U.S. firms must respond to greenhouse gas limits
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U.S. firms must respond to greenhouse gas limits
By Timothy Worth and Mindy Lubber
While the Bush Administration was working to stall the global warming
talks in Buenos Aires this month, U.S.-based companies have been
taking the lead in developing and utilizing technologies to reduce
American Electric Power and Cinergy, two of the nation's biggest
carbon emitters, are making investments in clean-coal technologies
and have acknowledged the need for Congressional action on national
carbon controls. Meanwhile, other companies such as Cummins Engine
and General Electric are already seeing a windfall from clean energy
technologies. These companies form the vanguard of a new economic
By reducing greenhouse emissions and ratcheting up new climate-
friendly technologies, U.S. companies can create jobs and launch an
era of economic growth akin to the start-up phase of the Internet. If
CEOs in the United States fail to realize these opportunities, their
companies will soon fall far behind overseas competitors already
honing their strategies to compete in a carbon-constrained world.
On New Year's Day, thousands of power plants, factories and other
facilities throughout Europe will begin operating under new
greenhouse gas quotas. Other non-European countries are also
developing carbon reduction plans as they move to comply with the
Kyoto Protocol, which begins Feb. 16. The protocol, which the U.S.
refused to ratify, requires most of the world's developed countries --
including Canada, Japan, Russia and all of the European Union -- to
reduce their greenhouse gas emissions by five percent from 1990
levels by 2012.
Global companies in the United States have no choice but to join the
carbon-reducing movement. Whether it's GM cars in China or Alcoa
aluminum in Europe, the carbon footprint from making and using their
products is an increasingly important factor for U.S. businesses
competing overseas. In the case of Alcoa, it has already announced
plans to upgrade three of its smelters in Spain to comply with the
The carbon-constrained global economy is also opening new
opportunities -- markets that some U.S. companies are already seizing
on for new revenues. Cummins Engine is selling thousands of
compressed natural gas bus engines to Beijing, which is pushing to
have its entire 118,000 bus fleet operating on clean energy by the
2008 Summer Olympics. General Electric has locked its sights on the
burgeoning wind power market, which it predicts will grow from 31,000
megawatts of installed capacity today to more than 83,000 megawatts
worldwide by 2007.
But most U.S. companies still lag far behind their worldwide
competitors in facing the challenges posed by global warming. Too
many -- including leading electricity providers, oil and gas
producers and automakers -- are acting as if global warming and
carbon controls are fiction.
Meanwhile, the financial risks from global warming are growing each
day. So serious is the issue that the world's second largest
reinsurer, Swiss Re, is telling its corporate clients to come up with
strategies for handling global warming or risk losing their liability
Tackling this challenge falls not just on companies, but on investors
too. Here are three strategies they should be pursuing:
First, investors must understand the financial risks for companies
in which they own shares and companies must do a better job of
analyzing and describing those risks in the public reports they file
with the Securities and Exchange Commission. If companies don't do
this, investors should demand it. A growing number of the nation's
largest pension funds are filing shareholder resolutions requesting
that companies disclose their risks from climate change and how they
plan to avert them. Several of these resolutions received record-high
voting support this year -- in the case of oil and gas companies, as
high as 37 percent.
Investor pressure also prompted AEP and Cinergy to undertake climate
risk assessments -- a process that recently led the two companies to
disclose that regulatory uncertainty on carbon controls is
compromising capital planning efforts and clearer direction is needed
from the nation's capital.
Second, investment managers need to more accurately assess climate
risk exposure in evaluating companies and industry sectors. More
robust research practices are also needed to better analyze and model
how businesses and sectors are threatened by various global warming
scenarios, whether from weather impacts or regulatory changes.
Third, investors must channel their investment capital to take
advantage of new clean technology opportunities. As more states and
countries move to adopt carbon controls -- whether on vehicles in
California or China, or on power plants in the Northeast -- markets
for hybrid vehicles, clean-coal processes and other clean
technologies will only magnify. Investors should take advantage by
investing in companies and portfolios that are well positioned.
Investors have a fiduciary duty to make sure companies are paying
attention to global warming. Until a larger number of investment
managers weigh in by demanding more accountability and disclosure
from companies, climate risk will continue to fester as a giant
hidden liability with potentially dire consequences for American
companies, their shareholders and the U.S. economy.
Is the U.S. going to lead the technological innovation and resulting
job growth as it did with the Internet? Or is it going to lag behind
as Toyota and other foreign competitors develop and dominate clean
technology markets? The efforts of a small number of companies
suggest the enormous potential available. The challenge is now before
many other CEOs to lead their companies in realizing the
opportunities posed by a carbon-constrained global economy.
Timothy E. Wirth is president of the UN Foundation and a former U.S.
senator from Colorado. Mindy S. Lubber is executive director of
Ceres, a national coalition that runs the Investor Network on Climate
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