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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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February 18, 2008 12:01 AM ET
Brad Swonetz/Redux Pictures
GLOBAL WARNING Calsters CEO Jack Ehnes says companies that fail to gauge the impact of global warming “pose a risk, and ultimately it’s going to damage our portfolio.”
First steps, to be sure, but ones environmental groups applaud. Indeed, some activist investors claim the biggest risk companies now face from climate change is not acknowledging its risk. Lack of disclosure, they say, could turn out to be a costly mistake. “Right now, this is an issue that the investment community is beginning to get its arms around,” said Beth Young, a senior research associate at the Corporate Library. Institutional investors certainly seem to be taking global warming seriously. Florida's chief financial officer recently issued a directive requiring investment managers of state money to report on the potential effects of climate risk as part of their semiannual reviews. Likewise, officials at Calpers and Calsters, the influential California state employee and teacher pension funds, have teamed with other large funds to devise a global strategy tied to climate change. Eventually, the two California funds, which collectively manage $420 billion in assets, may end up rejiggering their portfolio mixes, pulling capital out of businesses which remain silent on the topic. “It's not an issue of tree-hugging activists,” Jack Ehnes, Calsters CEO, told the Sacramento Bee in December. “This is a hard-core business issue.” Companies that fail to gauge the impact of global warming on their operations, he added, “pose a risk, and ultimately it's going to damage our portfolio.” State legislators have gotten into the act as well. Over a dozen states have adopted laws restricting CO2 emissions from automobiles. California went one step further, suing six automakers, including GM and Ford, over the impact of tailpipe emissions on the state's environment. The case was dismissed in September. More lawsuits may be coming. The Corporate Library recently issued a report analyzing which carbon-intensive companies were most at risk for shareholder litigation. The research evaluated the disclosure practices and governance arrangements of 24 Russell 1000 companies with CO2-intensive businesses. The businesses were then rated on their governance arrangements relating to their exposure to climate change. Among the lowest scorers were Tidewater, Seacor Holdings and Scotts Miracle-Gro. But investors say the risks go beyond potential litigation. Insurance companies, for example, are already looking at policy losses arising from damage to coastal properties. And utilities appear to be girding for carbon emissions regulations. As of December, there were more than 165 bills, resolutions and amendments in Congress specifically addressing global climate change. The most likely bill to pass, say Capitol Hill watchers, is a cap-and-trade system espoused by Sens. Joseph Lieberman (I-Conn.) and John Warner (R-Va.). Under such a setup, corporate greenhouse gas emissions would be limited. Businesses that can't get below the cap will be forced to buy carbon credits—potentially an expensive purchase depending on the supply of the offsets. Anne Kelly, director of governance and corporate programs for Ceres, a coalition of investors and environmental and public-interest organizations, believes businesses should be including global warming in their long-range financial planning and risk management. As such, she says, CFOs should be involved in the discussions. “Climate risk is a governance issue,” Ms. Kelly noted, “and needs to be handled at the highest levels.” Businesses that ignore the issue can find themselves on the receiving end of some unflattering publicity. A Ceres report issued last month analyzed the climate change governance practices of 40 of the world's largest banks. Among the highest scorers were HSBC, ABN Amro and Barclays. The laggards? Bear Stearns and Bank of China, among others. FW
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