Investors turn up heat over carbon emissions

In the Wells Fargo logo, a stagecoach races in front of a pristine blue sky. Bed Bath & Beyond, meanwhile, is touting the "environmentally friendly" nature of many of the products it sells. And ExxonMobil, in its guiding principles, lists running an "environmentally responsible operation."

But Tuesday, a group of investors put these companies, as well as seven others, on a new "climate watch list," labeling them as laggards in their response to climate change.

This is just one example of how global warming is starting to hit corporate America between its pinstripes. This year at corporate annual meetings, shareholders will present a record 42 resolutions asking for more disclosure of company carbon emissions and potential financial exposure to new regulations. Some companies are finding themselves named as defendants in class-action lawsuits accusing them of heating up the planet. This week, Congress will begin hearings on global warming and is expected to hear from companies such as General Electric and Nucor Steel.

"A lot of people are wondering if [climate change] will be the calamity du jour," says Sam Stovall, director of investment strategy at Standard & Poor's in New York. "It could end up having a very severe impact on economies and fortunes."

Environmental groups maintain that corporate America should begin preparing for some form of restraints on carbon emissions. "Most are betting it will be some form of cap," says Andrew Aulisi, director for US climate policy at the World Resources Institute in Washington. [Editor's note: The original version misnamed Mr. Aulisi's organization.]

Business would be better off getting the new rules defined sooner rather than later, Mr. Aulisi argues. "If I am a power company and I have to spend $10 billion over the next few years to build capacity and I know that over the next five to 10 years there will be some emissions caps, it's better to define the rules now so I have the ability to plan accordingly."

Even before Congress acts with potential legislation, corporate lawyers will be watching a number of class-action lawsuits that have accused companies of causing global warming.

"It's not surprising that some groups would take that approach of class action to address a large issue of public interest," says Chris Murphy, head of the class-action practice group for the law firm McDermott Will & Emery in Chicago.

In fact, boards of directors may face lawsuits from shareholders if they don't start planning for carbon-emission changes, some analysts say. "At some point, there will be shareholders who say, 'You didn't get it when everyone else did, and your stock is down when everyone else's is up,' " says Rodney Taylor, managing director of the environmental services group at Aon, an Chicago-based insurance broker.

Indeed, some investors are trying to push companies to become more active in planning for the issue. Tuesday, Ceres, a Boston-based group that describes itself as investors and environmentalists for sustainable prosperity, named 10 companies that it said were laggards in their industry in terms of either disclosure or planning for climate change. Wells Fargo, Bed Bath & Beyond, and ExxonMobil were on the list.

Many of the companies named by Ceres are in the energy business – some are in the oil sector and others are in coal. Ceres also included a bank, insurance company, and retailer. "Some say, 'Banks are not emitting carbon,' " says Mindy Lubber, president of Ceres, which works with investors with $3.7 trillion total in assets. "But when you look at their project financing, such as providing the funding for coal-fired power plants, and the overall look of their branches in terms of emissions, they have a key role to play."

Wells Fargo strongly disagrees with its inclusion on the list. This past July, the bank announced a 10-point plan to address climate change. Then, in October, it announced it would purchase 100 percent of its headquarters' energy needs from wind power. The company has made a five-year commitment to lend or invest more than $1 billion for environmental businesses. And in the past six months, it has invested $125 million in renewable-energy projects and financed more than $750 million in green buildings.

"We think our actions speak louder than words and demonstrate a lot of integrity," says Mary Wenzel, vice president of environmental affairs."

Many companies named by Ceres are facing shareholder resolutions calling for improvements in responding to climate change. In the past, such resolutions often met with little success. But recently, some major investors are backing the resolutions.

"If they get above 5 percent of the vote, then the resolution is a success," says Marc Brammer, director of research at Innovest, a Wall Street investment adviser. "If they get in the 15 to 20 percent range, management often will meet with them to discuss the issue." The proposals are now garnering 20 to almost 40 percent of the votes, Lubber says.