respondents were asset managers, pension funds, insurers and socially responsible investment funds. Mercer, a global provider of consulting and investment services, analyzed the survey results and compiled the report. The report, entitled "Investor use of CDP data," is posted on the CDP website.

While 77% of institutional investors surveyed by the CDP indicated that they factor climate change information into their investment decisions, only 11% of respondents have yet to fully incorporate CDP data into financial analysis. However, more than 80% of the respondents who do factor climate change information into investment decisions indicated that climate change is an important factor, and responses indicate that investors expect CDP data to increase in significance and applicability.

Jane Ambachtsheer, Mercer's global head of SRI, told SocialFunds.com, "While a majority of investors haven't yet adjusted their model to their formal investment decision- making framework, 64% of survey respondents did say they intended to use CDP data more in the future."

Ambachtsheer continued, "Even if a majority is not yet using CDP data in a systematic way, the fact that 77% of respondents do use the data indicates that it is part of their toolkit."

According to the report, "As climate change regulation matures and expands around the globe, members of the investment community will be increasingly compelled to analyze climate risks and opportunities in detail."

The report concludes with a number of recommendations for investors to consider. Investors are advised to utilize training to ensure that CDP data is leveraged in a meaningful way, to encourage their service providers to incorporate CDP data, and to hold companies to a standard of disclosure that utilizes standardized and comparable metrics.

One of the sponsors of the CDP report was the Calvert Group, a fund company that includes a number of prominent SRI funds. Rebecca Henson, Senior Analyst at Calvert, told SocialFunds.com, "Calvert co-sponsored the CDP report because we have been involved in climate risk integration, and this report helps us gauge how other investors worldwide are becoming more sophisticated in their integration of climate risk data."

"Considering the reputation of CDP around the world, we also considered it important that companies be made aware that investors are becoming more sophisticated," Henson continued. "Even with the economy in the state that it is at present, the report indicates that investors are increasingly incorporating climate risks and opportunities into their investment decisions."

Ambachtsheer of Mercer presented the report to an audience of corporate representatives at CDP's Spring Workshop for companies that reply to the CDP. In her presentation, she noted additional investor actions that indicate an ongoing emphasis on climate risks and opportunities despite the current economic crisis.

In February, a group of 35 investors with over $3 trillion in assets called on Congressional leaders to pass strong legislation to advance a clean energy, low-carbon economy. Among the investors' recommendations were the adoption of a mandatory national climate policy to reduce greenhouse gas emissions, and a low-carbon fuel standard to reduce reliance on oil and greenhouse gas emissions.

In December 2008, 152 global investors worth over $9 trillion called on world leaders to negotiate a strong and binding successor to the Kyoto Protocol. Among the recommendations was that governments agree upon a binding global target for reducing greenhouse gas emissions.

At the workshop, Ambachtsheer informed companies that corporate engagement was the leading area in which investors were using CDP data. Investors find that CDP information helps fuel discussions with management and leads to engagement via dialogue or shareowner resolutions with non-responding companies outside the CDP process.

"The workshop provided companies with an opportunity to understand exactly what investors are doing with the information that the companies are trying so painstakingly to provide," Ambachtsheer said.

"Having companies and investors in the same room was helpful. We found that companies would like to receive more information from investors as to how climate risk factors play into their buy/sell decisions," continued Ambachtsheer.

Ambachtsheer noted that the CDP currently has 475 signatory investors with a combined $55 trillion of assets under management.

"Investor involvement in the CDP has been overwhelming, even without a clear regulatory framework," she said. "Imagine the investor response when there is a clear regulatory framework."

03/09/09

Investors Call on Auto Industry to Improve Disclosure on Emissions
    by Robert Kropp

The risks and opportunities for carbon reduction strategies for the automobile industry are considerable and warrant particular attention from investors.

