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Blog Updated July 16, 2018 In April, House Majority Whip Steve Scalise, R-LA, and co-sponsor Rep. David McKinley, R-WV, introduced a resolution in the U.S. House of Representatives that denounces a tax on carbon pollution as “detrimental to the U.S. economy,” among many other criticisms. This non-binding resolution — which essentially allows (or forces) lawmakers to go on the record to support or oppose a certain policy — focuses exclusively (and incorrectly) on the perceived negative economic impacts of carbon pricing. The resolution misses the mark by offering a one-sided, unbalanced critique and revealing that when it comes to a carbon tax — which is one type of carbon price — Reps. Scalise and McKinley are out of step with major businesses, public opinion, and much of the rest of the world. As Congressman Scalise's anti carbon tax resolution gains traction, private sector voices are weighing in in support of a federal price on carbon. Investors worth nearly $700 billion in assets under management and major companies have spoken out against the Scalise resolution and against the idea that a national price on carbon would be "detrimental" to the US economy.  This is the second time that Rep. Scalise has introduced this resolution, and the arguments he presents have only become more outdated the second time around. The resolution ignores and misstates the economic impacts, benefits, and political and public support for carbon pricing — a market-based policy mechanism designed to reduce carbon pollution by “pricing” it through the application of a tax or the sale of permits.  The transition to a clean energy economy is inevitable and irreversible, and a price on carbon pollution would help ensure a smooth, predictable, and rapid transition. If Reps. Scalise and McKinley — both of whom represent states with significant fossil fuel industries — are serious about protecting the economic wellbeing of their constituents, they should be eager to support a price on carbon pollution. A well-designed effort would not only help mitigate climate change and its worst impacts, but the revenue generated could ensure that communities and regions with fossil fuel-based economies receive significant financial support. Climate change is a real problem We cannot discuss the benefits of carbon pricing without first acknowledging and understanding the problem it is trying to solve. Climate change — and the greenhouse gas emissions causing it — represents the biggest market failure in human history. It poses threats to our economy, international stability, human health, our way of life, and the things that we hold dear. It is an enormous global challenge — but one that we can solve with innovative private sector leaders, smart policy design, and international collaboration. Fortunately, economists have long understood that we can correct market failures, if we have the political will to take action. A price on carbon does just that. It is unfortunate and telling that the House resolution makes zero mention of climate change or even acknowledges that a carbon price is the climate policy most in line with conservative values and thinking.   Impact on U.S. communities and the economy The House resolution is primarily intended to convey the message that a price on carbon would hurt U.S. jobs and the economy. However, in enumerating a long list of perceived grievances and ill-effects, it neglects to mention real-world examples and multiple economic studies that show otherwise. It makes no mention of how the revenues from carbon pricing could be used to lower other, more distortionary taxes — — strengthening the U.S. economy, minimizing job losses and perhaps even creating jobs. Recent modeling on the economic impacts of a carbon price by Resources for the Future finds that Reps. Scalise and McKinley’s claim that a carbon price “kills jobs” is hyperbolic at best. Depending on how the policy is structured, short-term job losses across the U.S. economy could be minimal. In fact, this analysis shows that a carbon price could even result in job gains, even without taking into account the significant environmental benefits to the economy and all Americans that come from tackling climate change. U.S. regional and state carbon pricing successes  The U.S. states and regions that have implemented carbon pricing have some of the strongest economies in the country. For example, the Regional Greenhouse Gas Initiative (RGGI) is a cap and trade program (a type of carbon pricing) for the electric power sector in the northeast and mid-atlantic states that has been in place since 2008. A recent report from the Acadia Center found that RGGI has helped reduce the electric power sector’s greenhouse gas emissions 40 percent since 2008. At the same time, electricity prices in the region have decreased by 6.4 percent, while they have increased by 6.2 percent on average in all other states. The economies in RGGI states also grew by an additional 4.3 percent relative to non-RGGI states during that time. The state of California is the fifth largest economy in the world, housing one of the fastest growing and most innovative sectors of the economy. It also happens to have extremely ambitious climate policies, including a statewide carbon price in the form of a cap and trade program. The following graph shows how California’s economy has grown as its emissions have declined — providing evidence that economic growth and emissions reductions can happen at the same time, and directly contradicting the claims made in the Scalise-Mckinley resolution. ​ Global prevalence of carbon pricing