Let’s just label these notes as “for entertainment purposes only.” Attending the conference was a real pleasure. Unfortunately, I was too busy catching up with people to take more than impressionistic notes at a few of the discussions. Prepare to be frightened about global climate change and our irresponsibly slow pace addressing the catastrophic consequences we are already beginning to see all around us. Save April 30 and May 1 for Ceres Conference 2014 in Boston.
Anne Stausboll, the CEO of CalPERS and co-chair of the Ceres Board, provided some opening remarks. Ceres is the nation’s largest coalition of investors, environmental groups and nonprofit organizations working with companies to address sustainability challenges such as global climate change.
People are starting to connect the dots and the need for a more sustainable economy. Sustainability is being designed into the economic system with more recent focus on global supply chains. CalPERS certainly has a long-range, muti-generational view.
Company engagement: good governance demands environmental and social issues be considered. CalPERS regularly engages. She gave examples, such as BP, where engagement led to enhanced drilling standards and a new audit function. She also discussed engagement at Massey Energy and Chesapeake Energy, as well as briefly mentioning the Sustainability & Finance Symposium, which CalPERS is holding in partnership with the UC Davis Graduate School of Management on Friday June 7, 2013. I certainly will be attending that event to hear reports from a group of extraordinary researchers.
Stausboll also brought up the Global Reporting Initiative, used by 300,000 companies. CalPERS spends significant effort conducting due diligence and supports integrated reporting. “What gets measured gets managed.”
Stock Exchanges. Require disclosure through model listing standards of sustainability reporting. October to be presented to world federation of exchanges. Exciting project. I wonder if that’s related to the work of the Sustainability Accounting Standards Board?
Policy front. Bicep brought dozens of companies to Washington to tackle climate change. Climatedeclaration.us to see signatories. We then heard something from the companies who have already signed on, very positive. BICEP: Business for Innovative Climate and Energy Policy. Great to see GM among early endorsers.
Sally Osberg, CEO of the Skoll Foundation, Interviews Dan Hesse, CEO of Sprint
Sally Osberg of the Skoll Foundation interviewed Dan Hesse of Sprint. Interesting personal history helped shape Dan Hesse into the person he is. From Depression Era parents to the experience of Ernest Shackleton bringing back his Arctic explorers… keeping hope alive. Big poster (ad) was a part of how Shackleton got the right people to sign up.
Officers wanted for hazardous journey. Small Wages. Bitter cold. Long months of complete darkness. Constant danger. Safe return doubtful. Honour and recognition in case of success.
Dan originally went to AT&T because of its inventiveness and creativity. There is nothing that can have a bigger impact on society than running a large public company. Employees, shareholders, suppliers, community, customers. Doing things the right way drives him.
No industry has had more profound impact on change than the telecom industry. 7 billion mobile subscribers by next year… more than the number of people on the planet. Wireless solutions for buying, driving, healthcare and more. Mobile to mobile expected to be a $20B market. By 2015 80% of cars will be connected. Traffic, parking solutions will boost fuel efficiency. Traffic lights are now being connected to the internet. Healthcare FDA approved app on smartphone linked to skin patch and pill, which tells the doctor how the pill is working. Combating distracted driving (23x accident rate) Certain Sprint phone shuts down at over 10 miles an hour. Relay service provider for hard of hearing. Completed over 2 billion relay minutes. Ewaste electronic stewardship program. 1st in sustainability products. ULE standards to end of life. ULE Platinum. First to launch a buy-back program. Sprint is rated industries best. 3% solution by boosting energy efficiencies. Expanding use of LEDs, reflective roofing, etc.
Sally – Break the mindset of short-termism. Mentioned Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NF, which knocks maximizing shareholder value.
Need market signals that reinforce green as profitable. Dan – CTIA set sustainability and addressing distracted driving as goals for members. Looking at solar and hydrogen fuel cells. Returns from a business perspective. Paper costs, water usage… we’re getting a break even return by doing the right thing but it is also helping the brand. Younger generations are more focused on these issues. Disability standards. Now applying to seniors. Father turning 92… if he could be connected, he could add so much with his experience and insights in crowd-sourcing. Twenty-five years out. How well will we be doing? Maybe we’ll be communicating by three-dimensional hologram not text message.
Behind the Curtain: Investor Strategies for Private Engagement With Companies
Leading investors are rapidly ramping up programs to engage with companies on ESG related risks and opportunities. Much of this important work goes unnoticed because it is conducted privately. How do investors decide to use private rather than public means of engagement? How do investors choose companies for these closed-door dialogues? Most importantly, how are these dialogues influencing investment decisions as well as company practices? We had a lively conversation that addressed these critical questions and more.
