The Business of Climate Change Part II: Incentives and Solutions
2010, Number 3
NET NOTES from the
Women’s Network for a Sustainable Future (WNSF)
- WNSF hosted its first event in Seattle on June 29, 2010
- Intel hosts WNSF reception in California featuring Dr. Kellie McElhaney
II. Network Presentation
IV. Key Findings
VII. WNSF Concept
- WNSF’s hosted its first Peer Learning Session in Seattle, entitled, “Why Women, Why Now,” on the theme of women and sustainability, June 29, 2010.
- Intel hosted a WNSF reception featuring Kellie McElhaney, professor and founding director of the Center for Responsible Business at the Haas School of Business at the University of California at Berkeley.
II. NETWORK PRESENTATION
The luncheon panel, called “The Business of Climate Change, Part II: Incentives and Solutions,” is the second of a two – part presentation which examines the critical need for new climate policies in the wake of the COP15 climate change conference in Copenhagen. In this discussion, panelists reviewed various aspects of climate change–and what business can do about it, cutting to the heart of mounting public, policy and business concern. That concern is heightened in the wake of the oil spill in the Gulf, which is focusing public attention on energy more than ever. The panel’s experts discussed potential solutions, especially incentives, in the US and internationally, for business to mitigate climate change–and to rethink energy use, efficiency and sourcing. The panel also revisited some of the risks and opportunities for companies, in light of changes in the regulatory environment, both domestically and abroad.
Marlys Appleton: (Moderator) VP, Market Risk Investment Strategy and First and Former Chair, Sustainability Steering Committee, AIG Asset Management Group
Sally Fisk: Senior Corporate Counsel, Environment, Health and Safety, Legal Division, Pfizer Inc
Helle Jorgensen: US Sustainability Advisor, PricewaterhouseCoopers
Adam Kanzer: General Counsel & Director of Shareholder Advocacy, Domini Social Investments, a SEC registered investment adviser based in New York.
Emily Soong: Research Associate, DB Climate Change Advisors, Deutsche Bank Asset Management
IV. KEY FINDINGS
- In the wake of COP15, January and February 2010 saw a dramatic increase in policy activity. This includes the tightening of EPA regulations on vehicle emission standards and coal-burning, as well as the UK’s implementation of a renewable energy Feed-in Tariff and Renewable Heat Incentive.
- One of the most effective ways to address GHG reductions is through incentives, which can be achieved through comprehensive energy policy and market mechanisms; a command and control approach may not provide optimal incentives.
- Businesses may find climate change related opportunities in product labeling and transparency. For example, a company with a smaller carbon footprint than competitors, may become more competitive by marketing this quality
- Carbon Disclosure Project is one organization heavily contributing to corporate sustainability disclosure efforts. This independent non-profit provides a database in which companies disclose their greenhouse gas emissions and climate change strategies.
WNSF executive director Ann Goodman gave a brief introduction on -The “Energy Question” – which is found to be everywhere these days, Especially given the oil spill in the Gulf, everyone from the President on down is rethinking our dependency on oil and more urgently addressing ideas and incentives for alternative, renewable energy sources. Of course this question had already been popular in the headlines, as climate and energy legislation and a new paper from the SEC on climate risk disclosure awakened business and public concern alike.
She further spoke about the session topic -climate change-and how the relevance is heightened greatly due to the current oil gulf spill crisis, which also allows us to address the topic of energy. She then introduced Marlys Appleton, who moderated the session:
Ms. Marlys Appleton introduced the panelists:
Ms. Sally Fisk – Senior Corporate Counsel, Environment, Health and Safety, Legal Division, Pfizer Inc
Ms. Fisk opened up the conversation by describing Pfizer’s efforts in climate change and sustainability.
Pfizer has recognized the issue of climate change and the need to reduce its carbon footprint since 1996 when it established a corporate-wide energy conservation guideline. Ms. Fisk said that the company is now pursuing its second- generation greenhouse gas reduction goal, which focuses on cutting energy usage by 20 percent on an absolute basis between 2008 and 2012 (baseline 2007).
