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March 28, 2006
Corporate Action on Climate Change Improves Over Past Three Years, But Still Insufficient
    by Bill Baue

A report from Ceres benchmarks corporate governance on climate change, finding steady gains by leaders while some laggards leapfrog toward the top and other laggards stagnate at the bottom.

Companies with US operations are doing more to mitigate the risks associated with global warming now than they were three years ago--but they still are not doing enough. This is the conclusion of a report released last week by Ceres, a coalition of environmentalists and institutional investors. The report rates how 100 companies are handling climate risks.

"The results are encouraging," says Ceres President Mindy Lubber. "In 2003, Ceres released a report on 20 companies showing that major US businesses were largely ignoring these issues."

"By contrast, this report shows that corporate leaders in many key industries are now facing the challenge head-on--companies such as DuPont, Cinergy, American Electric Power, and General Electric, which earned the highest scores in their respective industries," Ms. Lubber continues. "Yet for all of the positive momentum in elevating climate as a governance priority, most American companies lag behind their international peers--a trend that is already resulting in competitive advantages for overseas companies developing low-carbon technologies in the auto and power sectors."

The new report uses the 14-point "Climate Change Governance Checklist" introduced in the 2003 report to assess company action on climate risk in five areas: board oversight, management performance, public disclosure, greenhouse gas emissions accounting, and strategic planning. The report examines companies in the ten most carbon-intensive sectors in the US (according to the US Energy Information Administration), including oil and gas, electric power, auto, chemical, industrial equipment, mining and metals, coal, food products, forest products, and air transport.

Report author Doug Cogan of the Investor Responsibility Research Center (IRRC) highlights progress since the previous report, which he also authored. On the strength of its 2005 "Ecomagination" initiative committing to double investments in climate-friendly technologies to $20 billion in sales by 2010, General Electric (ticker: GE) made the biggest leap from four out of 14 to 58 out of 100 in the new scoring regime. Chevron (CVX) jumped from scoring five of 14 to 57 of 100 on the strength of its 2004 commitment to invest more than $100 million per year in low-carbon and carbon-free alternative and renewable energies.

The report also spotlights companies following the same trajectories as in 2003. On the positive side, non-US companies such as BP (BP--90 out of 100) and Shell (RD--79) as well as US companies such as DuPont (DD--85), Alcoa (AA--74), American Electric Power (AEP--73), and Cinergy (CIN--73) continue to perform well on climate governance. On the negative side, Daimler (DCX--43) ExxonMobil (XOM--35), and ConocoPhillips (COP--35) have failed to enhance their engagement on climate risk, thus repeating disappointing scores.

"This report also identifies a handful of industry groups--especially coal, food product, and airline companies--where climate change continues to be widely ignored as a governance priority, even though it could have a tremendous impact on their business," writes Mr. Cogan. "For example, many coal companies (especially in the US) have done little to mitigate the financial impacts of carbon regulations, despite managing the world's most carbon intensive fuel source."

Compared to the relatively strong performances by the chemical (51.9 average score), electricity (48.5), and auto (47.9) sectors, coal (21.4), food (17.6), and airlines (16.6) performed dismally.

Mr. Cogan notes that the report is intended to serve as a benchmarking tool for institutional investors such as members of the Investor Network on Climate Risk (INCR). INCR requisitioned the report in their call for action at the May 2005 Institutional Investor Summit on Climate Risk. With $3 trillion in assets collectively managed by INCR members, institutional investors hold significant sway in convincing companies to address climate change more responsibly, for example through shareowner action and active proxy voting. The report documents the rising tide of support for shareowner resolutions on climate change.

"Over two dozen global warming shareholder resolutions were filed with companies in 2004 and 2005--more than triple the number of filings in 2000 and 2001," writes Mr. Cogan. "And some of the resolutions received the highest voting support levels ever--a direct result of pension funds, labor funds, and other institutional investors boosting their involvement in the climate issue."

"Three of the nation's five largest public pension funds, as well as the largest private pension fund TIAA-CREF, now routinely support climate change resolutions," he adds.

In contrast, the three largest mutual fund firms--Fidelity, Vanguard, and American Funds--failed to support a single shareowner resolution asking companies to address climate change in the 2005 proxy season.

"Mutual fund companies are a critical missing link in the push for better corporate disclosure about the financial implications of global warming," said Ms. Lubber. "They are ignoring the impacts that climate change will have on a wide range of business sectors, whether from emerging greenhouse gas limits, direct physical impacts, or surging demand for climate-friendly technologies such as hybrid vehicles."

Last week Ceres sent letters to the three mutual fund firms asking to meet with them to discuss their lack of support for climate change resolutions. And today, Ceres delivered letters and petitions from over 38,000 individual investors and consumers urging Fidelity, Vanguard, and American Funds to vote their proxies in favor of climate change resolutions.


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