Climate change - Shareholders act to cut emissions.

(From Financial Director)

Notwithstanding the uncertain fate of the Kyoto Protocol, climate change regulations continue to take shape around the globe, even in countries that have not ratified it. There is recognition within business and insurance communities that business value may be affected by the costs and effects of climate change.

According to a paper by Robert Wyman, a partner at law firm Latham & Watkins, the emergence of these risks has not gone unnoticed by shareholder activists, many of whom are urging greater corporate disclosure regarding the magnitude of such risks and regarding their company's risk management strategies. He says that prudent corporate managers will address these developments, and implement appropriate disclosure and risk management strategies. Some activists have argued that failure to do so could be a breach of duty of care.

Shareholder activities

2003 was a watershed year for shareholder resolutions related to climate change. According to Wyman, shareholders filed 30 resolutions against 27 companies during the year. Several of these garnered significant support.

For example, at American Electric Power, the largest US generator of coal-fired power, a shareholder resolution urging the company to take action to reduce greenhouse gas (GHG) emissions received 27% support. Other companies saw similar support: ChevronTexaco 32%; ExxonMobil 21%; GE 23%; Southern Company 23%; TXU 24%. While even the passage of such a resolution would not compel management action, the level of support for the resolutions has management's attention.

2004 promises to continue the trend in shareholder activism on the climate change issue. According to CERES, a coalition of US investment funds, environmental organisations and public interest groups, and a major force behind the groundswell of investor activity, shareholders filing climate change resolutions represent more than $250bn in assets.