Investors Call On Congress to Go Green
Seth Itzkan
http://www.businessweek.com/bwdaily/dnflash/content/mar2007/db20070320_535194.htm
"To tap American ingenuity and drive business to a leadership position
in the low-carbon future, we need regulations to enable the markets to
deploy capital and spur innovation."
Investors Call On Congress to Go Green
Funds with $4 trillion under management want Washington to put
mandatory limits on carbon emissions
by Moira Herbst
On Mar. 19, joining a growing chorus from American businesses, more
than 50 major U.S. investors are asking Congress to enact tough
federal legislation to curb carbon emissions and to overhaul energy
policies nationwide. It marks the first time that a group of major
money managers, including Merrill Lynch (MER) and the California
Public Employees' Retirement System (CalPERS), have requested that
Congress take such extensive action on global warming.
The investors say that U.S. companies need clear, consistent
regulation and federal standards to help them address climate issues.
"Without national policies, the competitiveness of American business
will be compromised," says Fred Buenrostro Jr., chief executive
officer at CalPERS, the country's largest public pension fund, with
$230 billion in assets. "We don't think we can wait."
The statement, coordinated by the environmental and investor coalition
Ceres and the Investor Network on Climate Risk, marks the latest
example in the unusual trend of business groups requesting government
action on climate change. Days before President George W. Bush's State
of the Union address in January, 10 major companies, including General
Electric (GE) and BP (BP), joined with four environmental groups to
ask Congress for legislation to limit greenhouse gas emissions. And
last week, executives of General Motors (GM), Ford (F), Chrysler
(DCX), and Toyota (TM) North America pledged to support mandatory caps
on carbon emissions, as long as the caps covered all sectors of the
economy.
Demanding Action
Business groups say that the current wait-and-see approach is not
enough. "With this action, investors are turning conventional wisdom
on its head," said Mindy Lubber, president of Ceres. "The thinking has
been that controlling carbon emissions is bad for the economy; now
it's clear that the danger is not acting to curb emissions." (See
BusinessWeek.com, 8/14/06, "Wall Street's New Love Affair.")
The investors' statement reads like an environmentalists' manifesto.
While it doesn't advocate a specific bill or policy proposal, it calls
for the U.S. to "achieve sizable, sensible long-term reductions of
greenhouse gas emissions"—that is, the 60% to 90% reductions below
1990 levels by 2050 that leading scientists recommend. The statement
lays out three general policy proposals: 1) a realignment of energy
policies to spur the growth of clean technologies, 2) directions from
the Securities & Exchange Commission (SEC) specifying what companies
should disclose to investors on climate change in their financial
reporting, and 3) a mandatory market-based solution, such as what has
come to be known as "cap-and-trade."
In a cap-and-trade system, the government sets a ceiling on greenhouse
gas emissions. It then sells or grants credits to businesses allowing
them a certain level of pollution, likely based on their track record.
Companies that reduce emissions below their quota can sell credits to
companies that exceed theirs. The idea of this market-based system is
that while some firms may pollute more than others at first, the cut
in overall emissions is guaranteed. "Merrill Lynch is convinced of the
wisdom of exposing the public costs of carbon emissions to market
discipline," says Mark Goldfus, senior vice-president at Merrill
Lynch.
The Politics of Timing
The list of signatories includes funds for labor unions, state
pensions, insurance companies, and major asset managers. Top
executives at a dozen companies also signed the statement, including
the CEOs of Alcoa (AA), Consolidated Edison (ED), Exelon (EXC), and
Sun Microsystems (SUNW).
While it's certainly unusual for business groups to request more
regulation from Washington, the investors say that global warming is
now a fact of life and the companies they're backing need to
understand the terrain they're navigating (see BusinessWeek.com,
3/12/07, "The Greening of the Proxy Season"). "In the current
unpredictable national climate policy environment, it is exceedingly
difficult and risky for businesses to evaluate and justify the
large-scale, long-term capital investments," reads the investors'
statement. It goes on to outline the growing patchwork of regulations
that mandate emissions reductions, including in California and New
Mexico, as well as in the European Union.
A note of skepticism is in order. Investors and companies may be
acting now because a business-friendly President is in the White
House—and they could face tougher mandates if they wait until after
the 2008 Presidential election. "It's a timing issue," says Peter
Frumhoff, director of science policy for the Union of Concerned
Scientists, an environmental group. "The Bush Administration is more
favorable to some businesses, and what would happen beyond 2008 is
unclear. Everyone realizes there will be federal policy in the next
three to four years, so now is the time to help shape it."
A Clear Message
There are now five bills in the Senate that would impose mandatory
caps on carbon dioxide, and the issue is already a favorite topic on
the campaign trail among 2008's many Presidential hopefuls.
That's not to say there isn't controversy over capping emissions. The
Bush Administration still endorses voluntary limits on utilities and
other emitters, a reversal from his pledge during the 2000 campaign
for a mandatory cap. There is also debate among environmentalists and
policymakers about how effective cap-and-trade policies are at
reducing emissions, especially because the effects of such policies in
the European Union have been mixed. And critics say that allowing
companies to buy and sell the right to pollute might reduce emissions
overall, but could create "hot spots" in geographical areas where
companies buy up more credits.
Congress may ultimately decide that a straightforward tax on carbon
emissions will be more effective than a cap-and-trade system. Still,
investors are sending Washington a clear message: They expect the
country's elected politicians to step up and provide clear guidance on
such an important issue.
"Global warming presents enormous risks and opportunities for U.S.
businesses and investors," says Buenrostro of CalPERS. "To tap
American ingenuity and drive business to a leadership position in the
low-carbon future, we need regulations to enable the markets to deploy
capital and spur innovation."
Herbst is a reporter for BusinessWeek.com in New York.
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Seth J. Itzkan