I hadn’t been to a Ceres conference in far too long. This national network of investors, companies, environmental organizations and other public interest groups working to address sustainability challenges such as global climate change is celebrating its 20th anniversary. While most continue using a model of unsustainable growth, Ceres members push forward. Just a few of many accomplishments:
- Launched the Global Reporting Initiative (GRI). 1300 companies use this now de-facto international standard to report on environmental, social and economic performance.
- With Yale University and insurance firm, Marsh, created the Sustainable Governance Forum on Climate Risk to help corporate leaders address the problem of climate risk.
- Spearheaded dozens of breakthrough achievements with companies, such as Nike becoming the first global apparel company to disclose the names and locations of its 700-plus contract factories worldwide in 2005, Dell Computer agreeing in 2006 to support national legislation to require electronic product recycling, and Bank of America’s $20 billion initiative in 2007 to support the growth of environmentally sustainable business activity.
- Brought together 500 investor, Wall Street and corporate leaders to the United Nations in 2005 to address the growing financial risks and opportunities posed by climate change.
- Launched and directs the Investor Network on Climate Risk (INCR), institutional investors with collective assets of more than $7 trillion.
Over the years, there has been growing recognition among Ceres members that corporate governance, especially the rules, matter. At the same time, investors have come to recognize Ceres not only as an early warning system for environmental and social issues but a group that facilitates practical solutions, reducing risk, increasing efficiencies and sustainability.
Ceres President Mindy Lubber started off the conference with an inspiring speech about accomplishments and four pillars to achieve a sustainable global economy.
- Ensure honest accounting to value environmental and social factors in business decision-making.
- Set standards and expectations for disclosure, performance and corporate governance.
- Accelerate green innovation capturing opportunities from energy efficiency, renewables, low-carbon products and sustainable supply chains.
- Change the rules of the game through smart policies and regulations that reward sustainability performance.
The Ceres site has a nice flash program describing these in further detail. She also talked briefly about Businesses for Innovative Climate and Energy Policy, or BICEP, which Ceres is coordinating to advocate for 100% auction of carbon allowances in a cap and trade program, reduction targets of greenhouse gas emissions at 25% below 1990 levels by 2020 and a halt to construction of any new coal fired power plants that don’t capture and store carbon dioxide. Check out the April 14th podcast, Pumping Political Iron: Consumer Companies Flex Their Climate Change Muscle.
Denis Hayes, of the Bullitt Foundation and National Coordinator of the first Earth Day in 1970, provided perspective in his welcoming keynote. The global ecological bubble is more important than the economic bubble that is now getting our attention, he said.
We’re still breathing molecules from Caesar’s last breath. Our ecology is more fragile than the economy. We recovered from tulip mania, the South Sea bubble and the savings and loan crisis, even the Great Depression.
Borrowing a page from Jared Diamond’s Collapse: How Societies Choose to Fail or Succeed, Hayes warned that many civilizations that degraded their environment never recovered… Easter Island, classical Mayan civilization and the Greenland Norse.
Global ecological collapse would be a dust bowl without California, an Irish potato famine without America. Bringing the economy back to “normalcy” wouldn’t be good news because it will accelerate the global ecological bubble. Current accounting practices don’t address our ecological storehouse. Instead, externalities are treated as off balance sheet items that don’t weigh into the decision-making process.
It won’t work. “Mother Nature doesn’t do bailouts.” The problem is that our economic system places its highest value on consumption, rather than the accumulation of real wealth. The faster resources, like wood, move from the forest to the dump, the higher our GDP climbs. Too many have been buying junk they don’t need with money they don’t have. Modest frugality, a savings rate of 5% a year in the US, risks economic collapse under our current model.
Again, drawing from Diamond, Hayes said “the single biggest factor in a collapse is often when the rich and powerful can shield themselves from the consequences of their actions.” CEOs have been relatively unscathed. It was a great lead into the open plenary.
