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Corporate Social Responsibility:Does It Matter?

Presentation to the8th Annual Conference

International Corporate Governance NetworkMilan, Italy

Dr. Robert Kinloch Massie

Executive DirectorCERES

Board of DirectorsGlobal Reporting Initiative

July 12, 2002

www.ceres.org

A Crisis in Leadership

US Markets: A Breakdown in Trust

President George W. Bush

“With 80 million Americans participating as shareholders of companies, we must ensure high standards, tough disclosure requirements and accurate information.”

April 24, 2002

“There is a need for a renewed corporate responsibility in America. Those entrusted with shareholders' money must -- must -- strive for the highest of high standards.”

June 26, 2002

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What is CERES?

Most powerful U.S. coalition of environmental, labor, and investors (85 organizations)

A network of more than 70 corporations that have endorsed the CERES Principles

The oldest (1989) and most trusted environmental code of conduct in U.S.

The convenor, with UNEP, of the Global Reporting Initiative (GRI)

www.CERES.org

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Interfaith Center on Corporate Responsibility (church pension funds)

Citizens Funds

Conservation International

Domini Social Investments

Friends of the Earth

Friends, Ivory & Sime

New York City Employee Retirement System

Social Accountability International

Social Investment Forum

SustainAbility

Trillium Asset Management

Walden Asset Management

World Wildlife Fund U.S.

Selected Coalition Members

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American Airlines

Bank of America

Baxter International

Bethlehem Steel

Coca-Cola USA

Consolidated Edison

FleetBoston Financial

Ford Motor Company

General Motors

Interface

ITT Industries

Nike

Northeast Utilities

Saunders Hotel Group

Sunoco

US Trust Company

Selected CERES Endorsers

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S Over five years (1997-2002), with hundreds of

global partners, built a generally accepted framework for corporate sustainability reporting

GRI now independent, establishing headquarters in Amsterdam - 14 eminent board members

New version to be released around Johannesburg summit

Would invite ICGN members to support emerging standard by requesting GRI-based disclosure from portfolio companies

www.globalreporting.org

CERES Launched GRI

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GRI Charter Group

AccountAbility

Amnesty International

Association of Chartered Certified Accountants

Baxter International

CERES

Consejo Empresario Argentino para el Desarollo Sostenible

Conservation International

Consumers International

Ford Motor Co.

Deloitte Touche

General Motors

Greenpeace International

Human Rights Watch

Instituto Ethos

KPMG

Nike

Oxfam International

Pricewaterhouse-Coopers

Royal Dutch/Shell

Social Accountability International

Transparency International

United Nations Environment Programme

UN High Commission on Human Rights

World Bank Group

World Conservation Union

World Resources Institute

WWF International

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Companies using GRI- a Sampling

American Home Products AT&T Baxter Biffa Waste Services Ltd. Body Shop InternationalBristol-Myers Squibb British Airways BTCarillion ElectroluxESAB Ford Motor Company Fuji XeroxGeneral Motors HenkelITT/Flygt Johnson & JohnsonKirin BrewingKLMKonica NEC

NissanNokiaNovo Nordisk Procter & Gamble RicohRoyal Philips ElectronicsSaint-GobainSASSASOLScandiflex ShellSevern Trent SITASouth African Breweries Suncor EnergySunoco Thames Water TXU EuropeVauxhall Motors LtdVAW AluminiumWaste Recycling Group

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Strong Government Support for Standardized

Reporting

European Union CSR guidelines

Japanese Environment Agency

US EPA “Performance Track”

UK: Environmental Reporting Guidelines

France: Article 116

Denmark: Sustainability Reporting Guidelines

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CERES 2002 Sustainable Governance Project

Underlying premise: CEOs and boards can no longer oversee large global businesses without:

understanding key questions of sustainability, such as climate, energy, water, biodiversity, inequality

setting goals and measuring outcomes

disclosing the results through an international standard verified by third parties

Failure to do so exposes firm to unnecessary risk

In 21st century, good governance includes

strategic approach to sustainability

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All US sectors and portfolios exposed to varying degrees of climate risk

Agriculture, energy, forestry, insurance, real estate, tourism, transportation, water and waste, etc.

Future costs could be large

Regulations (CA), financial losses, lawsuits

Much more research needed!

Failure to assess long-term portfolio risk could be breach of fiduciary duty

Example: “embedded climate risk”

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California: agriculture, especially fruits, nuts, wine. Cost of lettuce quadrupled this spring due to strange weather conditions

Florida: potential loss of Everglades after $7.9 billion federal investment

Alaska: breaks in pipelines due to melting of permafrost

Across U.S.: drop in water table and aquifers, displacement of migratory birds, threat to coastal airports, expanded tropical disease areas, drought in New England, floods in Texas

TOTAL COST TO U.S. ECONOMY = ??????

U.S.: “embedded climate risk”

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Colorado: 984 fires have destroyed 375,000 acres

Barry Gutierrez © News

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CERES Report: Value at Risk: Climate Change and the Future of Governance

Recommendations for Institutional Investors

Seek out expertise

Examine embedded climate risk portfolio-wide

Take action to mitigate risk

Incorporate climate change analysis into investment strategies

Require greater disclosure from firms

Encourage best practice from portfolio companies

Pursue opportunities

Clean, lower-carbon technologies

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May 29, 2002: 20% (= $55 billion) of shareholders voted against management of Exxon-Mobil on a climate related resolution

Why?

“Neither the CEO, nor the board, nor management have a plan for appropriately managing the assets of the company given the challenge of climate change. [Investors] are going to treat it as a governance issue, not as an environmental issue.”

Mark Bateman

Investor Responsibility Research Center

(IRRC)

Growing realization among U.S. investors that climate change is a governance issue

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21st Century will see Convergence of Sustainability and Governance Agendas

CERES is committed to:

Conducting collaborative research to assess long-term financial impacts

Sharing U.S. information, resources, and allies with other ICGN members

Supporting adoption of GRI, including greenhouse gas disclosure, by all US companies

Promoting ICGN decisions on good governance

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Free report downloads available

www.globalreporting.org

Complete information on all activities

Annual CERES Conference

April 1-3, 2003 - New York Hilton

Contact: Dr. Robert Kinloch Massie

(massie@ceres.org)

Dr. Ariane van Buren

(vanburen@ceres.org)

For more information -