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July 10, 2003
Report Connects the Dots Between Corporate Governance and Climate Change Risk
    by William Baue

A report reveals the degree to which 20 major global companies use corporate governance to address climate change risks and opportunities.

Yesterday, a report was released that examines how 20 major global companies that emit significant amounts of greenhouse gases are factoring climate change into their corporate governance practices and business strategies. All of the companies have implemented at least minimal governance practices to address climate change, according to the report, which was commissioned by the Coalition for Environmentally Responsible Economies (CERES).

"A company's response to threats and opportunities of climate change--or their lack of response --can have a material bearing on shareholder value," said Mindy Lubber, executive director of CERES, a U.S. coalition of environmental, investor, and advocacy groups that promotes sustainability.

However, few companies have instituted the kinds of comprehensive governance practices the report, which was written by the Investor Responsibility Research Center (IRRC), deems necessary for addressing the risks and opportunities of climate change.
The report, entitled Corporate Governance and Climate Change: Making the Connection, assesses companies based on a 14-point checklist of corporate governance best practice regarding climate change. The checklist includes areas such as board oversight, executive compensation, emissions reporting, and material risk disclosure.

"We found a wide disparity in governance responses to climate change, especially among the 15 American companies included in our study," said report author Doug Cogan, IRRC's deputy director of social issues. IRRC provides impartial research to institutional investors with $5 trillion in assets.

Two British companies, BP (ticker: BP) and Shell (RD), top the list by addressing all 14 points on IRRC's checklist, while three American companies, ExxonMobil (XOM), General Electric (GE), and TXU (TXU), bring up the rear, addressing only four points. The report examines the five companies that emit the largest amounts of greenhouse gases in each of the three major carbon-emitting industries: electric utilities, oil and gas, and auto. It also includes five other large manufacturing companies, based more on their size and market capitalization than their carbon emissions.

"Our primary finding is that many major carbon-emitting companies are pursuing business strategies that appear to discount the global warming threat," said Mr. Cogan. "Such strategies leave them--and their shareholders--especially vulnerable to increased financial risks and missed market opportunities posed by climate change."

"This is evidenced by the fact that nearly all of the 20 companies we profiled have discussed climate change at the board level, yet barely half are reporting on the issue in their securities filings, and less than half are projecting greenhouse gas emissions trends," he added.

ExxonMobil, notorious for its skepticism of the scientific research confirming global warming, refutes the report's assessment of the company as an environmental laggard.

"While we have not seen the CERES report issued yesterday, we believe that ExxonMobil is adequately addressing the potential risks of climate change," said Cynthia Langlands, spokesperson for ExxonMobil.

Among other things, the report points out that ExxonMobil does not make any statement about the material risks of climate change in its 2001 10-K or 20-F filings with the Securities and Exchange Commission (SEC).

"There is no SEC requirement to discuss global climate change in our filings, but we have addressed the issue in our Corporate Citizenship Report, our Proxy Statement, and in our newspaper editorials," Ms. Langlands points out.

General Electric responded to its low ranking by questioning the report's structure.

"The unfortunate thing about the report is that it focuses on form over substance," said Gary Sheffer, a spokesperson for General Electric, which is one of the companies chosen for its size and market capitalization more than its high carbon emission. "They have a system in mind, we don't use their system, and therefore we get a low score."

Mr. Sheffer contends that GE addresses many of the issues included in the 14-point checklist without specifically referencing climate change.

"For example, we don't specify the word 'carbon' in our compensation assessment, but nonetheless, the CEO is judged by the board on the overall environmental performance of the company," Mr. Sheffer told

The same argument applies to the SEC filings, Mr. Sheffer asserts.

"We do generally discuss our environmental liabilities in our filings, and make the point that they are not material to the company, but we don't specify measures needed to reduce carbon emissions."

IRRC's report stresses that climate change is not a run-of-the-mill environmental issue in terms of shareowner risk. If investors believe that climate change issues warrant specific measurement, disclosure, and mitigation by companies, they need to make that belief known to companies.


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