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green@work : Magazine : Back Issues : July/Aug 2002 : Happenings

Happenings

The Next Big Thing
CERES’ newest project aims to inject sustainability into the DNA of corporate governance.


By Penny S. Bonda, FASID


Attending a CERES conference is an exercise in hope. One comes away truly believing that those who have the power to make significant contributions toward sustainability will actually do so. The audience is filled with environmental activists and representatives from some of the world’s most influential businesses and investment groups. On the table tops, position papers from organizations such as General Motors, Nike, Conservation International and Fleet Boston Financial outlined their commitments. CERES itself consistently introduces exciting new initiatives or, perhaps, reports on the successes of prior activities.

The CERES 2002 Conference—The Future of Wealth on Earth—met expectations and then some. Yes, the ice cream break featuring Ben & Jerry’s new flavor, “One Sweet Whirled,” was a welcome change from the usual oversized cookies, but it was the plenary sessions that added extra flavor to this year’s event. Robert Massie, CERES executive director, served up the biggest treat. Expecting the usual recitation of his organization’s plans and achievements, Massie instead delivered a powerful, emotional speech that obviously reflected CERES future direction as well as his own personal passion.

The path the organization will take is grounded in its roots as articulated by Massie. “Our enduring premise, as a coalition of investor and environmentalists, is that the key to the long-term health and prosperity of any company and of the planet will depend on the integration of sustainability issues into the core strategy of a company.” In studying this issue Massie said, CERES realized that, “the sustainability movement and the corporate governance movement have been moving for many years along parallel tracks. In the past few years, the tracks have started converging outside the U.S., as more investors and more corporate boards have begun to shift to the idea that there are different kinds of capital—financial capital, human capital and natural capital—and the successful management of a firm requires that these be balanced.”

What’s been missing is a catalyst to bring about this convergence in the U.S., he continued, as he announced CERES’ program shift to its “next big thing,” the Sustainable Governance Project. Defined by Massie as “a comprehensive, long-term, coalition-driven effort to induce the boards of directors of U.S. companies to integrate sustainability into corporate strategy at the highest levels, the Sustainable Governance Project is intended to inject sustainability into the DNA of corporate governance.”

Massie himself raised doubts about why businesses would consider embracing such a concept and asked them to begin looking at “the inexorable, inconvenient, pervasive, disturbing, potentially cataclysmic problem of climate change.” Dropping his usual reticence and confronting the audience with a hard-hitting, poignant and compelling narrative, he convincingly sold both the problem and the project. (See “The Judgement of the Future.”)

EPA Administrator Christine Todd Whitman gave her presentation to the conference before Massie’s speech, putting forth the party line as she described her agency’s attempts for preventing or reducing greenhouse gas emissions. The audience’s tepid applause reflected its response, as opposed to the prolonged standing ovation for Massie.

Other speakers fared better, especially U.S. Senator John Kerry, who Massie described as the “quintessential citizen.” Outlining the four principles contained in his view of energy policy, Kerry gave the audience a glimpse of his potential run for the presidency in 2004. Do nothing that does not make political sense, he said. Preserve the American quality of life. Acknowledge that our dependence on fossil fuels is contingent on the choices that we make, and recognize that in the near-term, most of our gains will come from current technologies.

Gretchen Daly, an author and ecologist from Stanford University, closed the conference with the reminder that man is influencing the future course of all evolution. “However, getting it right,” she said, “doesn’t require big breakthroughs.” What is needed is clear—organizations like CERES exercising leadership, providing forums and, mostly, offering hope.


The Judgement of the Future

The following text was excerpted from a speech by Robert Massie, executive director, CERES, to the annual CERES Conference.

A nation as powerful and privileged as ours should be characterized by maturity commensurate with that power and privilege. A key aspect of maturity is the ability to face the truth, even if it is unpleasant, and then to act, without denying responsibility, without wasting time on blame, but with the knowledge that any delay may further compound the problem.

I don’t believe that anybody, particularly anyone who is gazing at America from abroad, has been astonished by our maturity and courage on this issue. Americans used to be known for our can-do spirit, for our willingness to tackle huge projects and problems with a unique combination of vision and practicality.

But now, to much of the world, Americans look more like children who have stuck their fingers in their ears and started humming rather than hear unpleasant truths. Sometimes we Americans look like ostriches who prefer to stick our heads in a hole, where our vision can be confined to a small, comforting space that will confirm our prejudices.

So let’s consider, for a moment, what we have been ignoring. We might be able to argue that if a portion of Antarctica the size of Rhode Island explodes into a million shards and disappears, then it is not a problem for us. We might be able to believe that if the snows melt on Kilimanjaro, or in Glacier National Park, then it is not a problem for us.

We might be able to argue that it doesn’t matter if the weather warms in California, if it increases wetness in winter, and dryness in summer, thus increasing the number of fires, the speed of deforestation, the salinity of the bays in which new marine life breeds. We might suggest that a drop in the water table and an increase in water scarcity will not affect California’s contributions to America’s dinner table, even though, right now, this year’s bizarre winter weather forced the price of lettuce to quadruple from $15 to $60 a case. We might make ourselves believe that the revenues or assets of companies that depend on long, slow growing crops like nuts or fruits will not be affected, or that the entire California wine industry, grown from grapes that depend on a very precise long-term climate, are not at serious risk.

