Investors Demand Carbon-Risk Disclosure

(page 2 of 2)

Looking for a Link

Today, 475 institutional investors that manage $55 trillion in assets back the Carbon Disclosure Project. "Whenever we talk to a company that says, 'Nobody is asking us for this information,' we put information from the Carbon Disclosure Project in front of them and use that as a tool," says Jennifer Coulsen, manager of the shareholder action program at the Ethical Funds Co., a manager of socially responsible mutual funds in Canada.

Does going green make a company more successful? It's still too early to tell, but at least one study suggests a correlation between an emphasis on sustainability and share performance. A recent study by A.T. Kearney found that companies focused on sustainability outperformed industry peers in 16 of the 18 industries examined over three-month and six-month periods.

Some companies have begun to report climate risk voluntarily in regulatory documents. Coca-Cola (KO) now includes a climate-specific risk factor in SEC filings: "There is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters," the company says in its annual 10-K report. Those weather patterns could affect the availability of water and key agricultural commodities such as sugar cane, corn, beets, and other ingredients for Coca-Cola products, says Bryan Jacob, director of energy management and climate protection at Coca-Cola.

Historical Data Is Helpful

On Mar. 17, the National Association of Insurance Commissioners adopted a mandatory requirement that insurance companies with annual premiums of $500 million or more disclose to regulators the financial risks they face from climate change as well the actions they are taking to respond to those risks.

Other companies are starting to disclose potential opportunities associated with climate change, such as the creation of new energy-efficient products. "We think that type of information, in addition to risk information, is necessary to make informed investment decisions," says Rebecca Henson, sustainability analyst at the Calvert Group, an investment management company. Henson says the type of information she'd like to see is outlined in the Global Framework for Climate Risk Disclosure, created by 14 institutional investors in 2006. That information includes the total historical, current, and projected greenhouse gas emissions; a strategic analysis of climate risk and emissions management; assessment of physical risk of climate change; and the risk related to the regulation of greenhouse gas emissions.

Avis Budget spokesman John Barrows says that proxy advisory firms Institutional Shareholder Services, a subsidiary of RiskMetrics Group (RMG), and Glass Lewis & Co. have joined the board in recommending a vote against the green proposal. In its filing urging shareholders to vote no, Avis Budget says the number of vehicles in its 2009 fleet rating 32 miles per gallon or better has increased 18% from 2008. It also argues that an additional report would add little value while requiring substantial administrative burden and expense. Yet if groups like the Carbon Disclosure Project are correct, the costs of keeping quiet on carbon ultimately may be higher.

King is a writer for BusinessWeek.com in San Francisco.

Business Exchange

Track and share business topics across the Web.