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November 25, 2003
Institutional Investors Send Wall Street Wake-Up Call to Address Climate Risk
    by William Baue

At a UN Summit, state treasurers and other institutional investors issue a ten-point call for action for companies, investment analysts, and fiduciaries to address climate risk (part one of a two-part article).

At the public entrance to the United Nations (UN) Headquarters in New York City stands a statue of the earth with a great gash on its far side. Upon first glance, it seems to signify destruction, an appropriate reading given the topic of the conference convening there: the Institutional Investor Summit on Climate Risk, which addresses how global warming might affect portfolios. Upon closer inspection, however, the gash reveals gears and cogs inside, perhaps signifying access to the inner workings of global issues, an interpretation that shows optimism for the potential of the summit to exert influence on corporate environmental practice.

"The goal of this summit is quite basic: to develop strategies for institutional investors to protect the long-term value of their portfolios in light of the potential risk of climate change,” said Denise Nappier, Connecticut’s State Treasurer, who co-chaired the summit. “The summit is essentially a wake-up call for those companies that fail to adequately address the potential liabilities associated with climate change and for financial analysts who ignore the financial risks that these companies face.”

While Ms. Nappier, who is the principal fiduciary of the $19 billion Connecticut Retirement Plans and Trust Funds, must adopt a conservative tone in characterizing climate risk as “potential,” others spoke more candidly.

“You tell me there’s not a risk associated with [global warming]?” implored former Vice President Al Gore incredulously in his luncheon address after listing the “discontinuous” environmental changes of this generation compared to the continuity of human history. “Hello?!” asked Mr. Gore, who is currently vice chair of Metropolitan West Financial and co-chaired the summit’s afternoon session.

The summit conveners, which included a coalition of eight state and city treasurers and comptrollers and two labor pension fund representing over $1 trillion in assets, made a more measured though equally passionate appeal. The coalition, which includes California Treasurer Phil Angelides and New York State Comptroller Alan Hevesi as well as treasurers from Maine, New Mexico, Oregon, and Vermont, issued a ten-point “call for action” on climate risk. The first point calls on the US Securities and Exchange Commission (SEC) to enforce its existing disclosure requirements on material environmental risks, which include climate change.

Summit materials included a November 2003 Friends of the Earth (FoE) survey report on corporate disclosure of climate change risk in their 2002 SEC 10-K filings. The report found improvement in both the quality and the quantity of reporting, though still only 38 percent of companies are disclosing climate risk in their filings, up 10 percent from a similar survey of 2001 filings.

The conveners called on institutional investors to support the Rose Foundation’s rulemaking petition to the SEC to strengthen its environmental disclosure requirements by adopting the American Society for Testing and Materials (ASTM) reporting format.

However, a panelist representing the financial services sector pointed out the dangers of waiting for consensus on how to measure and report climate risk before taking steps to mitigate the problem itself.

“By the time we can measure or estimate climate risk effectively, it may be too late,” said Abby Cohen, managing director of Goldman Sachs.

To harness the momentum generated by the summit toward identifying solutions, the conveners formed the Investor Network on Climate Risk (INCR). As outlined in the tenth point of the call for action, the Coalition for Environmentally Responsible Economies (CERES), which organized the summit at the UN, will serve as secretariat for the INCR.

Part two of this two-part article will address potential solutions to climate risk proposed at the summit.


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