Pfizer recently launched its Environmental Sustainability program. After completing a comprehensive materiality assessment, Pfizer prioritized its environmental efforts in the areas most important to stakeholders and most valuable to the success of the company. These include mitigating climate change, leading product stewardship efforts, and promoting sustainable access to potable water. To implement these goals, Ms. Fisk said, the company has established a new governance structure with leaders from across the business driving forward Pfizer’s environmental sustainability goals.
With respect to climate change, on the domestic front, the last few months have been highly dynamic, with many new developments from the SEC and EPA. In Congress, most recent legislative proposals recommend a cap-and- trade structure, Ms. Fisk said. Last summer, the House of Representatives passed the American Clean Energy and Security Act to cap green house gas emissions. The senate has proposed several similar bills, including the Kerry-Boxer bill. More recently, the Kerry-Lieberman bill has received attention. We have yet to see how this bill will advance.
Ms. Fisk discussed some of the challenges policymakers face in addressing greenhouse gas emissions. In 2007 the Supreme Court held that greenhouse gasesare pollutants subject to regulation under the Clean Air Act. The challenge, however, is that while most pollutants under the Clean Air Act can be captured by end-of-pipe devices, there is no precise way to measure greenhouse gases, rendering the EPA’s traditional approach of command and control largely inefficient. Ms. Fisk said the issue is best addressed through federal legislation that provides incentives to regulated entities to reduce their greenhouse gas footprints.
Businesses may find climate change related opportunities in product labeling and transparency, she said. A company with a smaller carbon footprint than competitors, for example, may become more competitive by marketing this quality. Similarly, through the Carbon Disclosure Project, companies that reveal their management of climate change risks and opportunities and energy practices may become more attractive to stakeholders. The SEC Interpretive Guidance further encourages transparency through disclosure of climate change management practices. Ms. Fisk explained that while the document contains no new legislature, it clarifies how existing disclosure rules apply to climate change. This is a big step in meeting demands for transparency.
Ms. Emily Soong – Research Associate, DB Climate Change Advisors, Deutsche Bank Asset Management
A Research Associate at Deutsche Bank Climate Change Advisors, Ms. Soong discussed recent US and international policy frameworks on climate change, with a focus on potential outcomes. Ms. Soong began her speech with an introduction of her organization. Deutsche Bank Climate Change Advisors (DBCCA), launched in 2008, is the institutional and alternatives climate change business of Deutsche Asset Management. The DBCCA research group focuses on analyzing climate change-related investment trends and publishes whitepapers on various topics, including global climate policies and their implications for investors. Starting from mid-2008, the group has tracked over 700 climate change policy announcements, ranging from announced climate action commitments to influential legislated bills. In the wake of COP15, January and February 2010 saw a dramatic increase in policy activity. Although many considered the outcome of the Copenhagen conference to be unsuccessful, Ms. Soong said it spurred what she referred to as “the green race,” in which a slew of policies emerged in individual countries, focusing on voluntary action from countries.
On the international front, Deutsche Bank concludes that the energy policies most attractive to investors are those that provide Transparency, Longevity, and Certainty (TLC). Such is the case in Germany and China.
Ms. Soong emphasized that given the high volume of climate change legislation, as well as BP’s recent oil spill, this is a critical time for policymakers. Some positive climate policy highlights of 2010, she said, include the SEC Interpretive Guidance, and the tightening of EPA regulations on vehicle emission standards and coal-burning. Internationally, the consideration of a carbon tax by China is significant, while the UK’s implementation of a renewable energy Feed-in Tariff and Renewable Heat Incentive represent positive developments in the climate policy landscape.
On the negative side, DBCCA was disappointed by potential efforts in California to suspend Assembly Bill 32, a comprehensive program to reduce greenhouse gases. On the global front, Germany and Spain are looking to reduce their feed-in tariffs for renewable energy.
DBCCA finds that one possible outcome of the current US climate and energy legislative debate is to start off with a modest bill, and then add on suitable amendments. The Bingaman bill has been cited as a potential starting point, especially as it is further along in the legislation process. Senator Harry Reid may use this bill as a building block and then integrate elements from other proposed bills into the final package. Ideally, in addition to energy-related provisions, legislation should also put a price on carbon.