Changing the Rules of the Game: Policies to Accelerate a Green Agenda
How can we get out act together to meet the economic and climate crises? Jack Ehnes was, again, one of the most effective moderators I’ve ever seen… drawing out the most important points from panelists, while weaving unifying threads.
Majora Carter, a director of Ceres and the founder of Sustainable South Bronx, said every job can be a green job. Poor people grow out of poverty when participating in solutions that are not degrading… repairing the damage in their neighborhoods and in wetlands. We need another WPA to address renewable resources. She had a huge hit with her comment that OBAMA is an acronym for a new era: “Officially Behaving As Magnificent Americans. We have the capacity; do we have the will? She is definitely an Obama supporter but in questioning it was clear that she believes the President needs lobbied. The horticultural infrastructure is “shovel ready.” Create jobs and reduce crime, while remediating poverty and nature at the same time. She emphasized the social benefits of living by a new set of rules.
Dave Douglas, of Sun Microsystems, spoke a little about “cloud computing,” where dynamically scalable and often virtualized resources are provided as a service over the Internet, like with Google applications. Cloud computing has many advantages, such as improved energy efficiency, scalability, reliability, security, etc. Douglas emphasized it is a tool, not a solution. Efficiencies and renewable resources are critical. He pointed out that one billion more people just getting a light bulb would now require 20 new coal-fired utility plants. We can’t keep heading down this path. Fortunately, at least at Sun, their most energy efficient products are their fastest growing products because the efficiencies generally pay for themselves within 3 years.
Hal Harvey, of ClimateWorks Foundation, outlined six policies “that really matter.”
- Building codes – Buildings last a long time, so efficiencies there are important. California is cutting energy use in buildings by 75%.
- Appliance standards, such as required use of LED lightsFuel efficiency for vehicles
- Renewable Portfolio Standards, which require electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date. This can also be a huge green collar jobs creator.
- A nationwide energy efficiency standard – decoupling, where power utilities make money by helping homeowners save energy rather than by encouraging them to consume it.
- A cap on carbon emissions
Harvey noted that solutions for developing countries will be different than for the US. We can’t expect them to cap but China and Mexico, for example, have adopted policies that will turn pollution around. He pointed out the financial bailout is going to be dwarfed by the cost of moving cities to higher ground. Here’s an op-ed, Mother Nature’s Dow (NYTimes, 3/28/09) by Thomas Friedman that draws heavily from Harvey.
Financial Market Reform and the Interest of Stakeholders
Allen White, of the Tellus Institute, moderated the panel and began with an indictment of the finance and insurance sector. That sector recently constituted 20% of GDP and 40% of profits, compared to manufacturing, which constituted 12% of GDP. He called for more ESG disclosures in SEC filings and suggested that maybe banks should be regulated more like public utilities.
Michelle Chan, with Friends of the Earth, stated that bank lending was a very early focus for them, especially requiring more disclosure in SEC filings. Later she discussed the point that we need to learn from the financial crisis and experience with derivatives. We don’t want carbon to be the next tulips. See
FOE’s report on Subprime Carbon. They advocate the McDermott bill, which doesn’t allow for carbon offsets. So subprime carbon wouldn’t build up in the system. There isn’t space for the proliferation of exotic financial products.
Richard Ferlauto, of AFSCME, began with the irony that we have been building a consumer-based economy at the same time we have been driving wages down. Something had to give. “Bubblism,” where we go from savings and loan, to high tech, to real estate, to financial bubbles is unsustainable. He criticized the deregulatory aspects, such as repeal of Glass Stegall, obfuscation efforts that made it impossible to properly identify risks, incentives which drive short-term profits, public policies which de aligned corporate governance, and our blind eye to ESG issues and real costs. We’ve witnessed tremendous wealth concentration in the top 1/10%. The portion of corporate profits going to top execs has risen from 5% to 10%. What we have is an anti-distributive model that risks our social fabric. How do people retire in the future?