We might tell ourselves that it is not a problem if the seas rise 12 to 30 inches, even though human beings are a littoral species that prefers to live near water or coastlines and whose coastal homes and port cities will be reshaped or obliterated. We can easily spend the $7.8 billion that Congress has allocated to restore the flows and eco-system of the freshwater Everglades, even though most spots and most creatures in the 1.5 million-acre national park are barely above sea level and will be obliterated by salt water as the oceans rise. The economy of Florida is based on tourism, agriculture and real estate, yet its leaders and its investors have not yet seriously considered the impact of climate change.

Let’s move to New England. This past winter, the one that ended three weeks ago, was a little unusual. The normal average snowfall for the season in Boston is 40 inches. The 2001-2002 seasonal snowfall was just above 14 inches—about one third of normal. What does this mean?

All over New England, reservoirs above the land and the aquifers below are decreasing at an alarming rate. One key observation well in the town of Lee, NH, has been completely dry since June. But somehow we may be able to convince ourselves that even if New England’s lakes and streams, reservoirs and aquifers are depleted, the farms, forests, ski slopes, homes, towns and other key economic parts of this region in which 17 million Americans live will remain unaffected.

But even if we persuade ourselves that our economy will be unaffected, there are still more subtle human sadnesses. I have three children: Sam and John and Kate. When Sam and John were younger boys, six or seven years ago, we used to play football snow tag in our backyard in Somerville. But my daughter Kate is only three, and she has only seen snow a few times in her whole life. The one time it snowed this year during the daylight she and my wife, Anne, immediately dashed outside and made a snowman. We took a picture of it and I am glad we did because the little man melted the next day. We live in Boston. Yet for Kate, in Boston, snow is something she reads about in books.

Several months ago I read a wonderful quote, and sadly I have forgotten from whom it came. The quote said, “If something exists in reality, it must be true in theory.” This is a wise adage, but it apparently does not apply in the field of finance. We can see the world changing, but our markets do not reflect it. We know that some element of climate risk is embedded in every company and in every portfolio in the land, but we do not have a tool to measure it.

Each day billions of words and numbers spew out of Wall Street that do not capture the truth. This is not a failure of reality; it is a failure of theory—and of theorists. We need to explore whether we can calculate a climate “beta,” an underlying climate risk coefficient for specific sectors and markets. We need to calculate the value of firms and assets not just with the Capital Asset Pricing Model, but also with a Climate Asset Pricing Model.

But here is where maturity is required, and where, so far, it has been lacking. Climate is under way, whether or not we learn to measure it, whether or not we learn to see, whether or not others stick their fingers in their ears when we speak out.

Climate change is happening. It will affect our economy. It is endangering the future of wealth on earth. It is a fiduciary issue, and the failure to analyze it will, either now or later, either before the effects are irreversible or after, either morally or legally, it will be viewed as a “breach of duty.”

Later we may try to say that we did not see, that we had no idea, that we couldn’t have imagined what would happen, or else of course we would have acted. That feeble defense has been tried in the past by those who chose comfort over conscience. When others have used this excuse to explain their paralysis in the face of catastrophe, we have rightly dismissed it as unpersuasive, unworthy and cowardly. The judgement of the future is now poised over us, dangling like a sword, ready to fall and strike us with our own weak words.

When the world faced the threat of the Y2K problem, a problem whose precise impact was impossible to predict or assess, the SEC became so alarmed about the potential risk to investors that it required every company to spell out their Y2K mitigation plans. According to CNN in November 1999, U.S. businesses and organizations directed at least $114 billion into fixing the Y2K problem in the two years before the millennium. I have seen other estimates that global expenditures on the Y2K problem exceeded $850 billion.

Our capital markets found a way to evaluate Y2K risk, and they calculated political risk and currency risk and many other arcane forms of risk, but they have somehow neglected to examine climate risk. This isn’t an elephant in the living room, it’s a herd of elephants in the living room!

So now, as the water tables drop, as the ice melts, as state birds across the nation relocate permanently away from the states that had proudly claimed them, as diseases spread, as species die, as the sky warms, as the storms grow, as the seas rise, and as the future of all humanity and all species dims, our capital markets grind on and on toward oblivion, spewing the delusion that everything that needs to be known is known and that everything that needs to be considered has been considered and that everything that needs to be done will be done.

I want to appeal especially to everyone here who works for a company. Some of you are already exercising great leadership and I thank you. I know there are others who feel stymied by the indifference of your senior management or corporate boards. Help us to understand what will open their eyes; what will move them from timidity to boldness.

The Sustainable Governance Project is a device through which the CERES coalition will raise this question of climate risk politely, persistently, pervasively, permanently. We need the advice, the assistance, the support, the maturity, of everyone in this room, and everyone you know, and everyone they know.

Our networks are large, and the number of real decision-makers is small, and we need to find a way to communicate the concerns of the one to the other. Our power is immense if we have the will and the wisdom to use it. And use it we must, or God help us from the judgment of the future when upon us it falls.

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