Carbon pricing has become a popular global tool for efficiently reducing carbon pollution. As more countries and jurisdictions implement a carbon price in the form of either a tax or trading program and continue to strengthen those programs, claims made in the House resolution that a U.S. carbon price would hurt U.S. competitiveness in the global marketplace are undermined. In fact, eventually enough countries will likely adopt strong enough carbon prices that NOT having one will put the U.S. at a competitive disadvantage when it comes to our trade position and exports. If other countries include carbon tariffs on foreign goods (something that is already being discussed), and the U.S. continues to rely on fossil fuels, American goods will become increasingly expensive for overseas markets and domestic producers and manufacturers will pay the consequences. A recent World Bank report shows the growing adoption of carbon pricing programs globally. 70 national and subnational governments around the world currently price carbon pollution, and nearly 20 more have signalled their intention to do so in the near future. Across the 51 carbon pricing initiatives, 26 are carbon taxes and 25 are cap and trade systems. Once fully implemented, these systems will cover about 20 percent of global greenhouse gas emissions. In 2018, the total value of carbon pricing systems is $82 billion, representing a 56 percent increase compared to the previous year.  Support for carbon pricing  Action on climate change enjoys enormous support from the private sector, conservative and liberal economists, climate scientists, and — most importantly — everyday Americans.  Major American corporations are stepping up to support climate action and carbon pricing. Nearly 40 Fortune 500 companies have declared that “We Are Still In” the Paris Agreement. Corporate support for a carbon price is perhaps articulated most clearly by members of the Climate Leadership Council, including ExxonMobil, Shell, BP, GM, Johnson & Johnson, P&G, Pepsico, Santander, Schneider Electric, Total, and Unilever. Institutional investors are even more clear and consistent in their call for a price on carbon. Last year, 400 investors from around the globe — many based here in the United States and all together representing over $22 trillion in assets under management — wrote to G7 and G20 nations calling for them to effectively price carbon. This year, investors with $28 trillion in assets under management  sent a similar letter to the G7 nations reiterating that support. Some of the best economic minds in the country also strongly support carbon pricing. A growing number of conservative and libertarian scholars at organizations like the Niskanen Center, R Street Institute, and the American Enterprise Institute have all voiced support and argued for a carbon price.  Finally, a March 2018 poll of registered votes by Gallup found that 71 percent of respondents favor a carbon tax on fossil fuel companies and support using the revenue to reduce other taxes. The poll found that on average Americans are willing to pay almost 15 percent more on their energy bills for this. In addition, the poll found that the most popular use of the significant revenue that would be raised from a carbon price is clean energy investments, infrastructure investments, and transition assistance for fossil fuel workers and associated communities. These numbers hold up even when you look at Reps. Scalise and McKinley’s districts. Estimates from the Yale Project on Climate Change Communication found that, in 2016, 69 percent of adults in Rep. Scalise’s district (LA-1) supported regulating carbon dioxide as a pollutant. In Rep. McKinley’s district, an estimated 80 percent of adults supported regulating carbon as a pollutant.  The way forward The recent political polarization around climate change — evidenced most recently by this House resolution — is extremely unfortunate. The atmosphere doesn’t care about our political affiliations or differences. It doesn’t care that civilization has evolved and adapted to a certain set of temperature ranges. It doesn’t care that increasing temperatures and extreme weather events will inject significant uncertainty into local, national, and global economies and impact our way of life. Fortunately, private sector voices, conservative economists, and American citizens in red and blue states are stepping up to help bridge the partisan divide on this issue. Climate change presents major economic challenges to the U.S. - and the impacts of rising temperatures put us all at risk, from major American business to small-town families. Investors and companies with long horizons recognize the risks to their supply chains, products, and customers, and they want to do something about it. In Congress, new Republican members are upending ten years of almost uniform party opposition to climate action. The Climate Solutions Caucus in the U.S. House of Representatives now boasts over forty Republican members, many of whom truly believe that Congress needs to take action on this issue and are working to do something about it. Ceres will continue to make the economic case for climate action in the U.S. and advocate for economically-efficient policies like a well-designed carbon price, along with other supportive policies. With broad, cross-sector support and public opinion gaining momentum, this House resolution will eventually become a thing of the past — to be replaced by bipartisan, innovative ideas on how to move forward with real solutions. (This blog was updated on July 2, 2018 to include a link to a Ceres BICEP Network letter in support of a price on carbon.)

