The Graduate Baruchian

by Helen Serebin

How do you know a company is taking carbon disclosure seriously? How do you know if their compliance goes beyond the perfunctory and is driving their business strategy? According to Karoline Barwinski (ClearBridge Advisors), Adam Kanzer, Domini Funds, Jim Coburn (Ceres) who discussed the issue on November 29, 2011 some things to look for in a company’s carbon disclosure report:

• Is there talk about legislative risk?
• Is there talk about product risk?
• Are they being innovative with operations?  If so, do they describe what they are doing?
• Does the conversation go beyond discussions with investors?  Are they engaged with their communities?  If so, how?

Karoline, Adam and Jim had a number of useful comments on the reporting process.

1. Reporting is not an end in itself.  The SEC measurements are meant to help set goals.  While some companies bristle at the disclosure reports, for the citizenry (that’s all of us out there) these public commitment make companies live up to these goals.
2. Companies need to know more about carbon emissions than what they report.  They need to understand it much more substantively, meaning where the emissions are in their supply chain.
3. In house attorneys have a role to play.  They need to tell executives to look at the disclosure control procedures.  They need to tell operations folks to talk to legal, to talk to risk managers.  If there isn’t a lot of cross functional dialogue you are not really dealing with the issues.
4. Annual reports need to be more comprehensive.  Companies can differentiate themselves by leading the way.  Again, want to know who is really taking disclosure seriously?  Look to see whether the report answers these questions:

• Is your board involved in reviewing the carbon disclosure policy?  If so, what is there role?
• What is management’s perception of the risk of carbon emissions?
• Is there a board committee on climate change?  Does it review and set policies? Set targets? Review performance in meeting goals?
• Is there a carbon reduction strategy throughout the company?  What is it?  Example:  Climate change affects the arability of land.  For companies that produce agricultural commodities there is a material impact.  This fact should lead the way for them to differentiate themselves.

Lastly and really importantly, we heard from this troika that the investor community is not taking responsibility.   Analysts only look at balancing portfolios.  They are not outcome oriented, only quarter oriented.  By not looking at the externalities they do a disservice to their clients.  And yet, analysts are the players that are best equipped and positioned to be change agents toward more proactive carbon strategy.  Analysts know how to ask tough questions.  It’s time for them to use their abilities to shift the conversation, especially since it becoming clearer that there is a strong correlation between sustainably oriented companies, consistent higher returns, and better management.

As we all move forward we need to be more thorough with our questions internally at our firms and to challenge investors to ask more difficult questions of organizations.