PRESS CONFERENCE ON CLIMATE RISK INVESTOR SUMMIT

 

Responding to the urgent need to address climate change, leading global investors at the 2005 Institutional Investor Summit on Climate Risk today committed to investing $1 billion of capital in the next year in companies with clean technologies, correspondents were told at a Headquarters press conference today.

Representing more than $3 trillion in investment assets, the institutional investment leaders present today released a ten-point action plan calling on United States companies, Wall Street firms and the Securities and Exchange Commission to provide investors with comprehensive analysis and disclosure about the financial risks posed by climate change.

Participating in today’s panel was Mindy Lubber, President of Ceres and Director of Investor Network on Climate Risk; Denise Nappier, Connecticut State Treasurer and Co-Chair of the Summit; William Thompson, New York City comptroller Steve Westley, California State Treasurer; and Howard Jacobs, board trustee of the Universities Superannuation Scheme, a United Kingdom-based private pension fund.

The first summit, held in November 2003, culminated in a ten-point call for action for companies, investment analysts and fiduciaries to address climate risk.  At today’s meeting, which was organized by the United Nations Fund for International Partnerships and the Investor Network on Climate Risk, investors took stock of progress achieved in the last 18 months, and announced the next steps to address climate change.

Describing today’s summit for reporters, Mindy Lubber noted that investment leaders had announced their decision to address climate change risk and to seize the opportunities that would make up many of the current generation’s best investments.  While the leaders had been told about the scientific and environmental risks of climate change, they had “dug in like a laser” on the financial risks.  Financial risks from global warming created by changes in the atmosphere included more wildfires and modest changes in temperature, which, for example, impacted upon agriculture and transportation. 

The impacts were not insignificant, she added.  In 2004 alone, the impacts from changing weather patterns had cost nearly $100 billion, $40 billion of which were insurable risks.  “We are no longer talking about guesswork or modest change, we are talking about substantial physical risks that create investment risks”, she said. 

Regulatory risks were another issue, she said.  Companies and their investors needed to know that they were addressing their own decisions, taking into account regulatory changes relating to carbon.  When Kyoto had changed, the environment for business had changed.  If the United States Congress passed a major statute calling for less carbon emissions in the air, it would mean that an electric utility company that invested $2 billion in a coal-fired plant stood to end up with $70 to $100 million in stranded costs.  Those were some of the very real risks that the problem of climate created for companies and their owners.

There were also legal risks, she said.  When they had discussed legal risks two years ago, lawsuits had not been filed.  Now, seven or eight attorneys-general had sued the five largest emitters of carbon.  Any company facing that kind of litigation risk had real problems, which investors would want to know about.

Today, a bold group of leaders were announcing a set of bold action steps to deal with the risks relating to climate change, she said, including how companies should change their practices and how Wall Street should assess the risk in a more mindful and precise way.  They were also gathered to announce interest in investing in clean energy opportunities.

The cost of carbon emissions was going up and Kyoto controls were making it more difficult for companies to keep building high-emitting carbon technology, she said.  Yesterday, General Electric had announced that it would bring carbon emissions down because it would cost less money and help to address the impact of climate change.  The company had also said that it would invest an enormous amount of money in clean technology, because people were demanding it.  They would bring their carbon footprint down because it created risk, and they would invest in renewable and alternative technology because it would allow them to make a lot of money, make shareholders happy and impact upon society.

Summit co-chair, Denise Nappier said there had been growth in investor interest and action in the past year from state treasurers and comptrollers, a range of funds, foundations and institutions.  That interest cut across the United States, not just the West and East coasts.  It also extended beyond the United States borders.  The coalition -- the growing network of institutional investors -- had the economic might to advocate effectively for progress needed to sustain the long-term health of investments. 

As a principle fiduciary of Connecticut’s $20-billion pension fund, she had come to believe that climate change posed long-term risk for the many companies in which the fund invested, she said.  Qualifying risk in relation to return was an essential ingredient in any successful investment strategy.  “When we think green, we are not thinking about grass.  We are thinking about portfolio value, sound investments and long-term growth and financial security”, she said.

On that basis, she had concluded that climate risk was worth collective action, she said, and the numbers were growing.  Before the 2003 summit there had been little activity on the issue.  While many had thought it would not happen, quite a few companies were stepping forward, reinforcing the risk of climate change.  Wherever there was risk, however, there was opportunity.  She believed the day would come when every investor would evaluate climate, along with other traditional risk factors, such as inflation trends and currency exchange rates.  The question was not whether it would happen, but when, she said.  The time was now. 

In that regard, they were calling on publicly traded companies in the auto, electric power, oil and gas sectors to report within a year how likely scenarios for climate change, future greenhouse gas limits, and dwindling access to inexpensive energy would affect their businesses and competitiveness, and to identify steps they were taking to reduce those financial impacts and seize new emerging market opportunities.  Leaders were also calling for a new corporate governance report focusing on 100 of the world’s largest companies that would rate companies on a scale of one to 100 based on the degree of effort they were making to address climate risk.  The report would be completed by Ceres and would be ready for investors later this year. 

