Global
Warming's Bottom Line
By Mindy Lubber
05 May, 2004
Boston Globe
Just
as Enron and other off-sheet accounting debacles spelled disaster for
many US investors, evidence shows that global warming could do the same.
Without aggressive action to reduce the financial risks that global
warming poses for companies, trillions of dollars of Americans' investments,
many of them controlled here in Boston, will be jeopardized.
Global warming is
a reality that is already putting the financial pinch on weather-dependent
businesses. In New England, maple syrup producers are reeling from another
dismal sap season. The region's ski resorts are losing tens of millions
of dollars every winter there is reduced snowfall. Meanwhile, worldwide
insurance claims for extreme weather events and disasters like drought
and forest fires have jumped tenfold in the last 40 years, hitting $55
billion in 2002. So serious is this issue that the world's second-largest
reinsurer, Swiss Re, is telling its corporate clients to come up with
strategies for handling global warming or risk losing their liability
coverage.
And the financial
ramifications will only grow as companies in energy-intensive businesses
are subjected to an expanding array of greenhouse gas controls at home
and abroad. Next year, companies operating in Europe will have to pay
for greenhouse emissions, and those exceeding their limits will face
stiff penalties. Such limits could bring substantial harm to the US
auto industry as European markets grow for cleaner technologies like
hybrids, already available from Japanese automakers Honda and Toyota.
Companies have two
ways to go on global warming: ignore the growing need to reduce greenhouse
gas emissions and get away from fossil fuels or view it as a market
signal to innovate and invest in competitive new technologies.
Those who stand
to suffer -- or benefit -- the most from those decisions are the investors
owning stock in these companies. And that's practically every American
whose retirement is tied up in mutual funds and other investment portfolios.
Some of the nation's
top pension fund managers are waking up to this reality and are pressuring
corporate leaders to attack the global warming issue with the same zeal
they bring to quarterly sales and earnings.
The investors have
been filing shareholder resolutions demanding disclosure of the risks
and companies' plans to avert them, and a number of those resolutions
have received record high votes -- in the 20s and even up to 32 percent
of shareholders in favor.
At a recent meeting
in Boston attended by the "strange bedfellows" of investors
and environmentalists, the leaders of 13 major pension funds controlling
nearly $800 billion in assets called on the Securities and Exchange
Commission to require companies to tell shareholders about their potential
financial exposure from global warming and how they plan to respond.
The move is the
latest volley from a new institutional investor coalition, the Investor
Network on Climate Risk, which was formed last fall at a meeting of
investors at the United Nations. The coalition now includes the California,
Connecticut, Maine, New York City, New York State, and Vermont retirement
funds.
But it's only a
beginning. Controlling 60 percent of the shares in the 1,000 largest
US companies, institutional investors have enormous influence over corporate
boards and management. But until a large number of investment managers
weigh in on the climate risk issue by demanding more accountability
and action from companies, this issue will continue to fester as an
enormous hidden liability with potentially dire consequences for American
shareholders.
Despite mounting
scientific evidence, most of the world's largest companies have been
operating as if global warming is fiction. A recent report by the Carbon
Disclosure Project found that only 35 to 40 percent of the world's 500
largest companies were taking steps to reduce the financial risks that
global warming poses for their businesses. The widespread inaction was
especially glaring among US companies, including utilities, oil and
gas producers, and automakers. For companies in energy-intensive sectors
that do not react, the carbon project's report predicted, their long-term
value could drop by up to 40 percent.
Boston is home to
several investment fund heavyweights that manage many Americans' retirement
funds. These financial leaders should be looking closely at how companies
in the oil and gas, auto, electric power, and other sectors examine
these climate change risks and what plans they have to minimize them.
Corporate leaders
and investment managers have a fiduciary duty to make sure that climate
risk doesn't become another Enron.
Mindy Lubber, former
regional administrator of the Environmental Protection Agency, is executive
director of the Coalition for Environmentally Responsible Economies.
© Copyright
2004 Globe Newspaper Company.