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In an attempt to improve corporate social and environmental policy and practice, more than 70 investors, environmentalists and companies is seeking to show how protecting the environment minimises a companys financial risk and builds shareholder value.

The US-based Coalition for Environmentally Responsible Economies (CERES) is launching a Sustainable Governance Project, aimed at bringing together investors pushing for better corporate governance and environmental and human rights activists campaigning for increased corporate accountability.

The goal is to inject sustainability into the DNA of corporate thinking, says Robert Massie, executive director of CERES, whose investor-members represent more than US$300 billion in assets and include some of the countrys largest pension funds.

Coalition members also include advocacy groups Friends of the Earth and the Interfaith Centre on Corporate Responsibility; so-called socially responsible investment firms such as Trillium Asset Management; and labour organisations including the umbrella AFL-CIO.

More than 50 corporations, including Nike, General Motors and American Airlines, have endorsed the business principles promoted by CERES.

As the first initiative of the nascent governance project, CERES is warning corporate directors and investment decision-makers that failure to respond to the risks posed by global warming could represent a breach of fiduciary duty.

Direct link

Massie says the project is the first to make a direct link between climate change, fiduciary responsibility, and shareholders. Put simply, companies face two types of risk — of losses wreaked by global warming and of lawsuits and other potential costs associated with business regulation — usually not reported to shareholders.

Since climate change is arguably the worlds most pressing environmental issue, it follows logically that companies response to the threats and opportunities of climate change — or their lack of response — could have a material bearing on their financial performance and therefore on shareholder value, says James Martin, chair of Innovest Strategic Value Advisors Inc and former chief investment officer for TIAA-CREF, one of the largest pension funds in the United States.

The project, in a new report entitled 'Value at Risk: Climate Change and the Future of Governance, recommends that corporate boards require company executives to assess current and probable risk exposure, disclose company emissions and climate risk exposure to shareholders, compare the company against industry peers, announce and implement a strategy to reduce greenhouse gas emissions, and link executive compensation to the companys performance on that strategy.

Institutional investors, it says, should conduct a portfolio-wide assessment of climate risk exposure, incorporate climate change considerations into investment strategies, require disclosure of climate change-related information from portfolio companies, and increase investment of energy efficiency and renewable energy sources, like wind and solar power.

Because climate change will have an impact on all economic sectors, climate risk is now embedded, to some degree, in every business and investment portfolio in the United States, says Massie.

CERES has become well known in corporate circles since it started to develop the Global Reporting Initiative (GRI). The GRI, launched earlier this month with the United Nations Environment Programme, aims to establish a single set of international corporate reporting guidelines on environmental, economic and social performance.

Key advocacy groups, including Amnesty International and Greenpeace International, endorse the voluntary initiative. More than 110 companies worldwide have undertaken sustainability reporting using the GRI guidelines.

Harry Kraemer, chief executive of medical instrument maker Baxter International, says the GRI guidelines have encouraged the companys directors to take a more comprehensive look at its environmental, economic and social performance.

Synergies

Now through our sustainability report we are able to bring these together to show the synergies and interrelationships in defining our success and responding to diverse stakeholder interests, says Kraemer.

But Linda Chavez-Thompson, executive vice president of the AFL-CIO, says the companies that have signed on to the GRI are not the ones society should be worried about. More organisations and companies need to promote the guidelines in order to root out corporations that threaten workers and the environment, she says.

I doubt very much that corporations that oppress their workers, damage their society and foul the environment will be eager to report on their own,says Chavez-Thompson.

The GRI is slated to open its headquarters in Amsterdam later this year. It expects to release new reporting guidelines in July, after two years of consultations with environmental and labour organisations as well as corporations. Regional offices are to be opened in Africa, Asia, Latin America, and North America. (IPS)