Foundations Must Pressure Companies on Climate Change

To the Editor:

Investors worldwide, including foundations, have lost hundreds of billions of dollars in the financial meltdown. Financial managers and Wall Street experts grossly underpriced the risk of volatile subprime investments. Many of these same managers assured us the party would last forever. The party never lasts forever; there is always a bill to pay. The next one is already looming on the horizon, and it could make the recent stock-market tumble look tame in comparison. It is the bill for climate change.

For far too long, a surprising number of foundations have ignored the environmental impacts associated with the companies in which they invest, instead focusing on quarterly earnings reports and short-term stock prices. Too many of those companies, in turn, have ignored the plain truth that the unchecked release of global-warming pollution into the atmosphere will have severe economic impacts worldwide. Like the bloated mortgage frenzy, climate change will ripple across much of society, potentially hurting many along the way.

Foundations and other large investors now have the opportunity to show we have learned that closing our eyes to long-term problems does not work. Through actions such as investing in companies working to address climate change, or filing shareholder resolutions asking companies to set goals for reducing greenhouse-gas emissions, or providing more information on their climate-change strategies, foundations have the ability to help steer corporate behavior toward a more sustainable course for both the environment and long-term shareholder value. We can do so with the leverage of our investments — more than $600-billion, at least before the recent stock-market fall.

Foundation leaders will meet next week in New York City to hear Al Gore urge them to take control of this lever to encourage financially sound, environmentally beneficial decisions by companies myopically focused on short-term performance.

Many institutional investors are already doing this. Ceres, a Boston nonprofit group, has organized 70 investors with $7-trillion in assets — including the nation’s largest pension funds and asset managers — to push companies, Wall Street firms, and policy makers on climate as an investment issue.

Foundations should join this investor movement and assert authority over their asset financial managers, who missed the hidden risks of subprime mortgages.

They should consider becoming signatories of organizations like the United Nations Principles for Responsible Investment and the Investor Network on Climate Risk. They should set proxy-voting guidelines for their portfolios to encourage due diligence in analyzing the financial impacts of a company’s approach to climate change. They should propose and support shareholder resolutions to press companies to account for the climate implications of business operations. They should write letters to the directors of the companies in which they own shares. And they should join with other investors to demand changes from both the companies they invest in and the Securities and Exchange Commission, which should be urged to require companies to include information on material risks associated with climate change in their financial filings.

Such persuasion works. According to the Foundation Center, the top 50 foundations in the country control more than $200-billion — clout that companies and Wall Street cannot ignore.

Here at the Cummings Foundation, we submitted a shareholder resolution on energy efficiency at four consecutive annual meetings of a major U.S. homebuilder. For several years the company resisted our requests. But as support for such resolutions grew steadily, the company reversed itself and announced a goal to build homes in 2009 that are up to 22 percent more energy efficient than comparable homes built to the most commonly used code.

It is clear that how foundations and other investors approach the problem of climate change will be pivotal in determining our success or failure. Climate-related risks are now embedded in every investment portfolio. Companies and their shareholders face expensive surprises if they do not account for future carbon costs, new regulations, litigation for inaction, and the risks from more storms, rising sea levels, wildfires, and water shortages.

Climate change will surely bring vast changes in the transition to a society that is not based on burning carbon. It will require dramatic increases in research and development, recruitment and training of a new green corps of workers, and a flurry of innovation and new infrastructure.

These changes bring tremendous business opportunities in cleaner technologies and products. By asking companies for information about their approach to climate change and persuading them to establish clear climate goals, foundations can maximize their own returns while doing the right thing. The companies that haven’t learned that a long-term view is necessary will not survive. Foundations that ignore the same lessons will potentially wither with them.

Lance E. Lindblom
President
Nathan Cummings Foundation
New York