Corporate Social Responsibility: Does It Matter? Presentation to the 8th Annual Conference International Corporate Governance Network Milan, Italy Dr. Robert Kinloch Massie Executive Director CERES Board of Directors Global Reporting Initiative July 12, 2002 www.ceres.org

A Crisis in Leadership

US Markets: A Breakdown in Trust

President George W. Bush “ With 80 million Americans participating as shareholders of companies, we must ensure high standards , tough disclosure requirements and accurate information .” April 24, 2002 “ There is a need for a renewed corporate responsibility in America. Those entrusted with shareholders' money must -- must -- strive for the highest of high standards.” June 26, 2002

“ With 80 million Americans participating as shareholders of companies, we must ensure high standards , tough disclosure requirements and accurate information .”

April 24, 2002

“ There is a need for a renewed corporate responsibility in America. Those entrusted with shareholders' money must -- must -- strive for the highest of high standards.”

June 26, 2002

What is CERES? Most powerful U.S. coalition of environmental, labor, and investors (85 organizations) A network of more than 70 corporations that have endorsed the CERES Principles The oldest (1989) and most trusted environmental code of conduct in U.S. The convenor, with UNEP, of the Global Reporting Initiative (GRI) www.CERES.org CERES

Most powerful U.S. coalition of environmental, labor, and investors (85 organizations)

A network of more than 70 corporations that have endorsed the CERES Principles

The oldest (1989) and most trusted environmental code of conduct in U.S.

The convenor, with UNEP, of the Global Reporting Initiative (GRI)

www.CERES.org

AFL-CIO Interfaith Center on Corporate Responsibility (church pension funds) Citizens Funds Conservation International Domini Social Investments Friends of the Earth Friends, Ivory & Sime New York City Employee Retirement System Social Accountability International Social Investment Forum SustainAbility Trillium Asset Management Walden Asset Management World Wildlife Fund U.S. Selected Coalition Members

AFL-CIO

Interfaith Center on Corporate Responsibility (church pension funds)

Citizens Funds

Conservation International

Domini Social Investments

Friends of the Earth

Friends, Ivory & Sime

New York City Employee Retirement System

Social Accountability International

Social Investment Forum

SustainAbility

Trillium Asset Management

Walden Asset Management

World Wildlife Fund U.S.

American Airlines Bank of America Baxter International Bethlehem Steel Coca-Cola USA Consolidated Edison FleetBoston Financial Ford Motor Company General Motors Interface ITT Industries Nike Northeast Utilities Saunders Hotel Group Sunoco US Trust Company Selected CERES Endorsers

American Airlines

Bank of America

Baxter International

Bethlehem Steel

Coca-Cola USA

Consolidated Edison

FleetBoston Financial

Ford Motor Company

General Motors

Interface

ITT Industries

Nike

Northeast Utilities

Saunders Hotel Group

Sunoco

US Trust Company

Over five years (1997-2002), with hundreds of global partners, built a generally accepted framework for corporate sustainability reporting GRI now independent, establishing headquarters in Amsterdam - 14 eminent board members New version to be released around Johannesburg summit Would invite ICGN members to support emerging standard by requesting GRI-based disclosure from portfolio companies www.globalreporting.org CERES Launched GRI

Over five years (1997-2002), with hundreds of global partners, built a generally accepted framework for corporate sustainability reporting

GRI now independent, establishing headquarters in Amsterdam - 14 eminent board members

New version to be released around Johannesburg summit

Would invite ICGN members to support emerging standard by requesting GRI-based disclosure from portfolio companies

www.globalreporting.org

GRI Charter Group AccountAbility Amnesty International Association of Chartered Certified Accountants Baxter International CERES Consejo Empresario Argentino para el Desarollo Sostenible Conservation International Consumers International Ford Motor Co. Deloitte Touche General Motors Greenpeace International Human Rights Watch Instituto Ethos KPMG Nike Oxfam International Pricewaterhouse-Coopers Royal Dutch/Shell Social Accountability International Transparency International United Nations Environment Programme UN High Commission on Human Rights World Bank Group World Conservation Union World Resources Institute WWF International

AccountAbility

Amnesty International

Association of Chartered Certified Accountants

Baxter International

CERES

Consejo Empresario Argentino para el Desarollo Sostenible

Conservation International

Consumers International

Ford Motor Co.

Deloitte Touche

General Motors

Greenpeace International

Human Rights Watch

Instituto Ethos

KPMG

Nike

Oxfam International

Pricewaterhouse-Coopers

Royal Dutch/Shell

Social Accountability International

Transparency International

United Nations Environment Programme

UN High Commission on Human Rights

World Bank Group

World Conservation Union

World Resources Institute

WWF International

Companies using GRI- a Sampling American Home Products AT&T Baxter Biffa Waste Services Ltd. Body Shop International Bristol-Myers Squibb British Airways BT Carillion Electrolux ESAB Ford Motor Company Fuji Xerox General Motors Henkel ITT/Flygt Johnson & Johnson Kirin Brewing KLM Konica NEC Nissan Nokia Novo Nordisk Procter & Gamble Ricoh Royal Philips Electronics Saint-Gobain SAS SASOL Scandiflex Shell Severn Trent SITA South African Breweries Suncor Energy Sunoco Thames Water TXU Europe Vauxhall Motors Ltd VAW Aluminium Waste Recycling Group

