Assess climate risk, firms urged

SHAWN MCCARTHY
Globe and Mail
October 30, 2007

Corporate executives and directors face a growing threat of investor lawsuits if they fail to assess and mitigate the risk their companies face from climate change, accounting experts warned Tuesday.

The business of climate change is booming – major utilities are investing in efficiency; retailers are demanding energy-saving lighting; and exchanges are launching emissions-trading systems.

But while some companies are leading the charge in anticipation of regulatory and market pressure to act, several chartered accountants warned that too many companies still regard global warming as a mere annoyance, if they think of it at all.

“This is not a social responsibility issue but a business problem,” said Johanne Gelinas, a partner at Deloitte & Touche and a former federal environmental auditor.

Julie Desjardins, a consultant and adviser to the Canadian Institute of Chartered Accountants, said corporate executives have a heightened duty – as a result of the Sarbanes-Oxley Act in the United States and similar rules in Canada – to report all material issues facing the company.

And increasingly, investors such as the Canada Pension Plan Investment Board (CPPIB) or the California Public Employees Retirement System are demanding assessments of companies' exposure to climate change risk – including cost pressures from expected regulatory changes or weather-related issues.

“You have a responsibility to report the information that your investors want,” Ms. Desjardins said of corporate management. “And you have a responsibility to surround that information you are providing to investors with appropriate governance.”

Failure to do so could lead to civil lawsuits against the company, its senior management and directors, she added.

Suppliers to Wal-Mart, for example, need to spell out how they will respond to the retailer's commitment to cut greenhouse gas emissions throughout its supply chain.

Brigid Barnett of the CPPIB said the $120-billion pension fund is now routinely demanding assessment of climate change risk when it makes a big investment in a company.

Ms. Barnett said the board has a mandate to maximize return, and is not looking to make a political statement with its demand for climate change information. It considers such data “only as it affects the potential risk and return of investments,” she said.

The CPPIB recently spent $1.1-billion to purchase a major stake in British utility Anglian Water Group. Before closing the deal, the investment board reviewed the company's statement that it faced potential risks from climate change, including changing rainfall patterns, flooding, competition for resources, and the need to monitor greenhouse gas emissions.

In a speech Tuesday, Duke Energy Corp.'s chief strategist, Keith Trent, said his North Carolina-based company has determined it has a duty to its shareholders to spend more than $15-billion (U.S.) over the next decade to drive down its greenhouse gas emissions.

“Taking action on climate change is good for our business, good for our customers and good for the environment,” he told a conference on business and climate change.

Mr. Trent said his company – one of the major coal users in North America – has recognized that climate change regulations are going to become more onerous over the longer term. And as one of the largest emitters on the continent, Duke had to plan its response.

He said the company will invest $1.5-billion a year in energy efficiency – so long as regulators allow it to recoup a return on that investment from ratepayers. It is also a leader in research for cleaner-burning coal, and is set to seek a licence to build a nuclear reactor in South Carolina.

“We are a big part of the problem,” Mr. Trent said. “It makes sense for our business to be involved in the solution.”