On November 21, 2003, I co-chaired the first Institutional Investor Summit on Climate Risk at the United Nations. There were nearly three hundred participants –institutional investors, financial industry leaders, advocates and experts – who came together to discuss the financial risk posed by climate change. It was a remarkable gathering, and truly a milestone in the rapid evolution of this issue in the financial industry.

To hold such a meeting just a few years ago would have been virtually unthinkable. What has changed?

First, scientific evidence is more strongly supporting the notion that levels of greenhouse gases are rising rapidly and will continue to do so, creating adverse effects on our physical environment and public health. In fact, a recent Pentagon report stated that climate change, and in particular, the potential for abrupt climate change "should be elevated beyond a scientific debate to a U.S. national security concern."

Secondly, increasing government actions to limit greenhouse gases have raised the visibility of this issue. At the World Economic Forum in Davos, Switzerland, earlier this year, more than two thousand leaders from corporations and governments world-wide included the issue of climate risk on their agenda. Around the world, more than 100 countries have ratified the Kyoto Protocol, and in the U.S. numerous states are beginning to more forcefully grapple with the issue. For example, Massachusetts and New Hampshire have enacted legislation capping power plants’ greenhouse gas emissions and the Governors of eleven states have pledged to reduce carbon dioxide emissions significantly.

That said, why would I, as Treasurer of the State of Connecticut with principal fiduciary responsibility for the $20 billion Connecticut Retirement Plans and Trust Funds (CRPTF), be concerned about an issue like climate change – and why should investors include climate change on their agenda?

First and foremost, investors are entitled to know about how their portfolio companies conduct themselves. For many of our portfolio companies, the consequences of climate change, if not properly managed, could adversely affect their bottom line and therefore the long-term performance of our investments. For example, companies could face the prospect of losing their competitive edge, incurring litigation costs, making capital investments that lose value due to new government policies, and/or dealing with additional unforeseen capital expenses.

All of these factors – and others – can erode shareholder value and place today’s seemingly solid investment in jeopardy for the hundreds of thousands of Americans who rely on these investments for their future financial security.

It is appropriate that shareholder interest in climate change is growing. At the Summit, I joined with trustees from 9 other U.S. pension funds – representing $700 billion in assets – to issue a comprehensive 10-point "Call for Action." The landmark statement calls for tough new steps by the Securities and Exchange Commission (SEC), corporate boards, and Wall Street firms to increase corporate disclosure of the investment risks posed by climate change. This group also announced the formation of a new Investor Network on Climate Risk (www.incr.com) to follow through on the Call for Action, and that organization is up and running.

Additionally, shareholder resolutions on climate change were submitted to 31 U.S. companies in 2003, receiving shareholder support as high as 32%. These resolutions serve notice that shareholders are looking to corporations and their boards of directors to protect the long term value of our investments. The days of putting one’s corporate head in the sand and waiting for the issue to pass are long gone.

The CRPTF was the first public pension fund to file a global warming resolution, which we did at American Electric Power (AEP) in 2001. Since that time we have been actively pursuing corporate disclosure on climate change in a variety of ways. We are pleased to be working closely with Walden on this issue, and this year co-filed resolutions at AIG and Chubb.

Are corporate mindsets changing? They are.

In a recent major breakthrough, AEP and Cinergy, leaders in the electric power industry, agreed to report publicly on how they are responding to growing pressure to reduce greenhouse gas and other emissions. The company reports, as developed by independent board members, will assess the impacts of and potential responses to a number of public policy scenarios. These are precedent setting agreements which we hope will be emulated by other companies and other industries.

Unquestionably, more needs to be done, and at the Connecticut Treasury, we are committed to doing our part. We understand that this effort will not succeed without many partners. The work of corporations, fund managers and financial analysts, legislators and regulators, as well as investors, is intertwined and interdependent. Only with a concerted effort will we truly succeed in protecting the long-term value of our investments and our economic well-being. —D. Nappier