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Global warming's bottom line

JUST AS ENRON and other off-sheet accounting debacles spelled disaster for many US investors, evidence shows that global warming could do the same. Without aggressive action to reduce the financial risks that global warming poses for companies, trillions of dollars of Americans' investments, many of them controlled here in Boston, will be jeopardized.

Global warming is a reality that is already putting the financial pinch on weather-dependent businesses. In New England, maple syrup producers are reeling from another dismal sap season. The region's ski resorts are losing tens of millions of dollars every winter there is reduced snowfall. Meanwhile, worldwide insurance claims for extreme weather events and disasters like drought and forest fires have jumped tenfold in the last 40 years, hitting $55 billion in 2002. So serious is this 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 coverage.

And the financial ramifications will only grow as companies in energy-intensive businesses are subjected to an expanding array of greenhouse gas controls at home and abroad. Next year, companies operating in Europe will have to pay for greenhouse emissions, and those exceeding their limits will face stiff penalties. Such limits could bring substantial harm to the US auto industry as European markets grow for cleaner technologies like hybrids, already available from Japanese automakers Honda and Toyota.

Companies have two ways to go on global warming: ignore the growing need to reduce greenhouse gas emissions and get away from fossil fuels or view it as a market signal to innovate and invest in competitive new technologies.

Those who stand to suffer -- or benefit -- the most from those decisions are the investors owning stock in these companies. And that's practically every American whose retirement is tied up in mutual funds and other investment portfolios.

Some of the nation's top pension fund managers are waking up to this reality and are pressuring corporate leaders to attack the global warming issue with the same zeal they bring to quarterly sales and earnings.

The investors have been filing shareholder resolutions demanding disclosure of the risks and companies' plans to avert them, and a number of those resolutions have received record high votes -- in the 20s and even up to 32 percent of shareholders in favor.

At a recent meeting in Boston attended by the "strange bedfellows" of investors and environmentalists, the leaders of 13 major pension funds controlling nearly $800 billion in assets called on the Securities and Exchange Commission to require companies to tell shareholders about their potential financial exposure from global warming and how they plan to respond.

The move is the latest volley from a new institutional investor coalition, the Investor Network on Climate Risk, which was formed last fall at a meeting of investors at the United Nations. The coalition now includes the California, Connecticut, Maine, New York City, New York State, and Vermont retirement funds.

But it's only a beginning. Controlling 60 percent of the shares in the 1,000 largest US companies, institutional investors have enormous influence over corporate boards and management. But until a large number of investment managers weigh in on the climate risk issue by demanding more accountability and action from companies, this issue will continue to fester as an enormous hidden liability with potentially dire consequences for American shareholders.

Despite mounting scientific evidence, most of the world's largest companies have been operating as if global warming is fiction. A recent report by the Carbon Disclosure Project found that only 35 to 40 percent of the world's 500 largest companies were taking steps to reduce the financial risks that global warming poses for their businesses. The widespread inaction was especially glaring among US companies, including utilities, oil and gas producers, and automakers. For companies in energy-intensive sectors that do not react, the carbon project's report predicted, their long-term value could drop by up to 40 percent.

Boston is home to several investment fund heavyweights that manage many Americans' retirement funds. These financial leaders should be looking closely at how companies in the oil and gas, auto, electric power, and other sectors examine these climate change risks and what plans they have to minimize them.

Corporate leaders and investment managers have a fiduciary duty to make sure that climate risk doesn't become another Enron.

Mindy Lubber, former regional administrator of the Environmental Protection Agency, is executive director of the Coalition for Environmentally Responsible Economies. 

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