Spotlight on Your Portfolio: Carbon Footprinting Your Investment

You hear a lot of talk from Wall Street these days about how climate change presents “unprecedented business risks and opportunities.” While investment action doesn’t yet fully match this rhetoric, many major firms are establish­ing research shops focused on the investment implications of climate change. Some of the early (and quite excellent) work has been focused on the likelihood that the U.S. will pass legislation regulating carbon emissions in the next two years.

It’s been decades since we’ve seen this kind of sweeping environmental regulation in the U.S. Carbon regulation on its own – as well as other climate change impacts such as changing weather patterns and rising sea levels – will pres­ent big investment risks and opportunities for industries across the economy.

Carbon regulation will involve a “cap and trade” program similar to that now in place for sulfur dioxide emissions under the Clean Air Act. There are different proposed cap and trade models, with varying economic implications, but each would attach a financial cost to carbon emissions where there is none now. Conversely, there will be new financial incentives for reducing carbon emissions and for creating carbon offsets through renewable energy, energy efficiency, and other projects. Globally, cap and trade programs like the European Union’s “European Trading Scheme” have re­cently started operating as Kyoto Protocol signatory coun­tries work to meet greenhouse gas reduction targets set for the 2008-2012 period.

U.S. carbon regulation has the potential to materially change the economic landscape. There will be winners and losers, determined in part by what type of legislation is passed. Large investors are increasingly concerned with the impact of carbon regulation on the playing field, and in the interest of reducing uncertainty, are advocating for public policy changes sooner rather than later. The Investor Network on Climate Risk is a coalition of 60 institutional investors (including many state pension plans and Trillium Asset Management Corporation) with a combined $4 tril­lion in assets. It has partnered with major corporations to call on Congress to enact federal legislation to curb green­house gas emissions, and also asked the Securities and Ex­change Commission to oversee corporate disclosure on climate change. This is a rare situation indeed, where both corporations and investors are calling for more government regulation, not less.

Meanwhile, emerging research is indicating that carbon exposure is much more broadly and unevenly distributed than previously thought, both across and within indus­tries. Sustainability-focused research firm Innovest reports, for example, that electric utilities face among the highest carbon-related costs of any industry, as you might expect, while within the industry, the expected cost of carbon regu­lation varies widely across companies largely according to their level of dependence on coal. The pharmaceutical industry, on the other hand, as a whole registers relatively low carbon-related costs. But again we see wide differences within an in­dustry. Some of the carbon laggards among pharmaceuticals are actually projected to be more negatively affected by carbon regulation than some of the better-positioned electric utilities. This level of differentiation appears to exist across economic sectors, heightening the risks and opportunities for investors in the face of coming carbon regulation.

Some investors, including ourselves, are working to take an early start positioning investment portfolios for the changes U.S. carbon regulation might bring. We’re digging into in­dustry-level carbon exposures, assessing company-specific commitments to reducing carbon emissions and looking for investment opportunities in renewable energy, efficiency en­hancements and new technologies – in short, measuring and managing the carbon footprint of our portfolios. If carbon regulation legislation passes as predicted in 2009-2010, it will trigger economic impacts over the next decade, and the carbon footprint of investments will become an important new indica­tor of both financial and environmental sustainability

Bank of America – Moritorium on Coal Financing

WHEREAS

Bank of America (BOA) is a diversified financial services company providing banking,investment, investment banking, credit card and consumer finance services.BOA recognizes that its ability to attract and retain customers and employees could be adversely affected “to the extent our reputation is damaged” and that “failure to address, or to appear to fail to address various issues” could damage the Corporation and its business prospects. (2005 Annual Report)BOA also recognizes that:

• The health of our company is dependent on the health of communities and our society;
• Climate change and atmospheric pollution represent a risk to the ultimate stability and sustainability of our way of life; and
• Every part of our business has a potential impact on our environment.

http://www.bankofamerica.com/environment/index.cfm?template=env_clichangepos

BOA’s greatest impact on climate change and the environment arises from its financing of businesses and activities, such as electric power generated from coal-burning plants, that emit substantial greenhouse gases (e.g., carbon dioxide) and other pollutants.

As a leading financial institution, BOA has adopted a goal of reducing direct greenhouse gas (GHG) emissions from its facilities by 9% and indirect GHGs within its energy & utility portfolio by 7%.

However, BOA continues to provide financing for companies engaged in mountain top removal (MTR) coal mining and for coal-fired electric power, which, in addition to having serious adverse impacts on communities, the environment, and public health, may also increase the long-term indirect GHG emissions within BOA’s portfolio.

MTR devastates the environment. Forests are clear-cut, the top of mountains blasted away to reveal coal seams and the rubble dumped in the valleys below, filling streams and destroying water resources. Between 1992 and 2012, the US Environmental Protection Agency estimates MTR will have destroyed approximately 7% of Appalachian forests in coal mining regions studied. (http://www.epa.gov/Region3/mtntop/pdf/mtm-vf_fpeis_full-document.pdf)

Deforestation is the second leading source of GHG emissions worldwide. (http://www.gsfc.nasa.gov/gsfc/service/gallery/fact_sheets/earthsci/green.htm)

The carbon in forests destroyed by MTR each year roughly equals the annual emissions from two 800 megawatt coal-fired power plants.

Coal-burning plants, which supply nearly half of U.S. electric power, are responsible for 80% of the nation’s GHG emissions from this sector. Technology for capturing and sequestering carbon from coal-burning plants is in the pilot stage and not widely available. Uncertainties remain regarding leakage and impact on underground water sources.

Coal plants also release most of the sulfur dioxide, nitrogen oxide, particulate matter and mercury, which harms reproductive health and mental development in children. (http://www.ucsusa.org/clean_energy/coalvswind/c02c.html)

Dr. James Hansen, a leading climate scientist at NASA’s Goddard Space Center, has urged an immediate moratorium on the construction of new coal fired power plants in the U.S. as a priority to avoid triggering dangerous destabilization of the Earth’s climate systems. (http://www.columbia.edu/~jeh1/dots_feb2007.ppt)

RESOLVED

Shareholders request that BOA’s board of directors amend its GHG emissions policies to observe a moratorium on all financing, investment and further involvement in activities that support MTR coal mining or the construction of new coal-burning power plants that emit carbon dioxide.