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Transcript
• Coalition of 80 investors and NGOs addressing
environmental, social and governance (ESG) issues.
• Network of 70 companies committed to continuous
improvement on ESG issues.
• Founded the Investor Network on Climate Risk (60
investors managing $4.5 trillion).
Corporate responses to climate change
• Wide variety of responses
• Leading companies view climate as a major
governance and risk management issue
• Emissions reductions plans, product development
plans, and climate change policies
• Engagement with stakeholders & improved
disclosure
• Laggards in many sectors are not responding
Why Do Investors Care About Climate Risk?
• Investors have a fiduciary duty to manage climate risk in
their portfolios
• “The pace of a firm’s adaptation to climate change and
related policy is thus likely to prove to be another of the
forces that will influence whether, over the next several
years, any given firm survives and prospers; or withers
and, quite possibly, dies.” -- Lehman Brothers, “The
Business of Climate Change”
Money Management Firms Recognize
Significance of Climate Risk
•
“Energy security and climate change issues will not be resolved in
the foreseeable future; instead these issues will only intensify
going forward…For investors, solutions to these challenges
present a compelling investment opportunity.”
– Merrill Lynch, Energy Security and Climate Change
•
“Climate change is on the agenda for governments, regulators,
consumers and businesses and this is creating some major risks,
but also opportunities.”
– Citigroup, Climactic Consequences
Which Investor Sectors Are Taking Action?
• State Treasurers: CA, CT, DC, Iowa, KY, MA, MD, ME, NC,
NJ, OR, VT
• State/City Comptrollers: NYC, NY State, CA
• Public Pension Funds: CalPERS, CalSTRS, Illinois, MD
Retirement, NYC, NY State Teachers, FL, NJ
• Labor Pension Funds: AFSCME, CWA/ITU, Machinists,
SEIU, Sheetmetal Workers, Teamsters, UNITE HERE
Additional Investor Sectors Taking Action
•
Religious Investors: Christian Brothers Investment Services, Evangelical
Lutheran Church in America, ICCR, Presbyterian Church USA, United
Methodist Church - General Board of Pensions and Health Benefits
•
Foundations: Duke Foundation, Nathan Cummings, Rockefeller Brothers
Fund, United Nations Foundation
•
Asset Managers: AIG Global Investment Group, BC Investment Mgmt,
Calvert Group, Domini, F&C Asset Management, Stark Investments, State
Street Corporation, Trillium Asset Management, TIAA CREF
•
Global Banks: Goldman Sachs, Citigroup, Bank of America, Merrill Lynch
•
Certified Financial Analysts
•
University Endowments
Investor Engagement
• 43 shareholder resolutions filed in past year,
leading to positive action on the part of 15
companies, including ConocoPhillips, Wells Fargo,
Hartford Insurance.
• Investors actively seeking managers with climate risk
expertise; CalSTRS recently hired four firms to
manage $225 million Sustainable Investment
Program.
Current climate risk disclosure
• Company responses to shareholder
resolutions: a very slow process for improving
disclosure
• Voluntary disclosure is also improving slowly
(56% of S&P 500 companies answered the CDP5
survey, compared with 47% for CDP4)
• Disclosure in SEC filings is insufficient
Example of physical risk disclosure
• The Hartford 2006 10-K only states: “catastrophe loss
models for hurricane loss events were updated to
incorporate medium-term forecasts of increased hurricane
frequency and severity.”
• CDP response is better: ““The Hartford recognizes the
possibility that climate change may result in increased
frequency and severity of weather-related catastrophic
events…[this] represents the most significant climate
change-related commercial risk The Hartford faces…”
SEC Petition for Interpretive Guidance
• 22 Signatories include CalPERS, NY City and
State Comptrollers, Florida CFO, Kentucky
Treasurer, and NY Attorney General
• SEC guidance should ask registrants to:
– Calculate GHG emissions
– Assess physical risks, regulatory risks and
legal proceedings related to climate
– Disclose material risks in SEC filings
Why Interpretive Guidance?
• SEC filings are the gold standard for
corporate disclosure of all types of material
risks.
• Climate change poses material financial risks
to companies in nearly every sector.
• SEC guidance would protect investors by
allowing them to better assess risks.
SEC regulations applicable to
climate risk
• Item 101: Description of Business
• Item 103: Legal Proceedings
• Item 303: MD&A
• FAS 5: Accounting for Contingencies
Possible SEC Responses
• Interpretive Guidance
• Guidance from Corporation Finance
• Review of corporate filings
• Enforcement
• Commissioners’ speeches
Congressional and other responses
• Sanders-Boxer and Kerry-Snowe climate change bills
would require the SEC to issue Interpretive Guidance
• October 31st: First Senate hearings on climate risk
disclosure (Senate Banking: Securities Subcommittee)
• Candidate Hillary Clinton’s energy plan includes a
requirement “that all publicly traded companies report
financial risks due to climate change in annual reports
filed with the Securities and Exchange Commission”
What to Disclose
• SEC petition: physical & regulatory
risks, legal proceedings
• Ceres Global Framework for Climate
Risk Disclosure:
– GHG emissions
– Policy, board engagement, & emissions
management plan
Benefits to Companies
• Ongoing engagements with shareholders & improved
disclosure raises companies’ awareness of upcoming ESG
issues
• Integrating environmental performance into business strategies
leads to multiple benefits:
– Emissions reductions/energy efficiency plans provide cost
savings
– Environmental programs help w/ employee retention
– Product development, such as clean technologies, opens
new markets
– Better risk management