Strong Government Support for Standardized Reporting European Union CSR guidelines Japanese Environment Agency US EPA “Performance Track” UK: Environmental Reporting Guidelines France: Article 116 Denmark: Sustainability Reporting Guidelines

European Union CSR guidelines

Japanese Environment Agency

US EPA “Performance Track”

UK: Environmental Reporting Guidelines

France: Article 116

Denmark: Sustainability Reporting Guidelines

CERES 2002 Sustainable Governance Project Underlying premise : CEOs and boards can no longer oversee large global businesses without: understanding key questions of sustainability , such as climate, energy, water, biodiversity, inequality setting goals and measuring outcomes disclosing the results through an international standard verified by third parties Failure to do so exposes firm to unnecessary risk In 21st century, good governance includes strategic approach to sustainability

Underlying premise : CEOs and boards can no longer oversee large global businesses without:

understanding key questions of sustainability , such as climate, energy, water, biodiversity, inequality

setting goals and measuring outcomes

disclosing the results through an international standard verified by third parties

Failure to do so exposes firm to unnecessary risk

In 21st century, good governance includes

strategic approach to sustainability

All US sectors and portfolios exposed to varying degrees of climate risk Agriculture, energy, forestry, insurance, real estate, tourism, transportation, water and waste, etc. Future costs could be large Regulations (CA), financial losses, lawsuits Much more research needed! Failure to assess long-term portfolio risk could be breach of fiduciary duty Example: “embedded climate risk”

All US sectors and portfolios exposed to varying degrees of climate risk

Agriculture, energy, forestry, insurance, real estate, tourism, transportation, water and waste, etc.

Future costs could be large

Regulations (CA), financial losses, lawsuits

Much more research needed!

Failure to assess long-term portfolio risk could be breach of fiduciary duty

California : agriculture, especially fruits, nuts, wine. Cost of lettuce quadrupled this spring due to strange weather conditions Florida : potential loss of Everglades after $7.9 billion federal investment Alaska : breaks in pipelines due to melting of permafrost Across U.S .: drop in water table and aquifers, displacement of migratory birds, threat to coastal airports, expanded tropical disease areas, drought in New England, floods in Texas TOTAL COST TO U.S. ECONOMY = ?????? U.S.: “embedded climate risk”

California : agriculture, especially fruits, nuts, wine. Cost of lettuce quadrupled this spring due to strange weather conditions

Florida : potential loss of Everglades after $7.9 billion federal investment

Alaska : breaks in pipelines due to melting of permafrost

Across U.S .: drop in water table and aquifers, displacement of migratory birds, threat to coastal airports, expanded tropical disease areas, drought in New England, floods in Texas

TOTAL COST TO U.S. ECONOMY = ??????

Colorado : 984 fires have destroyed 375,000 acres Barry Gutierrez © News

CERES Report: Value at Risk: Climate Change and the Future of Governance Recommendations for Institutional Investors Seek out expertise Examine embedded climate risk portfolio-wide Take action to mitigate risk Incorporate climate change analysis into investment strategies Require greater disclosure from firms Encourage best practice from portfolio companies Pursue opportunities Clean, lower-carbon technologies

Recommendations for Institutional Investors

Seek out expertise

Examine embedded climate risk portfolio-wide

Take action to mitigate risk

Incorporate climate change analysis into investment strategies

Require greater disclosure from firms

Encourage best practice from portfolio companies

Pursue opportunities

Clean, lower-carbon technologies

May 29, 2002: 20% (= $55 billion) of shareholders voted against management of Exxon-Mobil on a climate related resolution Why? “ Neither the CEO, nor the board, nor management have a plan for appropriately managing the assets of the company given the challenge of climate change. [Investors] are going to treat it as a governance issue , not as an environmental issue .” Mark Bateman Investor Responsibility Research Center (IRRC) Growing realization among U.S. investors that climate change is a governance issue

May 29, 2002: 20% (= $55 billion) of shareholders voted against management of Exxon-Mobil on a climate related resolution

Why?

“ Neither the CEO, nor the board, nor management have a plan for appropriately managing the assets of the company given the challenge of climate change. [Investors] are going to treat it as a governance issue , not as an environmental issue .”

Mark Bateman

Investor Responsibility Research Center

(IRRC)

21st Century will see Convergence of Sustainability and Governance Agendas CERES is committed to: Conducting collaborative research to assess long-term financial impacts Sharing U.S. information, resources, and allies with other ICGN members Supporting adoption of GRI, including greenhouse gas disclosure, by all US companies Promoting ICGN decisions on good governance

CERES is committed to:

Conducting collaborative research to assess long-term financial impacts

Sharing U.S. information, resources, and allies with other ICGN members

Supporting adoption of GRI, including greenhouse gas disclosure, by all US companies

Promoting ICGN decisions on good governance

www.ceres.org Free report downloads available www.globalreporting.org Complete information on all activities Annual CERES Conference April 1-3, 2003 - New York Hilton Contact: Dr. Robert Kinloch Massie (massie@ceres.org) Dr. Ariane van Buren (vanburen@ceres.org) For more information -

www.ceres.org

Free report downloads available

www.globalreporting.org

Complete information on all activities

Annual CERES Conference

April 1-3, 2003 - New York Hilton

Contact: Dr. Robert Kinloch Massie

(massie@ceres.org)

Dr. Ariane van Buren

(vanburen@ceres.org)