Environmental Disclosures Next For Public Companies?

Is there a connection between global warming and good corporate governance?

The answer to that question is a resounding "yes," according to many of the biggest and most influential pension funds.

So, last Friday a number of state and city treasurers and comptrollers and large labor pension funds met with senior representatives of Wall Street firms and even former U.S. Vice President Al Gore, for a closed-door summit at the United Nations headquarters in New York to examine risks of climate change to their portfolios and determine further actions.

Keep in mind that these are some of the same people who successfully pushed for the recent resignation of New York Stock Exchange chairman Richard Grasso, including California Treasurer Phil Angelides and New York State Comptroller Alan Hevesi.

The summit was co-chaired by Connecticut State Treasurer Denise Nappier and UN Foundation president Timothy Wirth, and organized by CERES, a US-based coalition of investment funds and public interest groups that has over 70 "Endorsing Companies" — American Airlines, Coca-Cola, Ford, and others — that have committed to continuous environmental improvement by endorsing the CERES Principles, a ten-point code of environmental conduct.

The Upshot

The big takeaway: Companies must disclose the impact of climate issues on their operations and make this a critical disclosure and compliance issue.

The investment groups issued a "call for action," asking the SEC to impose tighter disclosure, reporting and risk assessment requirements on corporations and investment firms.

"What we want is no surprises," said Nappier, referring to the recent corporate scandals involving the likes of Enron, WorldCom and Tyco International. "We have certainly had enough of the unexpected, and this time we want to know up front and early on, we want to know what exposure is down the road and what damage is being done to our investments and to our economy."

"Most of Wall Street today seems to ignore climate risk and feels more comfortable pretending that global warming will not affect their portfolios," said Leon Panetta, former director of the U.S. Office of Management and Budget, according to Reuters.

The Data

"The data is piling up and the trends are clear. In 2003, it is irresponsible for any major investor or fiduciary to ignore the risks of global warming," added Panetta, who reportedly suggested the lawyers who filed the first lawsuits against tobacco and asbestos firms were now looking at global warming. "How long will it take before someone takes a swing at an oil company or a power company?"

According to Summit organizers, climate risk falls into two broad categories: First, the economic and sectoral risk from the physical impacts of climate change.

They identified a dozen industries they deem particularly vulnerable to climate change, including agriculture, tourism, health care and manufacturing. Projected climate-related damage for these industries ranges from marginal to hundreds of billions of dollars over the next few decades, according to Summit reports.

The second broad category of risk is the exposure of companies to a rapidly expanding web of legislative, regulatory, civil and tort actions that are developing around the world.

Extensive resources, details, and Summit information are available in the table above.