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November 26, 2003
UN Institutional Investor Summit Considers Opportunities of Addressing Climate Change
    by William Baue

Institutional investors make the business case and investment case for assessing, reporting, and mitigating climate change in a summit at the UN (part two of a two-part article).

While climate change clearly poses risks not only to the environment but also to the economy, this human-induced phenomenon also presents proactive companies and investors with opportunities. That was one of the conclusions of the Institutional Investor Summit on Climate Risk, which convened last week at the United Nations (UN) Headquarters in New York City. Summit participants presented the business case and the investment case for addressing climate risk but advised against steps that might prove counterproductive.

The institutional investors gathered at the summit, including eight state and city treasurers and comptrollers and labor pension fund leaders representing over $1 trillion in assets, concurred that divestment is not the answer.

"Divesting is a last resort when you throw up your hands," said Alan Hevesi, comptroller of New York State and a summit panelist. "Divestment means, 'I'm taking my ball and I'm going home,' and the company takes another ball and plays without you."

"We want to stay in the game for the long haul and continue the pressure with shareholder resolutions, proxy fights, and persuasion in order to get companies to change," he added.

Sister Pat Wolf, executive director of the Interfaith Center on Corporate Responsibility (ICCR), encouraged fiduciaries to practice shareholder advocacy by filing shareholder resolutions and dialoguing directly with companies to promote climate risk assessment.

"Of the top ten resolutions in our energy and environment work this past proxy season, seven resolutions involving climate risk received no less than 21.3 percent of the shareholder vote," said Sister Wolf. ICCR filed or co-filed these resolutions at American Electric Power (ticker: AEP), ChevronTexaco (CVX), Southern Company (SO), Texas Utilities, General Electric (GE), and ExxonMobil (XOM).

Many of these resolutions asked companies to assess and publicly report their climate risk.

"This doesn't cost anything--it costs a little time and effort and intelligence--but failure to do so could be astronomically costly," said Mr. Hevesi.

Eileen Claussen, president of the Pew Center on Global Climate Change (PCGCC), urged those present to focus not only on tracking corporate greenhouse gas (GHG) emissions, but also on devising strategies to mitigate these emissions in the short-, medium-, and long-term.

"Of the 38 companies we deal with, 25 of them have [GHG emissions] targets, almost all of them are more stringent than the US Kyoto target and, in fact, some of them are a lot more stringent," said Ms. Claussen. "There is not a single company with a target that has had to spend large amounts of money to meet those targets, because most of the initial stages of meeting those targets have involved efficiency improvements which have tended to make them more productive and profitable in terms of the bottom line."

Doug Foy, Secretary of Commonwealth Development for Massachusetts, proposed that insurers and reinsurers take climate risk assessment into consideration when issuing director and officer (D&O) liability insurance.

"It seems to me relatively straightforward to have underwriters incorporate in their underwriting standards that they're not going to issue D&O insurance unless they know the directors of corporations are at least paying attention to this issue," said Mr. Foy.

Steve Abrecht, executive director of the National Industry Pension Fund for the Service Employees International Union (SEIU), expanded on this proposal.

"I would extend that to the fiduciary liability insurance for trustees of pension funds, who live and die by this insurance," said Mr. Abrecht. "Whatever is incorporated into their fiduciary liability insurance, they will follow, to the extent that the insurers who issue that policy explicitly put into it some reference to assessing the risk of climate change in their portfolio."

"Believe it or not, that, more than any regulatory change, will make it happen almost overnight, because if they are in violation of that policy, they are at risk personally," he stated.

The flip side of risk is opportunity, or the business case for addressing climate change.

"The risk is enormous, but the upside potential is enormous as well," said Mr. Hevesi. "Companies that are looking to the long-term and are willing to invest a little bit upfront could make enormous profits by predicting where we should be going with the new technologies and the new industries that will be required to meet the demands of a planet threatened with this climate change potential."

A November 2003 Friends of the Earth (FoE) report released at the summit provides a specific example that illustrates this point.

" . . . PriceWaterhouse Coopers has created a Climate Change Services Group, and reports that one of its clients realized $650 million in cost savings by implementing a climate change strategy," writes report author Michelle Chan-Fishel, coordinator of FOE's green investments program.

Addressing and mitigating climate risk not only can ensure the survival of an inhabitable planet, it can also be profitable.

Part one of this article discusses how the summit addressed the risks of climate change.


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