• Coalition of 80 investors and NGOs addressing environmental, social and governance (ESG) issues.

• Network of 70 companies committed to continuous improvement on ESG issues.

• Founded the Investor Network on Climate Risk (60 investors managing $4.5 trillion).

Corporate responses to climate change

• Wide variety of responses

• Leading companies view climate as a major governance and risk management issue

• Emissions reductions plans, product development plans, and climate change policies

• Engagement with stakeholders & improved disclosure

• Laggards in many sectors are not responding

Why Do Investors Care About Climate Risk?

• Investors have a fiduciary duty to manage climate risk in their portfolios

• “The pace of a firm’s adaptation to climate change and related policy is thus likely to prove to be another of the forces that will influence whether, over the next several years, any given firm survives and prospers; or withers and, quite possibly, dies.” -- Lehman Brothers, “The Business of Climate Change”

Money Management Firms Recognize Significance of Climate Risk

• “Energy security and climate change issues will not be resolved in the foreseeable future; instead these issues will only intensify going forward…For investors, solutions to these challenges present a compelling investment opportunity.” – Merrill Lynch, Energy Security and Climate Change

• “Climate change is on the agenda for governments, regulators, consumers and businesses and this is creating some major risks, but also opportunities.” – Citigroup, Climactic Consequences

Which Investor Sectors Are Taking Action?

• State Treasurers: CA, CT, DC, Iowa, KY, MA, MD, ME, NC, NJ, OR, VT

• State/City Comptrollers: NYC, NY State, CA

• Public Pension Funds: CalPERS, CalSTRS, Illinois, MD Retirement, NYC, NY State Teachers, FL, NJ

• Labor Pension Funds: AFSCME, CWA/ITU, Machinists, SEIU, Sheetmetal Workers, Teamsters, UNITE HERE

Additional Investor Sectors Taking Action

• Religious Investors: Christian Brothers Investment Services, Evangelical Lutheran Church in America, ICCR, Presbyterian Church USA, United Methodist Church - General Board of Pensions and Health Benefits

• Foundations: Duke Foundation, Nathan Cummings, Rockefeller Brothers Fund, United Nations Foundation

• Asset Managers: AIG Global Investment Group, BC Investment Mgmt, Calvert Group, Domini, F&C Asset Management, Stark Investments, State Street Corporation, Trillium Asset Management, TIAA CREF

• Global Banks: Goldman Sachs, Citigroup, Bank of America, Merrill Lynch

• Certified Financial Analysts

• University Endowments

Investor Engagement

• 43 shareholder resolutions filed in past year,

leading to positive action on the part of 15

companies, including ConocoPhillips, Wells Fargo,

Hartford Insurance.

• Investors actively seeking managers with climate

risk expertise; CalSTRS recently hired four firms to

manage $225 million Sustainable Investment

Program.

Current climate risk disclosure

• Company responses to shareholder resolutions: a very slow process for improving disclosure

• Voluntary disclosure is also improving slowly (56% of S&P 500 companies answered the CDP5 survey, compared with 47% for CDP4)

• Disclosure in SEC filings is insufficient

Example of physical risk disclosure

• The Hartford 2006 10-K only states: “catastrophe loss models for hurricane loss events were updated to incorporate medium-term forecasts of increased hurricane frequency and severity.”

• CDP response is better: ““The Hartford recognizes the possibility that climate change may result in increased frequency and severity of weather-related catastrophic events…[this] represents the most significant climate change-related commercial risk The Hartford faces…”

SEC Petition for Interpretive Guidance

• 22 Signatories include CalPERS, NY City and State Comptrollers, Florida CFO, Kentucky Treasurer, and NY Attorney General

• SEC guidance should ask registrants to:– Calculate GHG emissions– Assess physical risks, regulatory risks and legal

proceedings related to climate– Disclose material risks in SEC filings

Why Interpretive Guidance?

• SEC filings are the gold standard for corporate disclosure of all types of material risks.

• Climate change poses material financial risks to companies in nearly every sector.

• SEC guidance would protect investors by allowing them to better assess risks.

SEC regulations applicable to climate risk

• Item 101: Description of Business

• Item 103: Legal Proceedings

• Item 303: MD&A

• FAS 5: Accounting for Contingencies

Possible SEC Responses• Interpretive Guidance

• Guidance from Corporation Finance

• Review of corporate filings

• Enforcement

• Commissioners’ speeches

Congressional and other responses

• Sanders-Boxer and Kerry-Snowe climate change bills would require the SEC to issue Interpretive Guidance

• October 31st: First Senate hearings on climate risk disclosure (Senate Banking: Securities Subcommittee)

• Candidate Hillary Clinton’s energy plan includes a requirement “that all publicly traded companies report financial risks due to climate change in annual reports filed with the Securities and Exchange Commission”

What to Disclose

• SEC petition: physical & regulatory risks, legal proceedings

• Ceres Global Framework for Climate Risk Disclosure:– GHG emissions– Policy, board engagement, &

emissions management plan

Benefits to Companies

• Ongoing engagements with shareholders & improved disclosure raises companies’ awareness of upcoming ESG issues

• Integrating environmental performance into business strategies leads to multiple benefits:– Emissions reductions/energy efficiency plans provide

cost savings– Environmental programs help w/ employee retention– Product development, such as clean technologies,

opens new markets– Better risk management