Colorado’s outdoor industry employs 228,000 and generates $28 billion for our economy. Gov. John Hickenlooper’s executive order on the Low Emission Vehicle (LEV) standard is critical for our continued economic growth. His action to direct adoption of this clean car standard is to be applauded — especially at a time when our federal government seems determined to roll back federal fuel efficiency standards in a move that will harm public health, consumer choice, and the economy. Companies across Colorado should be applauding Hickenlooper’s efforts to safeguard fuel efficiency because it is critical to all of our future success. Colorado attracts and maintains a highly skilled workforce because of its desirability as a place to live. However, extreme temperatures, fires, flooding, less snow, and beetle infestation all adversely impact the qualities that make Colorado special. Reducing emissions from the transportation sector is not only within our reach, it is a powerful lever for ensuring that Colorado remains a special place to live and visit. Nationally, the transportation sector accounts for 28 percent of U.S. greenhouse gas emissions. The Colorado Department of Transportation predicts that by 2020 the transportation sector will account for 33 percent of Colorado’s greenhouse gas emissions. No matter your particular business, our collective success is built on a foundation of clean air, water and land. With the proposed rollback of federal standards, state leadership has never been more important. With this executive order on the LEV clean-car standard, Colorado joins 13 other states and the District of Columbia in driving forward sensible policies to reduce greenhouse gas emissions in the transportation sector. These are the same policies that automakers and their trade association supported nationally in 2016, and they remain effective policy tools despite the industry’s change of heart. Nine of the 13 states also adopted the Zero Emission Vehicles (ZEV) program along with the LEV standard. The ZEV program requires that about 10 percent of new vehicle sales be zero emission or plug-in electric vehicles by 2025. If Colorado adopted the ZEV program, the state would see $7.6 billion in benefits by 2050 in the form of lower electricity bills and greenhouse gas emissions. Gov. Hickenlooper’s action on clean car standards serves as an important backstop against attempts to weaken federal fuel efficiency standards. According to Ceres research, weakening the standards will undermine the global competitiveness of the U.S. auto industry. Efforts to roll back the standards also ignore consumer demand for efficient cars and could undermine existing clean vehicle technology manufacturing here in Colorado. At this moment we must not shrink from the responsibility and opportunity to build a 21stcentury economy for our entire state — from the orchards of Palisade to the fields of Wray. Clean car standards are critical to protecting Colorado’s public health, lowering greenhouse gas emissions, and strengthening the state economy. Reducing transportation emissions is also a critical next step for companies to meet both financial and sustainability goals. Policies like clean car standards and the Colorado Electric Vehicle Plan help companies and our suppliers continue to reduce greenhouse gas emissions and transition Colorado to a low-carbon economy. Moreover, more efficient vehicles allow us to cut operating expenses in our company fleets, creating savings that can be reinvested in our companies and communities. That is why both Aspen and Clif Bar joined eight other Colorado businesses in supporting Gov. Hickenlooper’s adoption of the program. We applaud Gov. Hickenlooper’s bold leadership in directing the adoption of the LEV standard, making Colorado the first state in the interior to do so. Clean car standards will protect Colorado’s environment, grow the economy, and cement the governor’s legacy — a clear win-win. Read the original post on Colorado Politics

North Carolina’s innovative, forward-thinking clean energy policies are essential for growing the economy. Policies created in anticipation of a boom in renewable energy incentivized local businesses to help pave the way for a thriving solar industry, which has created jobs and provided a competitive edge over neighboring states. Now, North Carolina must stay the course to realize the full economic potential of clean energy. Allowing the state’s nascent wind energy industry to grow and flourish is a prime example. Strong clean energy policies spur private clean energy investments. Thanks to early leadership that recognized the long-term economic benefits, North Carolina is currently second in the nation in installed utility-scale solar, trailing only California and boasting more than 7,000 solar jobs and over $5.5 billion in local investments. In 2017, the General Assembly wisely passed legislation intended to add a significant amount (6,800-plus megawatts) of solar energy to the grid and enhance the ability of North Carolina companies to access local renewable energy. While solar has thrived in North Carolina, however, wind energy remains largely untapped. The unfortunate 18-month moratorium on new wind energy projects further cripples the industry’s potential. North Carolina needs transparency and consistency for all infrastructure projects, including wind. Allowing the moratorium to expire at the end of 2018 would open the door for increased investments and unlock significant economic growth, in rural counties in particular. Like solar, wind can play an important role in growing North Carolina’s clean energy economy. New construction from wind farm development brings high-paying jobs and a reliable source of income to rural communities and small businesses who need it most, while also helping diversify the state’s energy portfolio and increase its