Michael Moran, of Goldman Sachs, discussed how they began incorporating ESG issues into financial analysis about 5 years ago. Their sustainable focus list outperformed benchmarks by 8% and even more at larger companies. (see Green Is Gold,
According to Goldman Sachs Study) Goldman Sachs says that securitization and repeal of Glass Stegall led to short-termism and that off-balance sheet financing is problematic. The importance of ESG will come to be realized as a proxy for good management. Distributing risk doesn’t eliminate risk. Compensation must be tied to long-term growth of share price. We also need to get more involved at the IASB, since we are moving to international accounting standards.
Concerning that shift, Ferlauto asked, “where is the global risk regulator?” Chan said we need a new definition of “materiality” to encourage financial reporting over a longer timeframe. Improvements are needed to the Basel II Accord. Environmentally risky loans should require that greater reserves be held back. With regard to better corporate governance, Chan pushed for more of a stakeholder model where directors would have a fiduciary duty to workers and communities, as well as shareowners.
Moran again discussed the integrative approach taken by Goldman Sachs. Environmental due diligence should be incorporated into the normal process, rather than shunted off to the S-K. (see Environmental, Social and Governance Standards: Glass Half-Empty or Half-Full?) Ferlauto said we need director qualification standards that reflect sensitivity to ESG issues. With XBRL we are getting much further on the data side than we are on the policy side. With the government in the driver’s seat at AIG, it is time to start taking more of a hand’s on role in management with policies like denying insurance coverage to any new coal-fired plants.
Ferlauto also discussed AFSCME’s new Shareowner Education Network (SEN), highlighting their report, “Compensation Accomplices: Mutual Funds and the Overpaid American CEO,” that will help workers pick mutual funds more aligned with their interests. SEN will actively promote a Shareowner Bill of Rights to citizen investors through a public media campaign working with financial writers, columnists, academics, bloggers and a variety of social media outlets. In response to Chan’s call for a stakeholder model, Ferlauto argued for new fiduciary standards of loyalty and good faith, proxy access, and changes at the Employee Benefits Security Administration that may follow the appointment of Phyllis Borzi.
Innovation in Action: Creating the 21st Century Sustainable Corporation
Andrea Moffat, of Ceres moderated. Ken Sylvester discussed how the New York City Comptroller has been committed to sustainability issues for many years in pension fund investments and voting. Their fund was the first to ask companies to adopt the GRI. They are incorporating ESG into their RFPs.
Hannah Jones, of Nike, asked us to imagine decoupling economic growth from the use of natural resources. Instead, we should treat natural resources as we would God. We should tap into the
wisdom of crowds to come up with business models that will thrive in a low impact economy. She talked up use of the “creative commons” and open source innovation.
Dan Reicher, of Google, discussed the intersection of energy and technology. He said that Google has given devices to employees that allow them to measure their energy use at home and know what time of day is least expensive. It is already changing habits. They are partnering with GE to move the smart grid forward. We need to get to a point where renewables are cheaper than carbon and should learn from the rapid scaling of information technology. In response to a question from the audience, Reicher said we must fight the fragmentation between government and business, spend the stimulus dollars well, pass climate/energy legislation and monitor our own energy use. One renewable Google is looking at that hasn’t gotten much attention is geothermal. Government mandates have helped California energy use, per person, remain flat, while it has doubled in the rest of the country. Get out of your silo, write op-ed pieces and join BICEP.
Lauralee Martin, of Jones Lang LaSalle, stressed that buildings have a long life-cycle. Its a competitive world. Retrofitting the Empire State Building will set an important precedent that other real estate services companies and builders will follow.
