U.S. Mutual Funds Starting to Address Climate Risk

Mutual funds, having long resisted shareholder resolutions demanding they focus more on financial risks arising from climate change, are starting to have second thoughts. That is the central conclusion of a report released today by Ceres, a coalition of investors and environmentalists that encourages big financial players to factor environmental sustainability into their strategic decision making. Among other things, Ceres directs the Investor Network on Climate Risk, with 60 institutional investors whose collective assets total $5 trillion.

The Ceres mutual funds report, covering the years 1004-2007, finds that in that period firms were somewhat less likely to oppose shareholder resolutions on climate or more likely to abstain in proxy fights about climate risks. Such financial risks, says Ceres president Mindy S. Lubber, can include penalties caused by regulatory changes (e.g. carbon caps or taxes), the costs of Katrina-type disasters, law suits against emitters, and "reputational damage" (being seen as a bad actor rather than a good guy).

In previous reports and actions, Ceres initially focused on utilities and energy firms with big carbon footprints, encouraging investors to demand formulation of long-term strategies that would reduce footprints and exposure to financial risk. Then it took on the automobile industry, and takes satisfaction from Ford's move last year to assess its own contributions to the climate problem. Increasingly, Ceres sees climate risk as an economy-wide issue.

In its most recent report on mutual funds, Ceres says that most firms still are resisting shareholder action, with some standout exceptions such as Goldman Sachs, which has supported some resolutions outright and also has steered its investments in directions that minimize exposure to climate risks. "Schwab, MassMutual and Janus also registered relatively high suppoirt for climate resolutions compared to other mutual fund firms," the report says.

Lubber, speaking in a media teleconference this morning, asserted that investors should be "scrubbing their portfolios" for climate risk the same way they've had to scrub their sub-prime mortgages.

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