energy independence. North Carolina’s only wind farm, the Amazon Wind Farm U.S. East in northeastern North Carolina, is a perfect example of how a large-scale renewable energy project can bring enormous economic benefits to a local community. In just one year, Perquimans and Pasquotank counties received $640,000 in property taxes from the 104-turbine wind farm. That revenue translates directly to funding for schools, local infrastructure, and emergency services. At Arjuna Capital, based here in Durham, we look for ways to encourage sustainable investing in clean energy because we know it makes smart business sense, while supporting long-term viability. Across the state, we have seen an increase in big companies looking for ways to procure and use renewable energy. Major businesses with operations in North Carolina, such as Dow Chemical, Mars Inc., Nestle, Procter & Gamble, and Walmart, have already invested in wind farms across the U.S. and are enjoying the cost savings. By making wind energy more accessible, North Carolina can become an even more attractive destination for these companies as they decide where to expand their operations. But North Carolina can only build on the success of the Amazon wind farm and take advantage of additional clean energy opportunities with the right policies in place. The General Assembly’s current moratorium on wind energy projects is a roadblock to corporate clean energy investments. Bad policy like this limits free-market competition, suspends new investment opportunities, and prevents businesses, universities, the military, and communities from reaping the economic benefits of new clean energy projects. Smart clean energy policies are crucial for North Carolina to attract and retain the growing number of businesses looking to procure renewable energy and drive additional clean energy investment. If we are to continue growing the state’s clean energy investments, lawmakers must prioritize clean energy as an important driver of economic growth. Allowing the wind moratorium to expire is an essential step toward this growth. Natasha Lamb is managing partner Arjuna Capital in Durham. Arjuna is a member of the Ceres Investor Network on Climate Risk and Sustainability. Read the original post on The Herald Sun

Dignity Health-St. Rose Dominican recently hosted a community roundtable on clean energy leadership at their San Martin Campus in Las Vegas. The goal of the gathering was to create a dialogue around the opportunities for investing in renewables, along with the barriers or challenges to transitioning to clean energy in Nevada. A bipartisan group of policymakers (both current legislators and legislative candidates), business representatives from three major industries in Nevada, clean energy experts, and a representative of the Las Vegas area chamber of commerce participated. The event began with a tour of the hospital’s new solar panel arrays, one of two installations recently completed at their Nevada campuses. The arrays are dotted throughout the parking lot and serve a dual purpose as carports for 1,150 parking spaces at both hospitals. At San Martin, the project is expected to produce 3.6 million kWh, and the Siena array is expected to produce 2.8 million kWh of clean energy annually. The aggregate amount of energy from these Dignity Health projects offsets the environmental impact of 534,000 gallons of gasoline or 1,015 cars each year. “Key to the mission of our founding sisters, the Adrian Dominican Sisters, is ecological sustainability and the protection of our planet for future generations,” said Sister Phyllis Sikora, vice president of mission and spiritual care for Dignity Health-St. Rose Dominican Hospitals. “These solar panels are more than just covered parking for our staff and visitors, although that is so important in the Las Vegas heat, but also our demonstration that our motto ‘Hello Humankindness’ extends beyond the walls of our hospitals and into the environment that we depend on each and every day. If we are not dedicated to protecting our environment, we are not helping to fulfill our mission to the communities we serve.” Policymakers left the roundtable with a greater understanding of why Nevada hospitals and businesses are investing in clean energy and how they can create policy to support economic development across the state along with a new perspective on the interconnectedness between Dignity’s healing mission and its commitment to clean energy. Dignity Health is a member of the Health Care Climate Council and Practice Greenhealth as well as the Ceres BICEP Network. Read the original post on Health Care Without Harm

Now that clean energy has gone mainstream, there is an array of existing and emerging opportunities to scale up clean energy investments while also meeting investors’ risk-return requirements. Across asset classes, clean energy opportunities are available that align with investment fundamentals such as long-term risk diversification. Savvy investors are now moving to understand the expanding opportunities in the clean energy sector, recognizing that this market is growing in terms of the breadth and quality of available opportunities. Taking stock of key clean energy market developments and diversifying investment opportunities, Ceres recently released a new report on the additional $1 trillion per year in clean energy investment through 2050 — the “Clean Trillion” — required to limit global temperature rise to no more than 2 degrees Celsius and avoid the worst impacts of climate change. The report, In Sight of the Clean Trillion: Update on an Expanding Landscape of Investor Opportunities, finds that achieving this goal is eminently feasible, and that the capital needed to support it is not extraordinary in the context of existing global capital flows. Read the entire column originally posted on Responsible Investor.