Environmental, Social, and Governance Issues in the 2009 Proxy Season
William Somplatsky-Jarman, of Mission Responsibility Through Investment, led the afternoon panel. Doug Cogan, of the RiskMetrics Group, started the conversation with a few facts concerning the 383 ES proposals they are tracking so far this season. Political contributions, health care and climate change are among the new favorites. Withdrawals are up, omissions due to no action requests seem to be down (70% in 2008 v 50% in 2009 for no-action). Public pension funds are filing the most, followed by SRI funds, faith based groups and unions. Apparently, Bard College became the second college to file in history, with a resolution this year at McDonalds, although I didn’t find it in their proxy. Resolutions to disclose political contributions, including to trade associations and others that lobby, are getting good support (26% in 2008). Climate change is getting similar levels (24% in 2008) but health care is coming in much lower at about 5%. New issues are internet privacy, mercury, and nano materials.
Jonas Kron, of Trillium Asset Management, discussed Open MIC, an investor coalition they started, which now includes the New
York City Pension Funds and socially responsible investment firms Boston Common Asset Management, Calvert Asset Management Company, Domini Social Investments, Harrington Investments and As You Sow. Members have filed shareholder resolutions with 10 publicly-held U.S. providers of Internet access, urging corporate boards to report on the impact of the companies’ Internet network management practices on public expectations of freedom of expression and privacy. Kron says that although there fewer no-action letters this year, it isn’t for lack of trying, since challenges by companies are up. There will be vigorous discussions, especially focused on significant social and environmental issues and attempts to have the SEC require more ESG disclosure. With XRBL we should be able to drill down to the next level. Kron also discussed Trillium’s involvement with ProxyDemocracy.org and their announcements of proxy votes in advance of annual meetings.
Anne Sheehan, of CalSTRS, said they were able to withdraw 5 out of 6 ES proposals after reaching agreement. CalSTRS is pushing diversity. One of the reasons is that most of their members are women. They want to see more women on the boards and in management, especially at companies like Nutrisystems, where most of the customers are also women. CalSTRS will be co-hosting a diversity conference this fall at Stanford. She said CalSTRS would also be releasing model compensation policy guidelines. Watch their newsroom. They are tracking 210 “say on pay” proposals, 60 to hold special meetings, and 55 for majority vote. When Kron brought up Trillium’s involvement with ProxyDemocracy.org, Sheehen noted that CalSTRS is also working with them and expects their votes to be disclosed there relatively soon. (I know that one issue facing ProxyDemocracy is that bringing on CalSTRS may mean significantly adding to the number of companies included in their database, since CalPERS owns many more foreign stocks than the mostly SRI funds already included… although I assume Florida SBA must also hold many international stocks.
Sister Patricia Daley, of the Tri-State Coalition for Responsible Investment, says they’ve introduced resolutions on how companies determine their business plan and Ford has said yes, unlike Exxon Mobil , Chevron and Southern Company. 21 companies have signed onto universal health care. She talked up the religious community to coming out against predatory lending in the early 1990s. Growing concerns are the trafficking of children and the need for codes of conduct.
William Somplatsky-Jarman said they had met with companies on securitization of subprime and were reassured by banks right up until the financial crisis that there was no problem, since components were graded. One to watch is the UN Global Compact. PetroChina is signed on but is obviously in violation. Will there be any enforcement? 40 years ago the framework was concerned with what corporations should do, not what they should do. Now there is a rush to make the case for doing something beyond “do no harm.” He mentioned Aaron Bernstein’s paper, Incorporating Labor and Human Rights Risk Into Investment Decisions. Another good source for such discussions is the Business Ethics Quarterly.
I didn’t think it would be a highlight, but it definitely was. I was only able to attend the Ceres Conference for one day and had thought about heading back to Sacramento, rather than staying for dinner and getting home so late. I’m glad I didn’t. Robert Redford’s conversation with Sally Osberg, CEO of the Skoll Foundation, was great. Redford opened by praising Ceres President Mindy Lubber and the two went on to a wide-ranging conversation. Near the beginning, when Redford made the conversation difficult by giving her a smirk and a one word response, Osberg said she was no Charlie Rose. However, that night at least she could certainly haven given Charlie Rose or Terry Gross a run for their money.
