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Climate Change is in the WindSubmitted by: Emily McAteer, RiskMetrics Group Climate Change Research Group

Although Super Tuesday did not resolve who will be our 2008 Presidential nominees, it did make one thing almost certain: the United States will embrace climate change legislation in the next administration. All three leading candidates?Sens. Clinton, McCain and Obama?have made it clear this issue would be high on their agenda after entering the White House. Congress is also getting ready to act, with the introduction of no less than seven congressional bills proposing greenhouse gas (GHG) controls in the past year. This leaves little doubt that the U.S. is gearing up to follow Europe?albeit belatedly?in placing a price on carbon emissions.

This change in political winds hasn?t been lost on U.S. chief executives, including in the banking sector. A price on carbon will inevitably alter costs of production, the pricing of securities and the assignment of credit and asset valuations. It will also bring new opportunities for banks to engage in carbon trading, develop new climate-focused products and invest in the burgeoning clean technology sector. As Mindy Lubber, president of the investor and environmental group coalition Ceres, said at the RiskMetrics Governance Conference held in New York City this week, ?it is unimaginable that the banks will be anything other than one of the most important players? in addressing climate change.

A month ago, RiskMetrics Group produced a report commissioned by Ceres that examined how 40 of the world?s largest financial institutions are preparing themselves for climate change. The study found that while banks are not high emitters of greenhouse gasses themselves, they are the primary financiers of the world?s most carbon-intensive industries. And while most banks are beginning to focus on their own emission footprints?and in many cases pledging to go ?carbon neutral??only a handful are factoring a price for carbon in their lending and investment decisions.

As a recommendation, the report, Corporate Governance and Climate Change: The Banking Sector, called on banks to ?explain how they are factoring carbon costs into financing and investment decisions, especially for energy-intensive projects that pose financial risks as carbon-reducing regulations take hold worldwide.?

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on February 08, 2008 (boomark / email).