Climate change presents an enormous risk to the global economy and the well-being of our planet and communities. As investors, we know that tackling climate change and investing in clean energy make economic and financial sense. As faith-based institutions, we also recognize a moral imperative to address climate change and mitigate the impacts on the most vulnerable within our communities. This is why we support policies that scale up climate action.  Click here to continue reading

Ceres analyzed trends in public U.S. shareholder resolutions related to water that were filed between 2004-2017. The data were obtained from FundVotes and Ceres’ tracking system. A total of 338 resolutions were filed over the 13-year period, with 43 focusing on water as a central issue, and 295 focusing on water indirectly (e.g., a request for a sustainability report, mentioning water as a risk to be addressed in the report). Among the trends we observed: Proposals generally ask for increased disclosure, policies and/or action on a particular issue (such as coal ash management or agriculture water use), with the Energy and Consumer Staples industries receiving the most resolutions. Issues most often raised were the human right to water and sanitation, water risks and stewardship in agriculture supply chains, and fracking water risks. Proposals with the most successful outcomes (e.g., that receive high votes and/or elicit company attention) have focused on management of water risks associated with coal waste, natural gas hydraulic fracturing, or meat production.  Investors are increasingly asking companies to understand their obligations as stakeholders in mitigating impact and protecting water resources for the good of local communities and to respect human rights.       Figure 1 Number of shareholder resolutions related to water per year in the United States, both focused directly on water as the central issue and indirectly when water is not in the resolve clause. Source: FundVotes and Ceres. See the full data set here. Number of Resolutions by Industry Sector (Proposals Directly Addressing Water) The sectors most often targeted by shareholders with direct resolutions on water risk were Energy, (accounting for 37 percent of resolutions) and Consumer Staples (25 percent), followed by a two-way tie between Utilities and Consumer Discretionary. Other sectors with notable amounts of shareholder resolutions on water include Health Care, Technology, and Financials.   Figure 2 Percentage of shareholder resolutions with direct requests to companies related to water from 2004-2017 by GICS sector. There were 43 total direct resolutions over the time period. Source: FundVotes and Ceres analysis.  Chevron took the lead in having the most water shareholder resolutions related directly and indirectly to water, including six asking for board-level environmental expertise and seven on water contamination impacts on indigenous communities. Exxon and ConocoPhillips were a distant second. Resolution Type Water-related resolutions ranged considerably in scope, but often sought to drive better disclosure, as well as water management practices and policies related to water quality and quantity used. Many resolutions asked companies to mitigate water impacts, both in direct business operations, and throughout their supply chains.  The issues shareholders most often raised were the human right to water and sanitation, water risks and stewardship in agriculture supply chains and fracking water risks (Figure 3).   (Fig. 3)The number of different types of direct and indirect water proposals by Topic. The shading indicates the average support over the 13 year period, with dark blue having the highest average, followed by light blue, orange and dark red.​ One of the fastest growing topics related to supply chain risks in agriculture. Eighty-four resolutions targeted the Consumer Staples and Consumer Discretionary Sectors, which include textiles, lodging and restaurants, retail and food and beverage companies. Big brands such as Coca Cola and PepsiCo are some of the most targeted companies for proposals related to board expertise and human right to water issues. A few instances in particular call out the conflicts these companies have faced in regions such as India. – where bottling operations closed due to community concerns of freshwater scarcity and lack of management.   More recently meat companies such as Sanderson Farms, Pilgrim’s Pride, Smithfield and Tyson Foods have been the focus of investors asking for more transparent reporting on water and sustainability risks, along with improving their supply chain and water stewardship practices.   Water quality issues are also rising as an issue with requests for disclosure of risks associated with bioaccumulative and toxic chemicals, to genetically modified organisms (GMOs), herbicide contamination and beyond.  Proposal Outcomes Some of the highest votes have been in response to proposals indirectly focused on water, such as a 95 percent vote in favor of Newmont Mining Corp releasing a report on its community policies and practices regarding waste disposal and water pollution. Similarly, 18 resolutions requesting sustainability reports, received an average vote of 42 percent, and a high of 93 percent (Layne Christensen Co.) Other resolutions that have been relatively successful have focused on regulatory fines or spills and accidents related to coal, such as a vote receiving 53 percent with Ameren Corp on coal ash management. Resolutions related to reporting and transparency on water use in hydraulic fracturing (16 in total) have also been relatively successful, receiving an average vote of 36 percent as well as commitments from companies to produce reports disclosing their water risks and plans for mitigating them.    Resolutions filed with meat companies on water quality have resulted in company action, such as Tyson’s 2017 announcement that it would set targets to reduce water impacts in its operations and supply chain.  View the full data set here

