Put a Price on Carbon - A Conversation with Alex Lamb of Trucost PLC

We recently participated in an interesting session with Alex Lamb of Trucost PLC. Trucost is a leading environmental risk consultancy and data provider based in London. Their research puts a price or value factor on the environmental impacts of publicly traded companies. They offer data to companies, governments, academics, and SRI investors who are interested in measuring and managing the environmental risks associated with their operations, supply chains and investment portfolios.

Alex Lamb of Trucost PLC

Carbon Footprinting Mutual Funds

Alex began by describing to us how Trucost calculated the carbon footprints of several SRI-oriented mutual funds. He described how Trucost worked with one of the SRI mutual funds  to measure the carbon footprint. First, they measured the tons of carbon emissions per unit of revenue of the companies held by the fund. Next, they performed similar calculations for the companies included in the S&P 500® Index. As it turns out, the carbon intensity of the SRI fund was only two-thirds of the S&P 500® Index. This kind of information is important to astute investors looking for ways to reduce  environmental risk when making investment management decisions. Recent academic research projects have indicated that companies with the worst environmental records lag other companies in a number of financial performance areas. (see GovernanceMetrics and St. Andrews University recent work for example.)

Leverage Points for Change
During the Q & A, Eric Smith, Senior Wealth Officer at Goodfunds Wealth Management asked Alex what he saw as a key leverage point when communicating with elected officials.  Without hesitating, Alex responded succinctly, "Put a price on carbon." He continued on by explaining how a price on carbon would in effect force companies to internalize the environmental impacts that they have long been able to externalize and push into the environment and communities in which they operate. This carbon pricing would result in increased incentive for companies to implement energy and resource efficiency practices in all aspects of their operations.

Alex also mentioned the role increased transparency can play in addressing climate crisis, citing the Carbon Disclosure Project (CDP) as one example. CDP maintains the largest global database of primary corporate climate change information. They act on behalf of 551 institutional investors, holding US$71 trillion in assets under management and other stakeholders. Companies who do not provide their carbon data face peer pressure from their competitors and steady engagement from investors asking them to join the CDP.

As the old saying goes, sunlight is the best disinfectant.

For additional information: Trucost: www.trucost.com Carbon Disclosure Project: www.cdproject.net

Advocacy Success Story: Sustainability Reporting

Last year, some of our colleagues and portfolio managers sponsored a shareholder proposal requesting Layne Christensen, a water infrastructure and mineral exploration company to begin the process of sustainability reporting. The resolution asked for more information describing the company's policies, programs and performance on environmental concerns such as climate change and water scarcity, impacts on communities, workplace practices and corporate governance. The resolution was supported by a record-breaking 60 percent of the vote.

Persistence Pays Off

Despite the majority vote, company management rebuffed attempts by investors to discuss the importance of sustainability reporting and to find common ground. As a result the proposal was re-filed this year. In a surprising turn of events, management recommended that shareholders vote "For" this resolution, resulting in overwhelming support of 93 percent! Moreover, in advance of the meeting an inaugural report was posted on their website, "A History of Sustainable Value."

"This is a curious chapter with a company" stated Timothy Smith, Director of ESG Shareowner Engagement at Walden. "They get a failing grade for investor relations, refusing even a courtesy call with investors who led a resolution receiving a majority vote of 60 percent. Nor was Walden informed of Layne's plans to publish the requested report. Notwithstanding the poor communication, we are certainly thrilled that Layne appears to understand the value of increased transparency on environmental, social and governance policies and performance. The report is wide raging and comprehensive for a first-time publication. Without a doubt, shareholder interest prompted the company to make this 180 degree change."

Next Up, Stakeholder Engagement

"This report is a great start for Layne. A deliberate and thoughtful internal assessment of ESG impacts can uncover long-term opportunities and risks in the company's business practices and enables investors to more fully evaluate and compare company performance" said Marcela Pinilla, ESG Analyst at Walden. "Clearly one future area for improvement is to institute a stakeholder engagement process," she added.

Layne Christensen's inaugural sustainability report is informed by the standardized Global Reporting Initiative (GRI) guidelines, which recommend annual updates and a commitment to continuous improvement.