Steven Heim, Director of Environmental, Social & Governance Research & Advocacy, Boston Common Asset Management (moderator) Both public and private engagement. Evolved to be more collaborative. 2003 proposal at Apache got 37% vote. Reached agreement with company on climate change. Has had annual meetings with them on various issues leading up to how to deal with fracking. Industry and community activists are often in different worlds. Sarah B. Teslik proposed an investor workshop.
All Q&A based. Direct conversation. Great dialogue. Key need for performance indicators to measure good v bad companies. They’ve had a series of investor meetings with Chevron, Occidental (perhaps others?) on how to build a well correctly. Key performance indicators developed into a draft report on what KPIs should include. Extracting the Facts: An Investor Guide to Disclosing Risks by the Interfaith Center on Corporate Responsibility and the Investor Environmental Health Network.
Anne Simpson, Senior Portfolio Manager, Investments, Head of Corporate Governance, California Public Employees’ Retirement System (CalPERS) Traders v owners. Bulk of pension fund is managed internally. 400 investment staff. New approach. Corporate governance was a unit looking at governance and proxy voting, as well as environmental and social issues (diversity). Took all the strands towards sustainable investment. Global governance team functions right across the portfolio, including fixed income.
Chesapeake, worked with Michael Garland of NYC pensions (video). Concerned with fracking. When companies are in trouble financially, often board is not functioning properly on other issues as well. All company engagements built around old-fashioned economics. Financial, human, and physical capital. Interplay of all three forms can lead to long-term value creation. Better than just talking about pay, independence. What are the long-term drivers of this company? We’ve been able to team with other long-term owners to address issues over a 3-5 year period.
Noise in market from traders can be a distraction. Important that conversation be confidential. Only public when other means exhausted. Focus on companies in trouble: financial, governance weakness, three forms of capital. Data for 10 years. Going though a “governance makeover” now yielding excess returns (over-performing). There is a significant return to CalPERS from engagement. Took on majority voting as one of the fundamental governance issues. Different conversation if share price has gone through the floor. “Corporate therapy,” rather than engagement. We need companies to thrive. We go in with questions, not wagging our finger. CalPERS is a strong supporter of proxy access. Investor in whole market. Majority voting is building up. Peggy Foran invented the first director resignation policy.
Chad Spitler, Managing Director, Corporate Governance and Responsible Investment. BlackRock Internal service provider to BlackRock funds and segments. Works in different way with various teams. Over time, BlackRock has shifted emphasis from merely proxy voting to corporate governance to sustainability/responsible investment. Still in a governance model. Quality companies with good governance. Still, proxy voting is a big piece. As far as he knows, they have never filed a shareholder resolution but he could see them doing that at some point. Shift is happening on a daily basis.
Engagements are private. Public report on case studies of engagements (I see Shaping Global Governance as a real milestone for BlackRock… very encouraging). Some are quantifiable, such as merger price. Other case studies more about social and environmental. This quarter they are emphasizing director diversity. Other quarters concentrated on other issues, such as water (risk, fracking). Reporting dynamic parallels… we will start to see integrated engagement as fundamental. Importance of ESG. Looking at companies holistically. Tends to engage with companies that have issues. We hold the market. 15,000 issuers. Runs portfolio through analytics and does deep data dives into what appears to be the riskiest companies prior to engagement.
Mary O’Malley, Vice President, Environment and Sustainability, Prudential Financial. Feels like she has a horizontal function in a vertical world. Takes isolated efforts to build a more cohesive sustainability strategy. Spends time connecting the silos at Prudential. Calvert asked Prudential to create an ongoing mechanism. That led to Mary’s position as chair of the environmental task force.
All negotiations should be in good faith without accusatory tone. More than one voice at the table. One person doesn’t make change. Range of engagement opportunities. Example she discussed was creating a sustainability report… a GRI report. She took it to Ceres and asked how to improve it. They had a private engagement with US Chamber of Commerce, which caused them to significantly cut their financial commitment to the Chamber based on where their money was going. (I’d love to here this from many other companies.) Speaking in plain terms. Encourages small shareowners to participate. Vote and Prudential will plant a tree. Welcome feedback. Planted 400,000 trees. Produces a sustainability report and an annual report.
What’s keeping directors up at night? Anne – worried about hedge fund activism and short-termism. Many face 3-5 year horizons with quarterly pressures. CalPERS ran a full-blown solicitation in support of Apple to address short-term pressures.