This blog was originally posted to NACD's Board Talk Blog. Investors are on to a definite theme these days—and Kinder Morgan and Anadarko Petroleum Corp. are the latest companies to experience it. Earlier this month, investors in the energy infrastructure giant backed shareholder resolutions calling for more transparency and reporting on how Kinder Morgan is addressing the impacts of climate change and mitigating the risks. A similar resolution at Anadarko also received a majority vote this month. This is a trend that has picked up steam during recent proxy seasons, with shareholders just last year voting in favor of climate change resolutions at major firms, including Exxon Mobil Corp., PPL Corp., and Occidental Petroleum Corp. As I wrote in a recent NACD blog, one consequence of this growing focus on climate risks is that investors, led by major money managers such as BlackRock and State Street, are increasingly emphasizing the role of corporate boards in driving company responses. And now Systems Rule, a new report from Ceres, shows that investors are right to push for strong governance systems for sustainability. Our analysis of board governance practices and performance data of large global companies found that businesses that integrate sustainability priorities such as climate change into board mandates, director expertise, and executive compensation also demonstrate strong performance on sustainability issues. The report provides important insights for boards to pay attention to as they consider how to oversee climate-change-related risks and strategy. But here’s the issue: Most large companies aren’t among these performers because they still have fragmented systems of board governance, especially when it comes to sustainability oversight. This is partially true because many directors and company leaders still do not understand the material impacts associated with environmental and social issues, like climate change. In fact, Systems Rule noted that only 17 percent of corporate directors have demonstrated expertise in sustainability issues. For companies to get moving and establish governance systems that can deliver commitments and performance on climate change, the whole board needs to start by establishing some baseline fluency that will help them understand when these issues could in fact be material. That’s where a new Ceres primer, Getting Climate Smart, can help. Developed specifically to increase board fluency in climate change, the report provides an overview of the different ways that climate change can impact an enterprise and how boards can integrate climate change oversight into their responsibilities in the boardroom. It’s designed to be a valuable tool for corporate directors who want to educate themselves on what this issue means to their business and what they can do about it. So how practically can directors build climate competency into their board? Formally include oversight of climate-change-related issues in the board structure. Formalizing climate change’s importance to business by including it in board committees’ mandates ensures the topic is regularly discussed. Citigroup, Ford Motor Co., and Nike are just a few of the companies that do this. Recruit climate-competent directors. Committees should cast a wide net through the nominating process so they can consider candidates with diverse backgrounds and expertise in addressing climate change. Integrate climate change into strategic planning and risk oversight. Directors should ensure that management takes the business impacts of climate change into account at every level of the company. Businesses including BHP Billiton and Shell conduct scenario analyses to assess the impacts of climate change on their portfolio of assets and business policies. Tie executive compensation to actions that mitigate climate change. To encourage action, executive compensation can be tied to a company’s progress on addressing and opportunities, such as cutting greenhouse gas emissions. Xcel Energy links 30 percent of its executive compensation to carbon emission reduction goals. Promote climate change disclosure. Without robust disclosure, investors cannot accurately analyze how a company is responding to climate change. Companies including Aviva, Unilever, and Zurich Insurance committed to updating their disclosures based on new Task Force on Climate-related Financial Disclosure (TCFD) guidelines. The takeaway from our research is clear. It pays for companies and boards to adopt strong board oversight systems for climate change. But as a first step, boards should first develop climate fluency to understand the material risks their company may face. Fluency with the issues and strong, holistic governance systems will lead to the performance impacts that investors and other stakeholders want to see. This blog was originally posted to NACD's Board Talk Blog.

