Catalyzing a Climate of Change

By Aaron Ziulkowski
From the Winter 2013 Edition of Values




This year Walden has redoubled its longstanding efforts to engage companies on climate change. Scientific understanding points increasingly to the urgency needed in tackling climate change challenges—and business understanding points increasingly to opportunities in doing so.

A Great Challenge

In September, the Intergovernmental Panel on Climate Change (IPCC), the world’s leading scientific authority on climate change, released the first working group report of its Fifth Assessment Report. The report focuses on the scientific basis for understanding climate change, and concludes that warming is unequivocal, changes are unprecedented, and that human influence is extremely likely to be the main cause. It also emphasized the imperative to reduce emissions sooner rather than later.
 A leaked draft of the second working group’s report, which focuses on the impact of climate change and adaptation efforts, came with the sobering message that global warming could reduce agricultural production by as much as 2 percent each decade for the rest of the century, just as the world population is projected to grow to 9.6 billion in 2050, from 7.2 billion today.

And in early November 2013, analysis by the United Nations Environmental Program found that global voluntary pledges to reduce emissions need to nearly double in order to have a reasonable chance of avoiding the most severe consequences of climate change.

A Compelling Opportunity

Confronting climate change need not be synonymous with constraining growth. A strong business case supports action on climate change that includes managing the financial, regulatory, reputational, and physical risks, as well as potentially realizing operational efficiencies leading to significant cost savings.

In May 2013, members of the Ceres-led Business for Innovative Climate & Energy Policy network launched the Climate Declaration. More than 500 businesses—including major companies like General Motors, Microsoft, and Nike—signed the Climate Declaration, which calls for action on climate change and notes that tackling climate change presents one of the greatest economic opportunities of the 21st century.


Emerging research backs up these public claims. In The 3% Solution: Driving Profits Through Carbon Reduction, CDP and the World Wildlife Fund find that U.S. companies could reduce emissions three percent annually between now and 2020 and save up to $780 billion net present value. In a study of 386 U.S. companies in the S&P 500, CDP also found that 79 percent of companies “earn a higher return on their carbon reduction investments than on their overall corporate capital investments.”

Engaging Companies

This year, we analyzed the climate strategies of all large cap portfolio companies. While we found that a representative Walden client portfolio is approximately 30 percent more carbon-efficient than the S&P 500, utilizing data provided by Trucost, corporate practices were not commensurate with the challenges and opportunities at hand. Specifically, we looked for science-based understanding of the challenge and the response needed; specific goals and targets to reduce greenhouse gas emissions, increase energy efficiency, and source renewable energy; and alignment of public policy with the reality of climate change and the imperative to act now.

We found that just over half of the companies in the portfolio had greenhouse gas or renewable goals, while nearly 60 percent responded to the CDP climate survey, which asks companies to disclose their approach to addressing climate change. The results demonstrate there is plenty of room for improvement. Hence, Walden prioritized engagement with three categories of companies: “influencers,” “learners,” and “leaders.” We asked over 30 companies to take the following steps:

  • Establish a policy on how to manage risk related to climate change, including setting goals and targets. We recommend the IPCC target of 50 percent global reduction of CO2 by 2050, entailing an 80 percent decrease in the United States.
  • Disclose the company’s strategy to address climate change and its progress meeting goals.
  • Ensure that public policy and lobbying activity are aligned with forward-looking policy on climate change.

Early results from Walden’s engagement with companies have been encouraging. Two-thirds responded promptly to our letter and we are following up with each to understand better the company’s approach, challenges, and opportunities. Several companies have agreed to set goals in the coming year, while a number of others have agreed to increase their disclosure of their approach and progress managing climate risk. Leading companies that received the letter are considering setting more aggressive goals; updating internal policies to better reflect increasing scientific understanding; and more actively advocating for smart, climate-related public policies.


This engagement effort is just one of many approaches we and likeminded investors are pursuing this year (see Research & Engagement in Action). We look forward to providing updates in the coming months.