Investors Call On Congress to Go Green

Funds with $4 trillion under management want Washington to put mandatory limits on carbon emissions

by Moira Herbst

On Mar. 19, joining a growing chorus from American businesses, more than 50 major U.S. investors are asking Congress to enact tough federal legislation to curb carbon emissions and to overhaul energy policies nationwide. It marks the first time that a group of major money managers, including Merrill Lynch (MER) and the California Public Employees' Retirement System (CalPERS), have requested that Congress take such extensive action on global warming.

The investors say that U.S. companies need clear, consistent regulation and federal standards to help them address climate issues. "Without national policies, the competitiveness of American business will be compromised," says Fred Buenrostro Jr., chief executive officer at CalPERS, the country's largest public pension fund, with $230 billion in assets. "We don't think we can wait."

The statement, coordinated by the environmental and investor coalition Ceres and the Investor Network on Climate Risk, marks the latest example in the unusual trend of business groups requesting government action on climate change. Days before President George W. Bush's State of the Union address in January, 10 major companies, including General Electric (GE) and BP (BP), joined with four environmental groups to ask Congress for legislation to limit greenhouse gas emissions. And last week, executives of General Motors (GM), Ford (F), Chrysler (DCX), and Toyota (TM) North America pledged to support mandatory caps on carbon emissions, as long as the caps covered all sectors of the economy.

Demanding Action

Business groups say that the current wait-and-see approach is not enough. "With this action, investors are turning conventional wisdom on its head," said Mindy Lubber, president of Ceres. "The thinking has been that controlling carbon emissions is bad for the economy; now it's clear that the danger is not acting to curb emissions." (See BusinessWeek.com, 8/14/06, "Wall Street's New Love Affair.")

The investors' statement reads like an environmentalists' manifesto. While it doesn't advocate a specific bill or policy proposal, it calls for the U.S. to "achieve sizable, sensible long-term reductions of greenhouse gas emissions"—that is, the 60% to 90% reductions below 1990 levels by 2050 that leading scientists recommend. The statement lays out three general policy proposals: 1) a realignment of energy policies to spur the growth of clean technologies, 2) directions from the Securities & Exchange Commission (SEC) specifying what companies should disclose to investors on climate change in their financial reporting, and 3) a mandatory market-based solution, such as what has come to be known as "cap-and-trade."

In a cap-and-trade system, the government sets a ceiling on greenhouse gas emissions. It then sells or grants credits to businesses allowing them a certain level of pollution, likely based on their track record. Companies that reduce emissions below their quota can sell credits to companies that exceed theirs. The idea of this market-based system is that while some firms may pollute more than others at first, the cut in overall emissions is guaranteed. "Merrill Lynch is convinced of the wisdom of exposing the public costs of carbon emissions to market discipline," says Mark Goldfus, senior vice-president at Merrill Lynch.