Corporate Investors Are Demanding Information on Companies' Carbon Footprints

Corporate Investors Are Demanding Information on Companies' Carbon Footprints

On Thursday, February 21, National Public Radio's Morning Edition ran a story tracing the growing trend of corporate and governmental investors to look more closely at the "carbon risk" of potential investments [available at http://www.npr.org/templates/story/story.php?storyId=19226037]. The carbon risk factor is the liability a company faces if caps or penalties are imposed on emissions.
 
Pacific Gas and Electric is already proactively trying to reduce its carbon output. CEO Peter Darbee, interviewed in the NPR story, suggested that there is the risk that in the future carbon dioxide will be labeled a pollutant and if companies do not address the issue now, they could face billions of dollars in lawsuits as happened with asbestos. That's a powerful analogy.
 
The NPR story noted that J.P.Morgan Chase has questioned investing in coal-burning power plants and other carbon heavy investments that could mean a climate risk. Additionally, Congress has several bills before it that set limits on carbon dioxide emissions (the biggest greenhouse gas), and it's likely some sort of system will be imposed that raises the cost for those companies that emit carbon dioxide. Then there are coalitions, such as Ceres, which include mainstream investors and are questioning the impact of their investments.
 
The Ceres network of investors, environmental organizations, and other public interest groups, works with companies and investors to address issues such as global climate change [http://www.ceres.org]. Earlier this month, Ceres announced its new climate change action plan, signed by a mix of investors including state treasurers, at a conference hosted by Ceres and the United Nations Foundation. The action plan is aimed at increasing investments in energy efficiency and clean energy technologies and avoiding carbon-intensive investments that pose financial risks over the long term.
 
Other investment firms are also questioning carbon risk. In a September 2007 press release from Merrill Lynch entitled "Backing Carbon Reduction Leaders Is a Winning Investment Strategy," the company talks about how investing in companies that have strong environmental strategies can be a win for the investor as well as the company [http://www.ml.com/index.asp?id=7695_7696_8149_74412_81926_81927]. The European Union is already establishing policies to address global warming. Those companies that are better positioned to meet the regulatory requirements there and elsewhere may, according to the press release, make the best investments.
 
Investors have wielded influential power in the past. Outcries from investors made many companies divest their interests from South Africa, helping to speed the downfall of the apartheid regime. It is rare for investors to coordinate successfully around a theme, but this one speaks not just to a cause, but also to their own pocketbooks.
 
So, although Congress is a long way from putting a price on carbon emissions, with the potential that they will affect the bottom line, investors are sitting up and demanding the information to make informed investments. Will it be enough?