California’s economy is booming – it’s now the 5th largest in the world – even as the state implements rigorous climate statutes that cover nearly every sector. In its aim to reduce greenhouse gas emissions by 40 percent below 1990 levels by 2030, California put in place a cap and trade system, a Renewables Portfolio Standard for electricity, progressive advances on clean cars, the low carbon fuel standard, energy efficiency programs and incentives to farmers to capture or reduce methane emissions, and more. But there is one source of GHG emissions that’s been missing from this list: what to do with GHGs from the natural gas-powered heating and water heating systems in California’s 13 million homes and commercial buildings. Last week, the California Senate and Assembly each voted to move forward a set of bills to address “building decarbonization,” signaling the California legislature is taking this component of the climate puzzle seriously. The legislature has until September to pass them out of their second house. If adopted, these bills would close an important gap in California’s efforts to clean up the air and reduce emissions. Furnaces and water heaters that run on natural gas and propane account for 40 percent of emissions from buildings. And buildings, in turn, produce a quarter of California’s emissions. Like many of California’s climate laws, Senate Bill 1477 and Assembly Bill 3232 are market-oriented policy approaches designed to spur innovation.  SB 1477 would require the California Energy Commission to develop incentives for the private sector to innovate new water and space heating equipment that produce lower or no emissions and design lower-GHG emitting buildings, with such things as smart energy management systems or energy storage technology. It would set up a Low-Emissions Technology program to issue those incentives, using a portion of money raised from carbon allowances purchased by electrical and natural gas companies. A companion bill, AB 3232, “zero emissions buildings and sources of heat energy” would direct the state Energy Commission to study the feasibility of reducing GHG emission from the state’s residential and commercial building stock by 40 percent below 1990 levels by 2030 – potentially setting its emissions reductions in line with the state’s overall emissions reduction goal. It would also require the commission to regularly report on GHG emissions produced from supplying energy to the state’s residential and commercial buildings. The bills had garnered support from a broad coalition of environmental groups, cities and a host of businesses. Seven major corporations in Ceres network of Business for Innovative Climate and Energy Policy (BICEP) wrote letters to the legislature urging passage of these bills. SB 1477 and AB 3232 bank on an approach that has worked in California climate policy before: encouraging market innovation. That is one reason companies doing business in California support this bill. Both California’s emissions cap and trade program and its clean vehicles program set up conditions and incentives to encourage private sector investment in developing technologies to answer the problem. Incentives also exist for renewable energy use and deployment. In that way, the state policies help create “demand” for these technologies – even before the technologies are developed.  Then innovators get to work on solutions because they know there will be a market of buyers. It has worked well so far. Market based policy incentives for renewable energy, clean cars and reducing smokestack emissions are attributed with helping draw $56.9 billion in clean tech investment to this state in 2017 alone and similar amounts in several previous years. These bills make use of the fact that the California Energy Commission already updates the state’s energy efficiency building codes for new and retrofitted buildings every three years. It expands their efforts, asking them to assess the potential for reducing buildings’ emissions from natural gas and propane, both in new and existing buildings. With climate change continuing to show its wrath and businesses and individuals favoring policies to stem global warming, California upped its ambition two years ago on cutting greenhouse gases: setting a target of 40 percent reduction from 1990 levels by 2030 and aiming for an 80 percent reduction by the turn of the century, or 2050.  Getting there –  and preventing catastrophic levels of climate change for the next generation –  will require addressing all sources.  Passage of the building decarbonization bills will be key piece in meeting this important goal. Read the original blog post on TriplePundit

