Pension Funds Want To See More Green In MD&A

A group consisting of many of the nation’s largest institutional investors is stepping up its efforts to make a company’s environmental policies a mainstream corporate governance issue..

Their goal is for the Securities and Exchange

Commission to clarify the importance of companies

detailing their climate risk disclosure under existing disclosure rules regarding the Management's Discussion and Analysis of Financial Conditions and Results of Operations section of annual and quarterly reports.

On April 20, a number of investors fired off a letter

to SEC chairman William Donaldson laying out an agenda

for an anticipated meeting on the topic. Similar to

one sent on March 1, the letter is somewhat misleading

because it implies that Donaldson has agreed to meet

with the group.

But Nicole St. Clair, a spokesperson for CERES, a

coalition of investment funds, environmental

organizations, and public interest groups which along

with the State of Connecticut Retirement Plans and

Trust organized last November’s summit on Climate Risk

at the United Nations, concedes that Donaldson has not

in fact agreed to a meeting.

"There have only been discussions of meetings with SEC

staff, but we have not heard back from Donaldson

himself. It’s early in the process."

In any case, the 13 institutions that signed the two

separate letters include:

California State Treasurer

Phil Angelides;

Connecticut State Treasurer Denise

Nappier;

Maine State Treasurer Dale McCormick;

Maryland State Treasurer Nancy Kopp;

New Mexico State Treasurer Robert Vigil;

New York State Comptroller Alan Hevesi;

Oregon State Treasurer Randall Edwards;

Vermont State Treasurer Jeb Spaulding;

New York City Comptroller Bill Thompson;

Gerald McEntee, Chairman, AFCSME Employees Pension Plan (and president, AFSCME);

William Boarman, Chair, CWA/ITU Negotiated Pension Plan;

Tom Keegel, General Secretary-Treasurer, International Brotherhood of Teamsters; and

Steve Abrecht, Executive Director of Benefits, SEIU Pension Fund.

The group also requested a meeting with Donaldson to discuss the matter.

The pension funds stress that global warming poses

material financial risk to many of their portfolio

companies and that those risks should be analyzed as a

matter of routine corporate financial disclosure to

the SEC.

They acknowledge that a number of companies

have voluntarily started to make progress toward such

risk disclosure, while others have refused to do so

citing ambiguous SEC rules governing the

acknowledgment of such material dangers to shareholder

wealth.

The investors noted that the SEC's own guidelines for

the MD&A section of a company's SEC filings

stipulates:

"Specific known trends, events or

uncertainties that are reasonably likely to have a

material effect on a company's financial condition or

operating performance must be discussed in the MD&A."

Global warming and growing efforts to address it

through limiting carbon dioxide emissions present such

a trend and uncertainty, say the investors,

particularly to companies that are heavy emitters of

greenhouse gas emissions, such as electric power,

auto, and oil and gas.

Yet, they note in their letter that a recent study

commissioned by CERES found that eight major

companies—Alcoa, ChevronTexaco, ExxonMobil, General

Electric, General Motors, Honda, IBM and International Paper—did not mention climate change or related issues in their 2001 Form 10-K or Form 20-F filings.

"Our focus is on mandatory inclusion of climate risk information in the financial disclosure material provided by the corporations in which we invest," the group's letter states. "This is consistent with our need for detailed information regarding major material impacts on our investments and our onging efforts to attain corporate governance policies and principals that will routinely provide such information to all investors."

St. Clair points out historical precedent for this

type of practice. Before the turn of the millennium,

the SEC required companies to report their Y2K

readiness in detail in the MD&A sections of the

quarterly and annual reports.

Of course, pension funds, unions and other investors

have been pressing companies to address certain

environmental issues in shareholder resolutions.

However, these are non-binding and they rarely

generated much support from other investors. And doing

it on a company-by-company basis is "a lot of work and inconsistent," St. Clair adds.

You may recall that back in November, eight state and

city treasurers and comptrollers and two major labor

pension fund leaders issued a 10-point "call for

action" demanding tough new steps by SEC, corporate

boards and Wall Street firms to increase corporate

disclosure of the risks posed by climate change to

investors.

The officials said that they would immediately petition

the SEC for enforcement of environmental risk

disclosure requirements, seek climate risk disclosure

at companies in the oil & gas, electric power,

automobile and other sectors, and form an Investor

Network on Climate Risk to follow through on their

plans.

They also urged other institutional investors

such as pension and mutual funds to vote in support of shareholder resolutions seeking disclosure of climate risks for investors.

The pension funds have made some progress to date.

They recently agreed to withdraw shareholder

resolutions against American Electric Power and

Cinergy Corp. after the companies agreed to issue

reports on their positioning under likely regulatory

scenarios.

They added that two more electric power giants expect

to do the same within the next few weeks.

Notes Connecticut State Treasurer Denise Nappier, "When you have American

Electric Power and other companies recognizing their

fiduciary duty to assess and disclose their

environmental risk exposure to shareholders, then we

have to ask: Shouldn't the SEC also be recognizing

this responsibility?"