SEC issues climate change disclosure guidelines

The U.S. Securities and Exchange Commission has voted in favour of providing public companies with interpretive guidance clarifying existing SEC disclosure requirements related to climate change.

The interpretive release provides guidance on disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business, the SEC said in a statement. “The relevant rules cover a company's risk factors, business description, legal proceedings, and management discussion and analysis.”

“The Commission is not making any kind of statement regarding the facts as they relate to the topic of climate change or global warming,” SEC chair Mary Schapiro said in a speech. “And, we are not opining on whether the world’s climate is changing; at what pace it might be changing; or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics. Today's guidance will help to ensure that our disclosure rules are consistently applied."

The guidance highlights four areas as examples of situations where climate change may trigger disclosure requirements: the impact of legislation and regulation; the impact of international accords; the indirect consequences of regulation or business trends; and the physical impact of climate change.

“Companies should evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business,” the SEC says.

Environmental coalition group Ceres, one of many groups which signed a climate disclosure petition, welcomed the SEC’s move.

“Today’s vote is a clarion call about the vast risks and opportunities climate change poses for U.S. companies and the urgency for integrating them into investment decision making,” said Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk. “The business risks of climate change cannot be ignored. With this guidance investors can make more sound decisions based on better information – and businesses will have a level-playing field with clear standards and expectations for disclosure.”

The lack of specific guidance until now has resulted in weak and inconsistent climate-related disclosure by public companies, Ceres said in a statement.

NEI Portfolio Managers Symposium

by Christie Stephenson, Vancouver correspondent

From Wednesday January 20th to Friday January 22nd, Northwest and Ethical Investing held its annual Portfolio Managers Symposium, bringing together Ethical Funds’ portfolio managers with NEI’s Sustainability Team.


NEI’s Vice President of Sustainability, Bob Walker, held a session on Global Developments in Socially Responsible Investing that covered the growth in assets and ESG mainstreaming. As well, NEI’s AVP & Portfolio Manager, Russell Moldowan presented a Market Scan of Mutual Funds and Socially Responsible Investing in Canada. The day was rounded out with time for the managers to meet with the analyst team, before heading to Whistler.


On the second day, NEI’s Manager of Sustainability Research, Michelle de Cordova, presented the findings of the recently launched White Paper “Lines in the Sands: Benchmarking Oil Sands Companies”. She discussed the research process and findings of the report. NEI’s Manager of Shareholder Action, Jennifer Coulson, overviewed the 2010 Focus List, noting the companies and the issues that would be the subject for engagement this year. Finally, Bob Walker gave a presentation on the Principles and Implications of the United Nations Principles of Responsible Investment (UNPRI). During this session he reviewed the six principles, current signatories, implementation strategies, and NEI’s performance in the UNPRI Annual Report on Progress.

For the third and final day, NEI’s Manager of Sustainability Evaluations, Christie Stephenson, presented on New Developments in Environmental, Social, and Governance Evaluations. She reviewed the processes for eligibility reviews and monitoring for Ethical Funds portfolios, including proprietary Headline Risk Analysis and Management Breach Investigations approaches. She also discussed trends in evaluations including market-time analysis, performance data metrics, integration and materiality.


Members of the NEI team were joined by portfolio managers from Guardian Capital LP, QV Investors Inc., Beutel Goodman & Company Ltd., Manning & Napier Advisors Inc., and William Blair & Company. Guardian’s Sam Baldwin commented that “the annual symposium is a great way to learn about developments in SRI. It also provides an in-depth look into the ESG criteria used for evaluating companies and how a thoughtful approach to engagement with corporate management teams can produce positive change.”


NEI’s Russell Moldowan noted that “Over the years, we have been very successful in imparting the value of incorporating environmental, social and governance criteria in fundamental investment analysis. This event demonstrates the strength of having dedicated portfolio managers and experienced shareholders advocates working together.”


This year marks the fourth year of the company’s Portfolio Managers Symposium. The first principle of the UNPRI is “We will incorporate ESG issues into investment analysis and decision-making processes.” The annual Portfolio Managers Symposium puts this principal into action.

Paul Ekins and Environmental Tax Reform

• Environmental Tax Reform (ETR), as cleverly described by Prof. Paul Ekins, is the shifting of taxation from ‘goods’ such as income and profits to ‘bads’ like resource use and pollution.
  
