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US funds weigh in on climate change

February 2004

Investor pressure on companies to address climate change has risen to an unprecedented level with the release of a ten-point ‘call for action’ by ten of the biggest US pension funds that demands businesses provide more information on the corporate risks posed by global warming.

The funds, which together manage more than $1trillion (£550 billion), made the call in New York after meeting to discuss how they can put more pressure on companies to tackle the causes of climate change.

The ten signatories are eight large state, city and trade union pension funds, including the funds of New York State, California and Connecticut, and the Service Employees International Union.

The action plan says companies in sectors that are a significant source of greenhouse gas emissions – including automobile manufacturing, electricity generation, and oil and gas production and refining – should prepare reports for shareholders ‘detailing how the companies may be affected by regulatory, competitive, legal and physical impacts of climate change and the costs of failing to respond to these issues’.

It says companies that are not sources of greenhouse gases, but whose operations may be affected by climate change, need to analyze the potential impact on their activities and report the results.

The plan calls for investment managers to assess the financial impact of climate change when considering whether to buy or sell stock, and asks institutional investors to establish voting policies on companies which do not disclose climate change risks.

The signatories have formed a group called the Investor Network on Climate Risk ‘to promote better understanding of the risks of climate change among institutional investors and to follow through on the call for action’.

Kofi Annan, the United Nations secretary-general, and Leon Panetta, the former White House chief of staff, are supporting the investors. Panetta, who used to be a director of the New York Stock Exchange, told the meeting that all investors should ask: ‘Under what circumstances and to what degree will my portfolio be affected by climate risk?’

The California State treasurer Phil Angelides said: ‘In global warming, we face an enormous risk to the US economy and to retirement funds. As fiduciaries, we must take it upon ourselves to demand more information, and to spur needed actions to respond to those challenges.’

The Connecticut State treasurer Denise Nappier said: ‘Companies that fail to adequately disclose potential liabilities related to climate risk and financial analysts who ignore the potential financial risks of investments in these companies, run the risk of fuelling the next governance crisis.’

The funds stress they want dialogue with companies that are not disclosing the extent of their exposure to climate change. New York State comptroller Alan Hevesi said: ‘Divesting is the last thing you want to do. Once you divest you no longer have an influence over the company.’ But he added: ‘You might have to divest at the end of a process.’

Around half of the 20 biggest corporate emitters of greenhouse gas report on their emissions, according to the Investor Responsibility Research Center.




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