SRI World Group -- On January 26, President Obama issued two orders that would require more stringent fuel efficiency standards for new cars and light trucks. In one, the Environmental Protection Agency (EPA) was directed to consider granting states waivers to set their own emissions standards, which are in several cases stricter than proposed federal standards. California, for example, has passed a mandate that requires a 30% decrease in tailpipe emissions.

In the other order, Obama instructed the Transportation Department to provide interim targets for mileage standards starting in 2012 to ensure that new vehicles reach a goal of 35 miles per gallon by 2020.

Citing these and other new regulatory pressures, institutional investors released new climate disclosure guidelines for the auto industry that call on car manufacturers to strengthen their reporting on the risks and opportunities presented by climate change.

The report finds that companies in the auto industry have provided inadequate data on climate change, making it difficult for investors to assess the risks and opportunities posed by climate change policy to individual auto companies. According to the report, investors require strategic overviews of long-term strategies for increasing fuel economy and reducing emissions, and quantitative data on emissions and development of clean technologies.

The transport sector is one of the greatest emitters of greenhouse gas (GHG) emissions, accounting for 18% of all carbon emissions worldwide. Noting that new climate regulations and customer demand will increasingly have an impact on companies in the auto sector, the report encourages companies to disclose information on emissions using existing communication channels.

These channels include Global Reporting Initiative (GRI) reporting, Carbon Disclosure Project (CDP) responses, financial reports, sustainability reports, analyst briefings, and mandatory reports to securities regulators such as the US Securities and Exchange Commission (SEC).

The new reporting framework was developed by the Institutional Investors Group on Climate Change (IIGCC) in Europe, the Investor Group on Climate Change Australia/New Zealand (IGCC), and Ceres in the US.

Ceres, a national network of investors, environmental organizations and other public interest groups, manages the Investor Network on Climate Risk (INCR), a $7 trillion network of investors that promotes better understanding of the financial risks and opportunities posed by climate change.

03/04/09

Role of Corporate Boards in Sustainability Issues Is Growing
    by Robert Kropp

Survey of board directors finds that as shareowner resolutions increase, more boards of directors are addressing the risks and opportunities of sustainability issues.

SRI World Group -- A survey of 220 directors at US companies with $1 billion or more in revenue finds that despite the current economic environment, corporate boards of directors have taken on a growing role in overseeing the risks and opportunities associated with corporate responsibility and sustainability (CR&S) and climate change.

The survey was commissioned by Deloitte, a worldwide provider of audit, consulting, financial advisory, risk management, and tax services, and conducted via email in August 2008 by Corporate Board Member magazine.

According to Eric Hespenheide of Deloitte's Enterprise Sustainability Group, "CR&S is about managing risk, generating value and ensuring the long-term viability of an enterprise. It includes consideration of the interdependencies between environmental, social and financial performance, including new views on regulation, accountability, transparency, corporate governance and the potential impacts of climate change on business operations."

More than three-quarters of respondents to the survey claim to have at least a moderate understanding of the business risks and opportunities associated with CR&S, and half believe that attention to CR&S issues is integrated into their companies' business strategy and risk management.

As for board attitudes regarding climate change, only 30% of directors reported that their companies have set goals for reducing greenhouse gas emissions, while 59% reported no commitment. At the same time, 35% of directors see value in having an environmental audit that measures greenhouse gas emissions and energy consumption. One-third of directors think there is growing investor interest in their companies' response to climate change and business sustainability issues.

When asked how their boards should organize to consider climate change and business sustainability issues, over one-third of respondents favored full board oversight, while another 37% indicated oversight should reside in existing board committees.

"Investors filed a record number of CR&S and climate change–related shareholder resolutions in 2008 and we expect that trend to continue upward," said Chris Park of Deloitte. "Shareholders want to know if leadership is prepared to manage risks, and they more insight into strategy for capitalizing on CR&S opportunities."

A Deloitte white paper entitled The Responsible and Sustainable Board includes data from the survey.