However, the energy and climate debate in the US currently faces a number of challenges, including the timing of the legislative calendar. As project developers in the US currently face a potential “sunset” of the Section 1603 Treasury Cash Grant program, the time for climate action and policies in the US has become more important than ever before.
Mr. Adam Kanzer – General Counsel & Director of Shareholder Advocacy, Domini Social Investments, a SEC registered investment adviser based in New York.
Mr. Kanzer, managing director and General Counsel at Domini Social Investments, spoke about the need to focus on finance to effectively address corporate social and environmental performance. The primary mechanism to achieve more accountable capital markets, Kanzer noted, would be through mandatory disclosure of corporate sustainability performance to provide stakeholders with a means to hold companies accountable to societal needs.
Mr. Kanzer also addressed the benefits of corporate transparency and sustainability reporting in terms of risk management, particularly in the case of unexpected catastrophic disasters. This couldn’t be more pertinent given the extensive damage caused by both the BP oil spill and Massey mine explosion earlier this year. Providing stakeholders with a full and clear report of business and risk management procedures can help to mitigate the risk of such disasters, and allow investors to evaluate the true risks of investing in a company.
One of the major roadblocks to implementing compulsory reporting is the perception by the financial world that social and environmental issues are ‘soft’, and cannot be measured in quantitative terms. Mr. Kanzer noted that natural processes don’t pay attention to stock price and can’t always be measured in a way that is easily translatable into increased competitive advantage. This in turn has kept some corporations from buying into the idea of a more transparent market. Mr. Kanzer also pointed out that the United States is substantially behind other countries with respect to regulating corporate sustainability disclosures.
Ms. Helle Bank Jorgensen- US Sustainability Advisory Leader, PricewaterhouseCoopers
Ms. Jorgensen, the US Sustainability Advisory Leader for PricewaterhouseCoopers and moderator of WNSF’s first Climate Change luncheon panel earlier in the year, discussed the rising number of organizations recognizing issues of sustainability and sustainability reporting as a priority. Among those mentioned were Bloomberg Financial News, NASDAQ Stock Exchange and Google Finance. Also NASDAQ has added sustainability information. Ms. Jorgensen also highlighted the Carbon Disclosure Project as one organization significantly contributing to collecting and publishing information about companies’ climate change efforts. One of the more current examples of companies taking a major step is Walmart, who recently launched their supplier sustainability initiatives to their more than 100,000 suppliers.
Marlys Appleton – VP, Market Risk Investment Strategy and First and Former Chair, Sustainability Steering Committee, AIG Asset Management Group
Ms. Appleton thanked the panelists for their insightful comments. She agreed with Mr. Kanzer that lack of transparency had allowed for catastrophic disaster, the most recent case being the BP oil spill. She added that the company clearly had governance problems. When compared to peers, BP has been an outlier in terms of documented safety violations.
Ms. Appleton noted that, according to a July 2010 Bloomberg News article written by Edward Hess, BP has accumulated over the last several years more than 700 violations, a significantly greater number than its peers. Ms. Appleton said this is an indication that the company saw safety violations as a cost of doing business, which can be seen as a problem of governance, whether at the board level, division level or project level.
With respect to incentives, Ms. Appleton applauded both Domini Social Investments and PricewaterhouseCoopers for their efforts to educate investors on the materiality of environmental and social issues. She said that recognizing these issues in finance will go a long way toward boosting US companies’ awareness and helping investors make the right decisions. Many countries, particularly in Europe, are already quite advanced in this respect, and she noted that firms such as Shell and Deutsche Bank will have their Investor Relations function address traditional financial matters as well as sustainability issues.
VI. NEXT EVENTS
October 5 2010: Women’s Network for a Sustainable Future presents the Seventh Annual Businesswomen’s Sustainability Leadership Summit
November 12 2010: Second Annual West Coast Summit in California.
VII. WNSF MISSION AND VISION
Mission: To advance sustainability through the commitment, talent, and leadership of businesswomen.
Vision: A sustainable future-financially, environmentally and socially-driven by businesswomen worldwide.
The Women’s Network for a Sustainable Future is a 501c3 organization. This issue of Net Notes was compiled by Lana Zaman
Copyright 2008 Women’s Network for a Sustainable Future