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The reason is simple: not only sending money up the stack (see p.15), but business risk. Industries that emit a lot of bad stuff tend to see pretty strict limits imposed on what they do (remember the tough restrictions imposed on the tobacco industry in the United States during the '90s?). Even if the Kyoto agreement doesn't go into force this year, there is a range of restrictions that various organizations still want to see adopted to halt the flow of climate-damaging molecules out the top of smokestacks. Indeed, in January 2003, attorneys general in Maine, Massachusetts, and Connecticut announced plans to sue the U.S. Environmental Protection Agency to force it to regulate carbon dioxide emissions. And many have read the recent articles about shareholders' meetings erupting into boisterous protests over corporate emissions.
"With all the talk of potential shareholder lawsuits against industrial emitters of so-called greenhouse gases (GHGs), Zurich-based insurance powerhouse Swiss Re is considering denying coverage, starting with directors-and-officers liability policies, to companies it decides aren't doing enough to reduce their output of the gases," wrote Jeffrey Ball of the Wall Street Journal in a 7 May 2003 article.
Limits on the number of climate-altering molecules you can exhaust aren't the only threat to businesses. There are also threats that come as a result of the climate change made by emitting GHGs-weather extremes, for example. Weather extremes have never been good for business, whether you're a fisherman off the coast of Chile, the banker in New York who made the loan for the fishing fleet, or the insurer who pays if it sinks.
"The Carbon Disclosure Report reveals that the financial impact of climate change extends well beyond the obvious, emissions-intensive sectors such as oil and gas and electric utilities," states a project press release. "Companies in the financial services, transportation, semiconductor, telecommunications and electronic equipment sectors, among others, will also be significantly affected. Further, industry sectors vary widely in their degree of risk exposure and the levels to which companies, in response, develop their risk management capabilities. Those at greatest risk were not necessarily those with the strongest risk management architecture."
The report also explained that firms that are quick to reduce greenhouse gas emissions "stand to gain competitive advantage, in terms of both cost and market risk management." One example cited is British Petroleum, which has, according to the CDP, cut carbon dioxide emissions at the company's plants by ten million metric tons, saving BP an estimated $650 million in ten-year net present value.
This really is quite remarkable: greenhouse gas emissions and what firms do about them might affect your retirement portfolio, your kids' inheritance, or your company's ability to stay in business. Certainly, smart investors are starting to look at their investments through a new lens: what's coming invisibly out of a firm's smokestack or that of the energy plants that power it.
"Emissions reductions are going to be required. It's pretty clear," Christopher Walker, managing director for a unit of Swiss Re told the Wall Street Journal recently. "So companies that are not looking to develop a strategy for that are potentially exposing themselves and their shareholders."