Chad – fiduciary duty. Directors seeing transition to more engagement with shareowners directly. Time magazine 100 people of the year. Thinks CalPERS’ campaign to beat David Einhorn back is what got him on the list.
Board oversight on sustainability, is it generally integrated into the company? When to you expect escalation to board? CalPERS views it as a board responsibility. Every board meeting should touch on those issues. Not fans of committees but documented tone at the top, ethics and integrity. Board must articulate its vision. Chad – Board sets the tone and strategy and it must be integrated into strategy – culture – ethos of the company for long-term viability. At Prudential a board committee is charged with ensuring sustainability is built in.
Materiality for engagement? Chad uses data tools to look at materiality but much is based on news events. More broadly, qualitative assessment. Governance risk model (50 G/25 S/25 E). Anne – prefer relevance that will eventually become material. Board should identify performance indicators. Reporting on those and on incentives. Don’t rely on the market to measure. (implication: that will be too late) Provide a connection with financial reporting to allow the market to do a better job.
Role of government in civil society and short-termism? CalPERS hasn’t weighed in on transactions tax. Work collectively to address at broad group of companies. CalPERS wrote to 1000 companies last year to ask how they were addressing Ceres roadmap. Most important is coordinating with other owners.
Governance issue – signing on to PRI but companies not doing what they say they will. It is not what you say; it is what you do. PRI has had a huge overhaul. Changes in reporting methodology, trying to target those who sign but do little.
What is the stick that lends gravity to conversation, especially if you can’t exit? The vote is important. Apple took two years. 70% in favor the first year; 80% second. Relationship with shareowners is important. Chad- we get access because of the vote. Collaborative engagement is a way for smaller investors to pool with others through Ceres, Investor Environmental Health Network and other organizations. (I would add Sharegate.com to that list. They’re just getting started but should begin to have a real impact as soon as next year.)
Not communicating the successes of engagement behind the curtain. How do we better communicate? CalPERS published Towards Sustainable Investment. We need to be accountable to our members. Now you can see disclosure of how CalPERS addresses various issues. We are starting off quietly but will be following through. Chad – reporting piece is one of the principles of PRI. We’ve had evolution in reporting. About Blackrock (proxy voting, 2012 responsible investment report of case studies — doesn’t name names but you might be able to figure out… we don’t want to cut off dialogue). CalPERS – Anne mentioned a letter from an issuer hoping CalPERS will divest.
What tools do you use? Anne – We buy everything from third party sources. We buy the analysis but make our own judgment. Combination of sources. Multiplicity of sources. Chad – similar for us. We don’t tend to directly engage with third parties re specific companies, except during proxy season.
Bavaria Award Ceremony
- Award Presenter: Will Lana, CFA, Senior Vice President of Trillium Asset Management presented the award to Phil Angelides. Created green wave initiative. Made the sleepy Treasurers Office a dynamic powerhouse. Financial Inquiry Commission’s report made the NYTimes best sellers list. Board member of BlueGreen Alliance. Planning smart growth communities. Idea that business can be deployed in positive ways. Never before such a sense of urgency with global climate change. Important to go to scale. Create an economy based on sustainability. Passion is to marry capital, business and public purpose. Not a new idea. 5th century Pericles said, “Wealth to us is not mere material for vain glory but an opportunity for achievement.”
Plenary Panel: Investment Strategies for a Low-Carbon Future
Long before Superstorm Sandy, investors recognized that environmental and climate-related risks are deeply embedded in their portfolios and the broader economy. What strategies are investors using to protect their portfolios both in the short term and the long term? What is impeding a faster transition to cleaner energy? This plenary brings together investment and environmental visionaries to discuss critical strategies – from direct company engagement, to climate policy advocacy, to reconsidering fossil fuel investments – that investors can use to accelerate a clean energy future and avoid a catastrophic climate cliff.
- Jack Ehnes, Chief Executive Officer, California State Teachers’ Retirement System (moderator)
- David Blood, Co-Founder & Senior Partner, Generation Investment Management LLP
- Bill McKibben, President, Co-Founder, 350.org
Yearning to look more closely at risk after the financial crisis, Bob Massie brought Bill McKibben into his work. On vanguard of divestment movement by students. Lost 80% of the summer sea ice. Pacific is 30% more acidic than 40 years ago. Atmosphere is 5% wetter. Insurance industry is sounding the alert. Each degree cuts grain yields by 10%. What will our planet look like when temperatures go up 2-3 degrees? We’re now out of the Holocene Age into what?