They discussed Redford’s early childhood in an ethnically diverse neighborhood, influences on his life, the importance of art and storytelling, politics, and, of course, the environment, among many topics. I was only a couple of tables back, so it was like being in a living room. I knew something of Redford’s leadership on environmental issues but was surprised to learn that his involvement in global warming issues went back to 1985 when he was already discussing the topic with world leaders, including representatives of the Soviet Academy of Sciences. He invited the Soviets to come to the Sundance Institute in 1989 for a 3 day conference and sent an agreement to George Bush, the senior. Unfortunately for us all, it went no where. Maybe his timing was just bad. Sixteen years later, Al Gore’s film had more immediate impact but I’m afraid much of Florida will be under water before we turn the corner. During a later exchange with the audience, it was clear that Redford’s small steps helped pave the way for awareness on several issues.
In getting together a diverse group, from Native Americans to bankers, to discuss the future of electric utilities and global warming, he deemed the meeting a success if upon leaving everyone could agree on something. That’s a good negotiating position from a guy who never gives up. How does he keep going? Make it personal, can do attitude, T. S. Elliot’s “For us, there is there’s only the trying.” You don’t always lose.
One of many stories I could relate to came up when asked about mentors. No, he didn’t name an older actor or director but a grade school teacher. He was doodling in class. When the teacher made Redford show the class what he was drawing (Indians driven over a cliff, chased by cowboys, chased by bombers… WWII was alive in his head… but with a Western motif). He thought his life would be over or that at least he’d be punished. Instead, she asked him to show his drawings or tell his stories once a week.
I was constantly getting in trouble in school. I refused to read the Bible, pledge allegiance, trace drawings out of a book, memorize valence numbers that could easily be looked up on a table, etc. When I challenged a teacher’s assertion that China had the second largest land mass, I was paddled. Each infraction led to a flunking grade or other punishment until I moved to another community (one where I wasn’t likely to meet Richard Nixon while playing kickball in front of a friends house). There, I was assigned to memorize the prologue to the Canterbury Tales in old English. Instead of flunking the course, like I had so many others, the teacher gave me an A on my essay explaining why I thought the assignment was a waste of time. Like Redford, I learned something about the power of positive reinforcement and I found a positive outlet for expression.
He also told how, as part of a publicity campaign for The Candidate, he was doing a whistle-stop tour and was attracting more
audiences than real candidates like George McGovern and “Scoop” Jackson, confirming the movie’s point that people are more drawn to appearances than substance. Making a film about it was fine but he seemed rather uncomfortable living it, if only for a short time. At that point, Redford read an obscure item in the back of the Washington Post about the Watergate break-in. He asked reporters why they weren’t up in Washington covering that much more important story. They said it was too political. Nixon was going to get reelected. If they covered something like Watergate, they’d lose access.
He quit the whistle-stop tour in disgust but that Watergate item kept festering in his mind, until he learned that Woodward and Bernstein were very different from each other (Republican and Democrat, working styles, etc.). Then he knew he wanted to make the movie… and this was long before the story was picked up by the New York Times. He then related a series of attempted contacts, mostly with Woodward, as I recall. Woodward didn’t believe it was Redford who was trying to contact him. Even after they met in person, Redford kept getting put off because Woodward assumed his own phone was tapped and that he was under constant surveillance. But Redford persisted, a trait I really began to admire in him over the course of this conversation. Eventually, Redford got the film rights before the book was written.
I had long respected Robert Redford for his many films, especially those he produced and directed. However, this interview gave me a much greater apprec way iation for how “stars” can help shape events and policies. “Words are just words without action,” said the consummate actor.
It was the perfect to end my day at the Ceres conference… reconnecting with friends, making new friends and contacts, getting ideas and inspiration. I couldn’t help feel a bit for friends like Peter Kinder who had to spend far too much time in the exhibit hall… but then Peter is already so well connected and inspired.
OK, let’s get out there and hustle for more democratic corporate governance and a more saluberious environment. Maybe I’ll see you at Ceres 21 next year, if not before.