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
Texas Utilities, General Electric (GE), and ExxonMobil (XOM).
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.
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
The flip side of risk is opportunity, or the business case for addressing climate
"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.
mitigating climate risk not only can ensure the survival of an inhabitable planet, it can also be
Part one of this article
discusses how the summit addressed the risks of climate change.