Let’s Talk About the Weather
from
Summer 2001
by Sarah Max
Think twice before you get into an elevator with this guy. If it
gets stuck, he’s going to bend your ear. For example, he’s sure to tell
you that if you don’t discuss the climate at your board meetings, you
could get sued.
Robert Kinlock Massie, an Episcopal priest turned corporate activist, imagines what he’d say if he and the heads of four or five companies in different industries were stuck in a stalled elevator. For starters, “I’d talk to them about what it would be like to live permanently in a world like the elevator we were sitting in,” he says—presumably cramped, stuffy, completely dark, and out of cell phone reach.
Massie, 44, is the executive director of the Coalition for Environmentally Responsible Economies (CERES), an umbrella organization of investors, environmentalists, and public-interest groups. It tries to persuade companies in which many of its members hold stakes to endorse a 10-point code of conduct that would ensure a beneficial impact on society. So far, Bank of America, Ford Motor, General Motors, Nike, and some 55 other companies have adopted the CERES code. Ceres, by the way, was the Roman goddess of fertility and agriculture.
Massie spoke with Corporate Board Member ’s Sarah Max.
Given the rocky performance of the stock market, don’t you think that investors are going to be more concerned with a company’s profitability than they are with its stance on the environment? We don’t know. In the short run there may be some loss in momentum, but in the long run—which is what economists and investors like to think about—the issues of environmental degradation, energy usage, water resources, and the use of human capital are all fundamental investment questions.
It’s a very old-fashioned view that you must choose between environmental performance and better returns. Europeans increasingly accept the premise that the way to make money in the stock market is to identify companies that have superior environmental records because that signifies lower risks, smarter technologies, and generally better management.
What have you found that characterizes the best and worst environmental corporate citizens? No matter which industry you pick, the best environ-mental performers are companies that are willing to commit to strong targets, measure their performance, and disclose their results. A serious commitment to transparency and reporting is an excellent sign of a willingness to learn and to improve. The worst performers are always secretive, defensive, and, to be frank, arrogant in their interactions with outsiders.
What role should corporate directors play in making a company more environmentally accountable? Many companies have discovered that careful attention to controlling the use of resources and the production of waste—which is one definition of environmental responsibility—can dramatically lower both costs and risk. As a result, the line between environmental decisions and strategic decisions is disappearing. To speed this process of innovation, directors should create a board-level committee to consider the strategic implications of sustainable development, which means meeting the needs of the present without compromising the ability of future generations to meet theirs. Directors should hold management accountable for steady progress.
If you could get directors to address just one environmental problem, what would it be? Climate change is probably the greatest collective challenge the human race has ever faced, and business is going to have to think through how it addresses this. The changes in some parts of the world—including the United States—will be devastating.
CERES recommends that companies follow the “Global Reporting Initiative.” Tell us about that. Remember that at CERES we focus on reporting, on asking companies to think about, measure, and disclose what they’re doing about their environmental risks. Just asking those questions can have a huge impact. Last year the Ford Motor Co. produced a citizen report, partly under the influence of CERES, that discussed the problems of SUV production, particularly that these vehicles use too much gas. Everyone was shocked that Ford had said the obvious, but now the company is working on improving the fuel economy of its SUVs by 25%. Now GM is doing the same thing. When a company gets its strategy and its public language moving in the direction of action, that is a very good thing. This year Ford and GM are going to be talking about a whole bunch of issues, including climate change.
As CERES has matured, we’ve realized that having a U.S. environmental reporting standard is a big advance. But the real goal is to have agreement among many different groups in many different countries about what forms of reporting—both social and environmental—are appropriate for the global economy. So we are working with the United Nations Environment Programme and others to bring about the Global Reporting Initiative, or GRI.
So GRI is a sort of “generally accepted accounting principles” for the environment and social issues? Absolutely. Your readers know that it took a while to develop GAAP, but that getting clear on definitions enabled the growth and prosperity that capitalism has brought.
Investors want the information that goes into a GRI report so they can benchmark companies against each other. Companies want it so they can answer questions in a way that satisfies more than one interest group at a time. Activist groups want it because they are very suspicious when a company simply releases whatever information it feels like against whatever definition it wants to use.
But why is it necessary for all companies to release extensive environmental reports? Every company, just like every human being, has an impact on the world. This can be through things like energy, paper, or water use, or less obvious factors, such as deciding where to build a corporate campus. It could be in the middle of nowhere, so employees have to drive to work, or near public transportation. It’s just good business practice to think through these issues—not because somebody else wants to know about them, but because you want to know about them.
Suppose I told you that the entire planet was going to change in some fundamental way in 15 to 20 years because of global warming and other climate changes. If you told me that no company boards were talking about this, I would have a hard time understanding how the directors can be fulfilling their fiduciary responsibilities. In fact, some people are beginning to argue that directors who have not undertaken a serious assessment of the impact of climate change on future revenues and asset value may be violating their fiduciary duty. I predict that we will see a wave of new shareholder actions and perhaps even lawsuits making that claim. Unfortunately too many executives and directors are behaving like ostriches, hoping the problem will go away if they ignore it. It won’t.
What are you expecting from Washington in regard to the environment? No matter how you feel about the outcome of the last election, it cannot be interpreted as a mandate to roll back environmental protections. When the 104th Congress tried to make substantial changes to environmental rules in 1995, for example, there was an immediate backlash.
But activists are starting to focus less on the government’s role and more on the policies of individual companies. The implication is that companies that are committed to global leadership in their markets are going to have to pay attention to social and environmental questions whether or not the U.S. government requires them to do so.
Large investors, such as the California Public Employees Retirement Fund and the New York City pension system, are becoming more interested in these issues, and they have a great deal of influence. Customers are also more and more aware of these questions, and we certainly know what happens when a company runs afoul of customer expectations. There are lots of cautionary tales about companies such as Monsanto and Nike that paid a very big price for heedless social and environmental policies.
That said, however, for anyone who has spent time outside the United States, the sight of us backing away from our already weak environmental commitments is depressing. It suggests that, despite our technological, military, and economic strengths, we are not willing to exercise leadership in the world. From the perspective of most other countries, many of the participants of CERES, and even many business leaders, we are sacrificing an opportunity and avoiding a responsibility that goes with our global position. I hope that the Bush administration rethinks its views on that.
What about the administration’s interest in drilling in the Alaskan Wildlife Preserve? Drilling in Alaska would, at best, provide the United States with a six-month supply of oil. Since environmentalist Amory Lovins first described the “soft energy path” in a Foreign Affairs article more than 25 years ago, energy experts have known that improvements in energy efficiency are the key to our energy future.
Someone once said that as a nation, we are like the man with the bathtub that has an open drain. His solution to filling the tub is to build a much bigger water heater and to expand the diameter of his pipes when what he really needs is a small rubber plug. The sudden emphasis on exploration and drilling is an anachronism, driven by short-term political and financial interests rather than sensible economic policy or scientific reality.