The logic behind integrated reports — the merging of sustainability and business disclosures — is straightforward. Academic research, Wall Street reports, even company financial performance all show that sustainability is good for business. Investors and other stakeholders are looking for evidence that companies are combining their sustainability and business strategies. Integrated reports, the idea goes, will drive integrated performance. But by focusing on integrated reporting as the end, rather than a means to an end, companies are missing the point. In fact, they’re putting the cart before the horse. Companies need to focus on integrating sustainability across their business, then demonstrate this integration in action through their reporting. Integrated reports aren’t important in themselves. It’s what they’re meant to show — that companies are truly making sustainability disclosure, strategies and systems part of how they operate, innovate and drive growth — that’s key. Nowhere is this integration more important than at the board level. Sitting at the top of the organizational structure, boards are responsible for steering their companies towards sustainable and resilient business performance. So, if governance is the linchpin, just how many boards are actually set up to focus on integrating sustainability into business in a way that’s effective, that drives the goals that improve performance? To answer that, Ceres analyzed board governance practices of 475 of the world’s largest publicly traded companies. Our new report "Systems Rule: How board governance can drive sustainability performance" examined whether these companies integrate sustainability priorities such as climate change into board mandates, director expertise and executive compensation, and how these board systems affected their performance on sustainability issues. Here’s what we found: Most large companies say that their boards oversee sustainability, but when we dug into the details, the systems appear largely rudimentary or piecemeal. Only 13 percent have adopted a formal board mandate for sustainability and disclose board-management discussions on sustainability. Just 17 percent demonstrate that they have directors with expertise in sustainability. Merely 6 percent disclose details of the connections between executive compensation and sustainability targets. Companies that have robust systems for board sustainability oversight are likely to have established sustainability-related goals and, as a result, better performance. A business that establishes a formal mandate for sustainability issues at the board level is 2.1 times more likely to have stronger sustainability commitments. A company that has a board of directors with backgrounds in sustainability is 2.7 times more likely to have stronger sustainability commitments. Organizations that create strong links between executive compensation and sustainability are 2.1 times more likely to have stronger sustainability commitments.   The best-performing companies integrated the three main systems of board governance that we examined, rather than taking a piecemeal approach to board sustainability governance. To be most effective, board systems must reinforce one another. Given this background, what can boards do to create strong governance systems for integrated sustainability and business performance? Be holistic Board governance systems should be integrated and reinforce each other. Formal mandates for sustainability oversight should be supported by the recruitment of directors with the right expertise, who in turn should incent management by linking executive compensation with sustainability. At Nestle, the board of directors is responsible for overseeing sustainability. Key directors, including the chairman of the board, have skills and expertise in relevant sustainability issues, such as water security and child health, and the annual variable remuneration of executives is linked to sustainability goals.  Focus on materiality and results Board directors should move to a results-oriented approach to sustainability oversight. They must create governance systems that drive performance and that are tied to considerations of material risk. Systems for systems' sake do not produce results. L’Oreal links the compensation of its chairman and CEO to progress made on the organization’s sustainability targets, including carbon emissions, water consumption and waste generation. Assess and act Not every sustainability issue is material to every company, but there is enough evidence about the potential for materiality, especially in the long term, that should prompt boards to investigate. Boards should get management to assess whether issues such as climate change are in fact material to the companies that they oversee. When an issue is found to be material, boards have a responsibility to act.  Insurer Aviva’s board risk committee has identified climate change as an emerging risk, ensuring that the issue is regularly reviewed, and the potential long-term impacts evaluated for the business. Be more open More detailed disclosure, including details on the material issues that the board prioritizes and high-level details on how it addresses those priorities, can spur more sustainability commitments and improvements. Disclosing more also will go a long way in demonstrating to stakeholders that board systems exist in more than name only. The bottom line is it pays for companies and boards to champion the adoption of strong board governance. A systems-level approach drives sustainability commitments and performance. Given the sustainability risks and opportunities companies face, true integration, then followed by integrated reporting, has to be the name of the game. Read the original blog on GreenBiz