Political will is critical. Can we break the power of the fossil fuel industry to plan our future.
Think about the bets we make based on far less information. Largest computer models ever experienced have confirmed our plunge to disaster. Hold up a picture of the earth taken by Neil Armstrong and today. Like me there is a lot less white on top. The photo on right only goes to 2007; it is much worse now)
How has your thinking changed? When I wrote The End of Nature, I was 27. I thought people would read my book and change. I thought change would be based on reason. Nothing happened. We need movements. Building movements.
Carbon Tracker put out numbers. Wrote a piece for Rolling Stone. (Global Warming’s Terrifying New Math) It got twice as many “likes” as the cover story on Justin Beaver. One degree melted the Arctic. Now, Carbon dioxide emissions rise to 2.4 million pounds per second.
According to SEC filings, we have 28 hundred gigatons of fossil fuel in reserves, waiting to be burned. Exxon alone has 7% of what it takes to tank the planet and take us past 2 degrees. And they are incredibly adept at politics. If you hold these companies, you’re making a bet these companies will make sure nothing will happen. You’re helping to fund. Hence the rise of the divestment campaign. See Fossil Free: A Campus Guide to Fossil Fuel Divestment.
David Blood – Short-termism not good for capital investment, deployment. Invest in long-term because not a lot doing it and it is best practice. The business case can be made because investing for the long-term is a form of risk mitigation, reducing our environmental footprint, lowering employee turnover, and lowering the cost of capital. Companies that drive solutions can drive ultimate profitability. Move capital markets for the more sustainable.
We don’t have another 10-30 years to wait. We must accelerate investors. Alignment of long-term investors with sustainable world. Finer eye for what is a green company. Engage? 40 companies, 16 in climate solutions portfolio. Look for great businesses to invest in. Hasn’t chosen to invest in bad businesses to make them better. Engaging with businesses directly, if necessary, publicly.
Bill – Interest groups. Realization is there with public. 75% agree global climate change is a real problem. 80% of US counties have had a federal disaster. Something is wrong; that’s widely recognized. Business community well ahead of the curve to make it an issue. Trouble is, though many are willing to look at their own practices, they have left politics to the fossil fuel companies. “We’ve got other priorities.”
There are two groups of companies. Those you can change and shift through engagement; those that are unreachable. Exxon is looking for more hydrocarbons even though we have more than 5 times enough to bring the planet to ruin. Fossil fuel companies can’t shift because the industry itself if the problem. (Couldn’t they use their current profits and reserves to transition to producing/distributing sustainable energy?)
Fight over Keystone pipeline connecting to 2nd largest pool and dirtiest source. You’d think having climatologists recommend against it would be enough. Congress has taken four votes. If you know how much money a Congressman has taken, you know how they voted. Fossil fuel continues to be the only industry that doesn’t have to pay for its own waste.
Germany the only example of a non-Scandinadian country moving toward renewable energy. Most places much different.
David. Investors outside America are ahead of us. We have not effectively made the business case. Wrote a white paper 5 months ago. We are seeing initiatives come to fruition. Carbon bubble… whether reserves can be burned or not. Market is saying there won’t be a price on carbon anytime soon… fast enough to make a difference. That is misguided because of $40-50T of asset owners. If we underweight Exxon, we will loose over the next 5 years. But it is a mistake to think that over the next 20 years. Who do we want at the table? Not the carbon emitters. Who can you bring to the table to help mobilize the conversation? Transition to a low carbon economy will be the biggest economic change in history. Businesses that get it will be the change. There is an advocacy role for capital markets but we must engage government and society.
Jack – 2/3 of existing reserves can’t be consumed if we are to avoid worst effects of climate change. CalSTRS is passively invested. Our philosophy has always been to engage. We have helped to move small steps forward. Sometimes we approach a company and they want us to divest. There is a lot of capital out there. Capital is not a scarce resource. Will divestment make a difference?
Bill – I’m under no illusions we will bankrupt Exxon. The real point of divestment is to withdraw the social license. After his release, Nelson Mandela went first to UCBerkeley to thank them for pulling money out our of South Africa. Divestment of fossil fuel companies is the fastest growing movement on 340 college campuses. Students are voting to divest; so did the City of Seattle. We’ve spent the last 10 years greening our campus, why shouldn’t we do that with our portfolio? If we can’t do those relatively easy things, how are we going to do make the cultural changes necessary? There really is an environmental movement willing to put it on the line. College students have 70 years ahead of them — watching the temperature rise.
