By Carol Pierson Holding
While the EU charges ahead with carbon trading, stricter environmental laws and better enforcement, we here in America hang our heads in shame. Our Federal government is in environmental denial and the media cries Cassandra. Al Gore goes to a highly-publicized meeting with President Obama to lobby for climate change mitigation, while Obama has still not honored his promise to reinstall solar panels on the White House roof. Businesses beg for definitive rulings on issues such as carbon pricing and environmental social governance (ESG) reporting requirements, while the legislature clamors (successfully) “drill baby drill” and accuses environmentalists of favoring spotted owls over jobs. Our leaders’ attitude seems to be climate change has to wait until the economy has turned around.
But civil servants are having remarkable success. In living up to their duty to protect the health and wealth of U.S. citizens, the EPA and the SEC are remarkably focused, even strident, about green. In fact, the EPA has had a number of amazing wins.
Last year, the EPA required that companies report their greenhouse gas emissions (GHG) data. The reporting deadline has been extended to September 30, 2011, but the agency is clearly going to enforce the requirement. The funny thing was that the US Senate, showing unfettered support for business, attempted to stop the EPA from regulating GHG. But investors, the ultimate owners of the businesses lobbying for Senate action, blocked their efforts. In the end, the issue went to the Supreme Court, where the EPA finally won.
Then the EPA brought transparency to chemicals deemed harmful in more than 100 health and safety studies that industry had claimed were "confidential,” releasing these studies to the public. Another example: the EPA is limiting releases of heavy metals and tightening controls on sulphur, nitrogen oxides and particulate matter emissions from electricity generators.
These are all meaningful changes. But equally important are the SEC’s moves to incorporate CSR factors into financial reports. Fortunately for the environment, capitalism operates through the grace of consumers, whose first priority will always be the health of their families, and investors, who need full information about both return and risk. The SEC’s responsibility is to protect investors by reducing their risk, including environmental risks from potential EPA fines and liability from harm caused.
That’s why last year, the SEC clarified what publicly-traded companies need to disclose to investors in terms of climate-related ‘material’ effects on business operations, both positive and negative. The lack of specific guidance until now has resulted in weak and inconsistent climate-related disclosure by public companies. Leading investors, managers of over $1 trillion in assets, demanded full corporate disclosure, in 2007, 2008 and 2009, and finally got results in 2010.
It’s a wonderfully self-reinforcing cycle between government, business and investors. The EPA institutes regulations at the request of businesses wanting to limit their uncertainty, then measures performance and collects fines to punish any offenders. The SEC, pushed by investors, recognizes that fines and liability suits that often follow an EPA ruling constitute material risk to investors and requires that financial reports include data on environmental risks. Once the rules are in place, American financial analysts quantify and integrate this into investment analysis. Financial markets then demand clearer targets and better enforcement information.
And where investment leads, policy, even in the U.S. Congress, should follow.
Carol Pierson Holding is a writer and an environmentalist; her articles on CSR can be found on her website.