You raise a question that has intrigued me since CERES' meeting in Boston in April 2005. The CERES conference -- titled "Building Equity, Reducing Risk" -- spent a considerable amount of time on the issues of corporate disclosure of GHG risk and on shareholder efforts to influence corporate behavior.

But CERES' meeting was by no means the beginning of the interest on this issue; rather, it represents a sign that public and shareholder concerns regarding corporate GHG action are increasing and that shareholders are themselves beginning to take action. Many companies have responded to shareholder and public pressure to disclose their GHG emissions and their potential GHG risk under future regulation. Many of these disclosures come across as conservative (i.e., coming up with too low a risk estimate), but the companies have at least gone through process of arriving at an estimate.

But what about going beyond disclosure? Will companies actually adopt climate risk management strategies, or will they take shelter behind very conservative risk estimates? Moving from "disclosure" to "action" can be a big jump - and one that is more difficult and more expensive than disclosure itself.

It's not clear to me that shareholder-based climate change efforts are successfully grappling with this dilemma. At the CERES conference, speakers in what were billed as "climate investor side events" said that they are pushing companies to take a long-term view. Pension fund representatives noted that their long-term investment outlook is decadal, rather than the 2-3 quarters that pass for “long-term” investing on Wall Street.

On the surface, this anecdotal evidence sounds encouraging. But what does it really mean? Are pension funds are willing to accept lower return in the near-term (say the next 10 years) in favor of climate risk management strategies that enhance returns over the long-term (say 20-30 years out)? I could not find a single person who thought that this is what “climate investor” groups are actually suggesting. If that's not it, then it sounds like they’re asking for a free lunch - namely, the same returns as everyone else today and higher returns in the future. If this is true, I’m skeptical, given the TANSTAAFL principle (There Ain’t No Such Thing as a Free Lunch).

This isn’t to say that companies can’t position themselves for climate change risk at reasonable cost and come out ahead. I’m convinced they can. But it will take more than a “checklist approach” to climate risk management to achieve this outcome.

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Dr. Mark C. Trexler has more than 25 years of energy and environmental experience, and has focused on global climate change since joining the World Resources Institute in 1988. He is now president of Trexler Climate + Energy Services, which provides strategic, market, and project services to clients around the world.

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