For many years, shareholders in major companies who wanted to know whether their investments were contributing to climate risk have had to rely on data provided by the corporations themselves about greenhouse gas emission and other pollutants.
But now investors have a new, independent tool for evaluating corporate performance on emissions relative to other companies in a given sector—everything from automotive to financial to chemical companies.
A coalition of nearly 300 faith-based investors, representing over $100 billion in managed investments, has taken a dramatic new step in urging fiscal and environmental responsibility in the age of climate change. The independent environmental data firm Trucost, in cooperation with the New York City-based Interfaith Center on Corporate Responsibility (ICCR) has published 150 profiles as an independent tool for investors and others to better assess the “climate risk profile of some of the world’s largest companies.” The authors emphasize that the profiles can be used to monitor a company’s progress reducing their climate risk; as well as showing which companies are leading or lagging in their sectors. The profiles are intended to reflect ongoing developments, and will be updated as needed.
The High Price of Carbon
As Leslie Lowe, ICCR’s director of Energy and Environmental Programs, puts it: “ICCR members bridge the divide between morality and markets by envisioning a civic economy that integrates ethical, environmental, and social values.”
“Now is the time for corporations to begin reassessing and reinventing their processes and operations, and looking at their supply chains,” she explains: issues of greenhouse gas reduction function as “a surrogate for increased costs to come—when carbon has a price, all of these emissions will move through the balance sheet with red ink.”
Business in all sectors she says, need to recognize the “urgent necessity” of becoming engaged in reducing greenhouse gas emissions—and not just the “heavy emitting sectors,” like mining, oil, and gas. She points to the looming financial risks related to pending federal regulation and penalties, emphasizing the “increasing likelihood of government regulation to force companies to reduce emissions.” The costs associated with emission reduction and regulations are not limited to the company itself; management of greenhouse gas emissions is not only an environmental issue but also one of fiduciary responsibility.
The profiles themselves consider whether or not a company discloses the greenhouse gas (GHG) emissions from its operations as well as the percentage of the company’s deviation in GHGs emissions from the sector average compared to its closest industry. So, for example, in the profile, a green box indicates that a company has performed better than others in its sector. Poor performers are indicated in brown. In the auto sector, for example, Ford Motor Company gets a green score while Goodyear Tire gets a brown score. In the tech sector, Google gets a green score relative to Intel’s brown. Of course, this does not mean that the companies are necessarily “green” in the broadest sense of the term.
Faith Groups and Corporate Responsibility
For four decades, ICCR and member religious investors—including major Protestant denominations, pension funds, and Roman Catholic orders—have, according to ICCR executive director Laura Berry, “been at the vanguard of the corporate responsibility movement.”
And together that movement has had many successes in increasing corporate transparency and accountability on a range of issues: from the fight for fairness in apartheid era South Africa to child labor abuses by Asian suppliers of Nike and the Gap; from Hershey’s African cocoa supplies to child sexual exploitation issues in major international hotel chains, as well as a host of other issues. ICCR often cooperates with major institutional investors in the responsible investor movement such as the AFL-CIO, the New York City Pension Fund, and others.
In explaining the role of the broader, and evolving, company profiles related to climate risk, ICCR points to the company profile of the Illinois-based pharmaceutical giant Abbott Laboratories, which has a high “carbon footprint” relative to other companies in the pharmaceutical sector. But it has taken a number of decisive actions to reduce its risk “exposure” regarding greenhouse gases.
Abbott has taken for example, a “Climate Responsible Energy Policy” that includes a five year plan for reducing the emission of CO2, our principal greenhouse gas. Among other things they are developing a carbon-neutral vehicle fleet: it is the first and only Fortune 500 company to commit to going “carbon neutral” with all of its US sales vehicles. Its 6,500-vehicle fleet represents approximately five percent of its overall global GHG emissions (12 percent of its US GHG emissions). This commitment is equivalent to removing 12,000 cars from US roadways.
When the Prophetic is Good Business
“Looking a little further out on the horizon,” Laura Berry says, “and we think that is what faith-based investors are particularly good at… it is possible to envision new ways to incorporate environmental concerns via new ‘valuation models’—such as the Trucost data—for corporations and investors.” These she says, are key to changing how we think about business decisions, especially when we look at both short and long-term concerns.
Faith-based investors, she says, have been way ahead of the curve on several major issues, noting that they had for years warned of predatory mortgage lending and called for full disclosure of risk. “One hesitates to use the term prophetic in this context,” she said, underscoring that they had “flagged a number of issues that could have been addressed sooner and at far, far lower cost to investors and to society in general.” On the other hand, Berry notes that they are not without successes, some of the issues raised about climate change over the past three decades, “are now a part of the business plans of many corporations.”
“We have a problem in the auto sector,” Berry emphasized, however, “where our members have had advanced a prophetic position, if you will, that the auto companies refused to listen to.” She points to the issue of fuel efficiency, and observed that the car companies have now entire product lines that are “unprofitable because they are not fuel-efficient.”
Religious Investors as Early Warning System
“I can remember being in conversation with car companies 20 years ago, talking about Corporate Average Fuel Economy (CAFE) standards, said Timothy Smith a former executive director of ICCR and now senior vice president of Boston-based Walden Asset Management, in an interview with Religion Dispatches. “They were vigorously arguing that the public wanted and needed fuel-guzzling cars.”
He agrees that this is a good example of a case in which if socially conscious investors and “the religious community’s prophetic voice had been taken more seriously, it would have made a difference.”
Smith admits that while faith-based investors are certainly not infallible, they have often functioned as “an early warning system,” causing companies to act sooner rather than later in what turned out to be the best interests of both society and the company.
The socially responsible investor movement has come a great distance in the 40 or so years of its existence, Smith says. Fewer companies are treating responsibly-minded investors as pesky outsiders, seeing them instead as legitimate stakeholders. Of course there are often differences of opinion about the urgency of an issue. And sometimes, he says, “no one answers when we knock on the door.”
Nevertheless, he says, “hundreds of companies” have come around in the past ten years, realizing that is important to be—and to be seen as—socially and environmentally responsible. “The issue of corporate responsibility is already at a tipping point,” Smith says, “it’s good business.”