  In a presentation earlier this month sponsored by the Empire Club and Sustainable Prosperity, Prof. Ekins discussed the role of ETR in the transition to a low carbon economy. As Director of the UK Green Fiscal Commission and Professor of Energy and Environment Policy at Kings College London, he is renowned as an expert on public policy and ETR.
  
  According to Green Fiscal Commission website, ‘There is now general agreement among policy analysts that a significant programme of green fiscal reform (in which environmental taxes are increased, and other taxes are reduced in a fiscally neutral way) could play a considerable role in contributing to the cost-effective solution of environmental problems, and in particular climate change.’
  
  Prof. Ekins discussed the findings of the Green Fiscal Commission which concluded that
  •Environmental taxes work –they reduce environmental impacts
  •Environmental taxes are efficient –they improve the environment at least cost
  •Environmental taxes can raise stable revenues
  •ETR will stimulate resource efficient innovation
  •The public can be won round to Green Fiscal Reform
  
  This last point was met with consternation by the audience given Canada’s experience with green tax policies. In the GFC’s final report some attention is paid to this challenge, and although it is addressed to the UK, the analysis seems applicable to Canada.
  
  ‘It is regrettable that green fiscal reform emerges from the above analysis as a necessary condition for significant carbon reduction, because governments, including the UK Government, find green taxes politically problematic. At least four interacting, or mutually reinforcing, factors make this so in the UK context.
  Because people do not regard green taxes as a legitimate source of revenues…
  And people tend to think green taxes are extra taxes rather than replacements for other taxes…
  And they are thought to affect business competitiveness negatively…
  And they are seen as unfair…
  BUT, despite these negative perceptions, in fact green fiscal reform should lead to widespread economic, environmental and welfare benefits.’
  
  The Green Fiscal Commission report looked at six countries which have implemented ETR, and concluded that outcomes have been broadly positive in both environmental and economic terms.
  
  Prof. Ekins stated that in order to move ahead in Canada “we need a carbon price” and that “carbon pricing is not only country specific, it’s also jurisdiction specific.” And as the report concludes “The key issue now for climate policy is whether governments will price carbon so that high-carbon investments become economically unviable, and low-carbon investments become businesses’ first choice and the foundation for competitiveness in the future. While such a policy may be challenging for energy-intensive sectors in the short term, these challenges can be addressed.”

Goldman Sachs criticized for failing to rein in compensation

Investment banking giant Goldman Sachs has been accused of failing to address systemic issues relating to employee compensation raised in a shareholder proposal filed last year by Vancouver-based Ethical Funds and U.S. SRI fund company MMA Praxis.

Last week, Goldman announced that company compensation in 2009 was over $16 billion dollars, an average of US$500,000 per employee. That’s a 20% drop compared to 2007, and a step in the right direction, but clearly not enough, Ethical and MMA Praxis stated in a press release.

“Although Goldman Sachs has shown some restraint, it is not evidence of a long term, systemic change. We want to make sure that we do not return to business as usual on Wall Street," says Bob Walker, Vice President of Sustainability for Ethical Funds.

The shareholder proposal asked Goldman’s board to establish an Independent Executive Compensation Review Panel to review the company’s long-term compensation, including bonuses, and compare it against industry trends. “The review shall include an analysis of the trends in Executive Compensation at our company and the impact on our company’s reputation, employees, relations with investors, political leaders and the general public,” the proposal reads.

In today’s press release, Ethical and MMA Praxis note that “given that the U.S. government had to prop up the entire U.S. financial sector with public funds, shareholders are adamant that independent oversight is the key to fostering the kind of long term systemic change that can bring reason to compensation practices at the firm and on Wall Street, and in particular can ensure that excessive risk-taking, believed by many to be a major cause of the market meltdown, is not driven by compensation practices at Wall Street firms.”

The two firms concede that Goldman made “significant” changes to its compensation practices in December 2009, including adopting “say on pay” and reducing the bonus pool. “However, more fundamental issues remain unaddressed. In calling for some reflection and further justification for high levels of compensation so soon after being bailed out by US taxpayers, Ethical Funds and MMA Praxis echo concerns emerging from the Obama Administration and regulatory bodies in Washington.”

Ethical and MMA Praxis also accuse Goldman of trying to prevent shareholders from having a say on this issue at its 2010 Annual General Meeting. “Goldman Sachs has challenged the shareholder proposal at the Securities and Exchange Commission in an attempt to omit it from the proxy ballot and to stifle the compensation debate."