Representing New York pension boards, William Thompson said the trustees of the city’s five pension boards were very concerned about the issue of climate risk.  New York had been very aggressive in the filing of shareholder resolutions and in pushing companies to look to more sustainable business models and to look at a bottom line that included climate risk.  Ignoring climate risk would be a violation of fiduciary responsibility.  It was good business sense to push companies to be more environmentally sound. 

In looking at the additional action items on the agenda, including one requiring Wall Street to boost attention to climate risk, he said it was important to require Wall Street investment firms to explain their expertise and their resources for evaluating climate risk.  It was also important to boost mutual funds attention to climate risk.  During 2004, only 2 per cent of mutual funds had supported climate change resolutions.  It was very important for mutual funds to become engaged.  With so much money invested in mutual funds, it was important that they took a long-term look at climate risk and the threat it posed to the bottom line.

Steve Westley said his role as trustee of the first and third largest public pension funds in the world had been to work aggressively to put pressure on companies to fully disclose the greenhouse gases they were emitting.  It was not just a California or national issue, but an international issue.  He had also helped to pressure the world’s major automakers to produce the cleaner cars that consumers around the world wanted.  Global warming was real, affecting every single person on the planet.  The countries that moved quickly to reduce emissions and to make environmentally friendly, safe products would be the ones most likely to succeed financially.

Noting 2 points of the 10-point call to action, he said investors would be calling on the Securities and Exchange Commission (SEC) to require companies to provide greater disclosure on how companies affected the environment.  While some companies were moving in the right direction, standards were needed to know how all of the major companies were doing in terms of providing for a cleaner environment. The group had collectively committed to investing $1 billion in clean technology funds, something that had never been done before in history.  California had taken the first step by deciding to invest $450 million. 

On a personal note, he said eight years ago he had helped to build a little company, an “online garage sale”.  The dream had been to help people around the world recycle mountains of stuff and keep it out of the world’s landfills.  It was a cute idea.  Today, that company had a market cap larger than General Motors and Ford Motor Company together.  It was called “eBay”, and it was one of the greatest recycling successes in history. 

Green companies could be among the most profitable, he said.  The challenge was to promote the next generation of clean technology companies.  The battle against global warming was one the world could not afford to lose.

Adding a European perspective, as a representative of the second largest pension fund in the United Kingdom, Mr. Jacobs endorsed the renewed call for action.  As global investors, the fund had the better part of $5 billion in

investments in the United States.  His organization had a direct interest in how United States companies were responding to climate change.  The United States was not unique.  Many European investors were in the same position.  In Europe, political leaders, including United Kingdom Prime Minister Tony Blair, were setting in place policies that would penalize carbon emissions and encourage alternative energy sources.  It was the case of global response to a global problem.

How would the $1 billion be monitored and did it include the $450 million already stated?  a correspondent asked.  Ms. Lubber said the 2003 summit had called for progress reports.  Accountability was key.  Investors had attempted to hold themselves accountable in 2003, and would do so again.  If the funds provided the return they were likely to return over time, they would likely double.  With oil prices at over $50 a barrel, it was an ideal time to look at clean technology companies. 

Asked about a system of credits under the Kyoto Protocol, Ms. Nappier noted that, as part of governance report card, how companies adhered to the Protocol would affect their rating.  Any company that did not adhere to the Protocol would find that there rating on the scale of one to 100 would be adversely affected.  There were two ways to measure the call to action, she added.  One was to look at commitments; the other was to look at actual investments. 

The argument being made was the companies that reduced carbon emissions would save money, Ms. Lubber said, in response to another question.  Carbon had a cost.  The European Union had a tax on carbon.  Not acting to mitigate the carbon risk would be more costly.

Asked what the group was doing to sensitize Wall Street researchers on climate risk, Ms. Lubber noted that money mangers who assessed climate risk were the ones getting the business.

Mr. Westley said countries around the world would be increasing environmental standards.  Everyone was moving in the same direction, increasing standards to tackle greenhouse gas emissions.  The sooner Wall Street followed along, the better.

If companies did not address climate risk, at what point did investors call for disinvestment? a correspondent asked.

Responding, Mr. Thompson said New York never divested, but could bring a shareholder resolution for years.  In the end, the company would change its policy. 

Divestiture was a one-bullet deal, Mr. Westley added.  Speaking with a clear voice would have much more of an impact.

Responding to a question about the oil industry, Ms. Lubber said that industry would not go away overnight.  Could they be better managed was the question.  British Petroleum, while it might not make highly efficient engines, was handling their emissions.  Oil companies were moving substantially and making a difference.  The idea was to reward companies that were investing in cutting-edge environmental products.