David. Conversation around divestment is positive. Intermediate steps. We’re going to have stranded assets… not just stock portfolios but cities, countries, and agricultural assets. You can run a large portfolio without fossil fuel investments.
What was the shift from GS to this new thinking for sustainability? David explained the truth is he wanted to be a teacher. Volunteered for Peace Corps was rejected. Discussed several other rejections and that he ended up in finance (joke?). Grew up in South America and interested in poverty. Found the link between poverty and climate change compelling.
International Energy Agency coming out with report June 10th on climate change. We have until 2017 when the carbon bubble pops. (We’re cooked.) Keystone principle… stop building new stuff that will lock you in.
Bill – “The arc of the physical universe is short and it bends towards heat.” “God’s Taunt” – Bill McKibben’s Sermon on Job 38: 1-11 and Matthew 19: 16-22 from Sunday, April 28, 2013.
SUSTAINABLE TRANSPORTATION: THE FUTURE OF URBAN MOBILITY
By 2030, it’s estimated that more than 60% of the world’s population will live in urban areas, many in mega-cities. More sustainable and efficient modes of transportation will be required to accommodate this new urban reality. Yet urban transportation remains mired in decades-old technologies and crumbling infrastructure that creates more pollution and congestion. What will it take to pave a path toward more efficient transport and better urban infrastructure? This panel brought together academic, business, government and NGO voices to explore this critical question and lay out a roadmap for creating a fully integrated transportation system.
- Carol Lee Rawn, Director, Transportation Program, Ceres (moderator)
- Mike Robinson, Vice President for Environment, Energy and Safety Policy, General Motors
- Dan Sperling, Professor and Director, University of California, Davis
- Amanda Eaken, Deputy Director, Sustainable Communities, Natural Resources Defense Council
Codified sprawl. System as a whole is inefficient. Have to integrate land use and vehicles. SB 375 in CA gave ARB authority to create targets for regions. Strategies in San Diego, Sacramento and some others are in place. There’s a dramatic focus on public transportation, where you put jobs and housing near BART and other stations. Walking is emphasized. Public health organizations are coming out more and more for walking and biking. New growth will be in walkable communities served by transit. We need transportation demand management by exposing drivers to the true costs of driving but that would be very unpopular. Regional targets advisory committee. We need more talk about smart phone ride sharing. Now arisen as huge. 80% of seats in cars are unused. We don’t have a capacity problem; we have a problem linking people up. Plateau of car ownership among young people. Technology enabled ride-sharing.
Our transportation carbon footprint is larger than any country’s whole footprint, except China. GM EN-V Autonomous System.
Low carbon fuel standards provides something of low hanging fruit. Combines performance and market based approach. Dan thinks even a large carbon tax won’t get us there. We need a comprehensive national energy policy with all the stakeholders at the table. Politicians react to pressure. We should leverage our existing investments. Stop making new roads. Prioritize sustainable maintenance. An investments over $50M now in Bay Area must meet 10 targets. We need to ask: Do projects move us forward? State spends $27 billion a year. They should do the same. Put a climate frame on transportation investments.
Cities are the ideal incubators. Keystone pipeline should be “offset.” Performance standards in SB 375 for cities and regions. In OECD countries there has been a flattening of car ownership and use. In California, car ownership is heading down. Reduce infrastructure costs, making more livable. Portland per household per vehicle miles driven is 20% less. Translates to more money spent locally by green dividend. We only induce demand by expanding roads. Poll of LA region voters. Transit 1, walkable 2, several others… widening roads was last.
What is working is building next to transit. We are evolving. Baby boomers and millennials are coming together to where we can walk to shows, restaurants, etc. Low carbon energy, lighter weight vehicles. Our common enemy is cheap fossil fuel. There is a direct correlation between the price of fuel and miles driven.
Where is technology regarding electric and autonomous vehicles? Technology has accelerated faster than regulations. States are moving faster than the federal government. “Mechanical standards are being applied to a digital world.” Every OEM is doing things with Google. Have to do the same with policy makers and planners. Have to think how it is going to work on the ground… look at the Segway. On paper it looked revolutionary.
Focus on organizations and people capable of leading. Avoid like the plague working on Capital Hill because it is no-value added at this point. Mass organizations can move the game. Change in relationship to NGOs. Can’t let the perfect get in the way of the good. We’re making many decisions on energy policy but, unfortunately, it is all done in a very fragmented way. Need to connect up. GM testified in favor of tier three EPA standards.
Relentless search for common ground. Even the building industry supported SB 375. While it strengthened the move toward transit-oriented communities, it also eased up on CEQA requirements in heavily populated areas.