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September 10, 2004
New Web Tool Identifies Climate Risk and Opportunity in 24 Biggest Mutual Funds
    by William Baue

KLD Research & Analytics information reveals both positive and negative corporate performance on climate change, allowing retail investors to lobby their mutual funds.


Recent events are indicating that acceptance of the reality of climate change, and the associated risk to business, is continuing to widen. After years of questioning the link between human activity and climate change established by the Intergovernmental Panel on Climate Change (IPCC), the Bush Administration finally acknowledged the link in a recent report. This week, the Conference Board, best known for issuing research on more mundane economic indicators, released a report on the business implications of scientific findings linking human activity climate change.

While humans may contribute to global warming, they can also act to address and possibly reverse it. Toward this end, the nonprofit Results for America, a project of the Civil Society Institute (CSI), launched a website this week allowing everyday investors to research the degree to which companies in their mutual funds exacerbate or mitigate climate change. The site allows individual investors to investigate the 24 largest equity mutual funds in terms of assets, based on data from Yahoo! Finance, focusing on each fund's top 25 holdings according to Morningstar.

The site provides in-depth research from KLD Research & Analytics, a socially responsible investment (SRI) research firm, on companies with significant climate change-related risks as well as those with positive climate-related opportunities.

"People who mistakenly think that global warming doesn't have anything to do with them need only look into their mutual funds to find how they have a very real pocketbook stake in whether or not corporations heed the call to deal responsibly with climate change issues," said Pam Solo, president of CSI. "The purpose of this website is simple: It empowers small investors with the information they need to make informed choices about mutual funds."

While the information may prompt some investors to shift their money from mutual funds with high exposure to climate change risks to funds that more proactively support sustainability, it may equip and inspire other investors to dialogue with their fund firms.

"I'd like to see shareholders lobby their mutual funds--that's how to effect change at the corporations," said Peter Kinder, founding president of KLD. "When you think of this site being launched ten days after mutual funds first reported their proxy votes, the importance of letting people know what they own becomes clear."

The new Securities and Exchange Commission (SEC) rule requiring mutual fund proxy vote disclosure stands to prompt investor questioning of mutual fund votes that seem inconsistent with shareowner interests, just as this web tool may inspire similar activism.

The site's search tool focuses on funds from four complexes: American Funds, Dodge & Cox, Fidelity, and Vanguard. Of the 224 companies in the funds' top holdings, KLD research reveals "negative" or "positive" information on 71 of the companies.

A sample search of the Vanguard 500 Index fund finds that more than half (13) of its top 25 holdings to be companies where shareowner value could be jeopardized by climate risks or enhanced by climate-related opportunities. Risk-exposed companies include ChevronTexaco (ticker: CVX), ExxonMobil (XOM), and General Electric (GE), while companies with climate-related opportunities include Bank of America (BAC), Johnson & Johnson (JNJ), and UPS (UPS).

Clicking the name of the company brings up a page with in-depth climate-related information culled from KLD's SOCRATES database of corporate social responsibility (CSR) research. The descriptions include very detailed information:

"In April 2002, the Natural Resources Defense Council--a US-based environmental advocacy group--published a document that it claimed demonstrated that ExxonMobil had lobbied the Bush administration to push for a more industry-friendly chair of the Intergovernmental Panel on Climate Change (IPCC), an influential international science panel monitoring the causes and impacts of global warming," states the profile. "According to an April 2002 Los Angeles Times article, the memo from the company to the White House revealed that an ExxonMobil official urged replacing the American scientist chair with an Indian engineer and economist. The American scientist, an atmospheric chemist, was criticized by the energy industry for suggesting more industry regulation."

Compare this to a more favorable profile:

"Johnson & Johnson is one of twenty companies which have agreed to purchase at least 10 percent of their electricity from renewable sources through the Environmental Protection Agency's (EPA) Green Power Promotion program," the profile states. "In August 2003, the company announced plans to build a fuel cell generator to supply approximately 10 percent of the energy needs of its headquarters in New Brunswick starting in the Fall."

 

 
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