The new agency, touted as the first of its kind in the world, would supposedly shine a light on alleged human rights abuses by Canadian companies at their foreign operations. Whether investigating the use of forced labour in China’s Xinjiang region, starvation wages at Bangladeshi sweatshops or sickness caused by pollution from mining operations in the Amazon, CORE would bring offenders to heel and help ensure that conditions improved.

Alas, it hasn’t turned out that way.

There has been no shortage of complaints to CORE – 26 in all between March 2021 and early 2023, most of them centred on the use of forced labour by garment companies in China. Yet, as a Globe and Mail investigation found, the agency had not closed the books on a single case as of April 2023. Of the 26 cases brought to its attention, eight were deemed inadmissible, two were withdrawn, and the admissibility of one was still being reviewed. Not one of the remaining 15 had moved beyond the “initial assessment” stage, according to CORE’s latest quarterly report, even though the agency aims to complete that assessment within 90 days. (Besides the Chinese cases, one relates to a company operating in Honduras and another to a company in Bangladesh.)

The agency has been hobbled in a number of ways. The government has backed away from its initial promise to give CORE investigative powers, such as compelling companies to produce relevant documents. Also, CORE has no way of enforcing whatever conclusions its investigations may come to, and its activities remain confined to just three sectors: mining, oil and gas, and garment manufacturing.

An advisory council on responsible business conduct, designed to work in collaboration with CORE, collapsed in mid-2019 when 14 members representing human-rights organizations and labour unions quit on the same day, saying they had lost confidence in the government’s commitment to corporate accountability. CORE’s latest annual report makes no mention of reviving the panel.

“We’re very disappointed right now,” Ketty Nivyabandi, secretary-general of Amnesty International Canada, told the Globe earlier this year. “This is not what we had advocated for. We’re not recommending the office to communities that we engage with.”

The agency defended itself in its last annual report by noting that much of its work has “an iceberg effect,” with companies often making long-lasting undertakings that remain “under the surface for a period of time” – an assertion strangely at odds with its early promise of transparency.

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Thankfully, others – including some in the business community – have been moving forcefully in the opposite direction. One notable example is Storebrand, Norway’s largest private fund manager, which last August became the first sizable investor to divest from businesses that continue to lobby against tougher environmental rules.

“Climate change is one of the greatest risks facing humanity, and lobbying activities which undermine action to solve this crisis are simply unacceptable,” said Jan Erik Saugestad, Storebrand’s CEO. InfluenceMap, a U.K.-based think tank, estimated in March 2019 that the world’s five largest oil and gas companies measured by market value – BP, Shell, ExxonMobil, Chevron and Total – spend almost US$200 million a year on efforts to delay, control or block policies designed to tackle climate change.

“The Exxons and Chevrons of the world are holding us back,” Saugestad noted, referring to two of the five companies whose shares Storebrand has dumped. The other three are Anglo-Australian miner Rio Tinto, German chemicals manufacturer BASF and Southern Co., an Atlanta-based electric utility.

Storebrand, which manages more than US$90 billion in assets, has also sold its stakes in another 22 companies – mostly power utilities, chemical companies and oil producers – that fall short of a tougher slate of climate policies that it recently adopted. Among the new criteria is a commitment not to invest in companies that derive more than 5% of their revenues from coal or oil sands.

Storebrand’s moves reflect mounting pressure on institutional investors to take a stand on climate change. A majority of Chevron shareholders supported a resolution at the company’s 2020 annual meeting that sets tougher disclosure standards on climate-related lobbying activities. Proxy Insight, which tracks corporate governance issues, reports that shareholder support for climate-lobbying resolutions averaged 47.2% last year, more than double the 21.4% recorded in 2019.

Saugestad put it well: “Investors need to be responsible and proactive in accelerating the green transition. We are not passive actors awaiting the pending systemic harm that climate change will unleash.”

Zero:

There is much to admire about the gig-economy companies that have woven themselves into our everyday lives over the past decade. Uber and Lyft have revolutionized urban transport. Instacart enables us to shop for groceries without ever leaving home, while DoorDash delivers tasty restaurant meals to our front doors, a special boon during the pandemic.

When it comes to labour practices however, these companies belong more in the 19th century than the 21st. Their drivers and personal shoppers work long hours for precious little reward. Because these workers are classified as independent contractors, they receive few if any of the normal workplace benefits, such as minimum wages, health or unemployment insurance, and parental leave.

Researchers at the University of California, Berkeley, estimate that Uber and Lyft saved US$413 million in their state alone between 2014 and 2019 by not paying unemployment insurance premiums. More recently, the companies have been accused of violating a law passed by the state legislature last January that tightens the criteria for classifying workers as contractors.

None of that has stopped Uber and other app-based companies from fighting to preserve their workers-come-last business model. Indeed, they cranked up the pressure ahead of last November’s U.S. elections by pouring close to US$200 million into backing a California ballot initiative, known as Proposition 22, that would dilute the worker gains contained in last January’s law.

The companies contended that regulators should treat app-based businesses as technology platforms, not transport providers or food delivery services, because their workers have the flexibility to log into or out of the employer’s app at will. Uber warned that it would have little choice but to raise prices and limit services if Proposition 22 failed to pass.

Voters ended up approving the proposition by a 16-point margin. But that doesn’t make it fair on the workers.
Critics predict that Proposition 22 will reinforce the inequalities that have become a tinderbox of modern society, especially in the U.S. The UC Berkeley researchers concluded that, under the proposal, Uber and Lyft drivers would earn a mere US$5.64 an hour after factoring in down-time and expenses such as fuel and maintenance. Proposition 22 could also set a troubling precedent by encouraging deep-pocketed companies to take their cases directly to voters when they come up against laws they don’t like.

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Some have passed the test with flying colours. The Business Roundtable itself formed a CEO COVID-19 Task Force dedicated to the crisis. One member, Salesforce, pledged not to lay off employees for 90 days, and Salesforce’s CEO spent $25 million on 50 million pieces of personal protective equipment for medical staff (with the help of Walmart, FedEx and others).

Many other CEOs have displayed an all-too-rare selflessness. Five senior executives at Comcast, the U.S. telecoms and media giant, including CEO Brian Roberts, said they would donate their entire salaries “for the duration of this situation” to charities supporting COVID-19 relief efforts. Twitter’s CEO, Jack Dorsey, pledged $1 billion (28% of his wealth) to fund global COVID relief efforts.

As of late April, only 6% of the 100 largest American companies had handed out pink slips to their workers, according to JUST Capital’s COVID-19 corporate-response tracker. Many have cut dividends, not only to bolster their cash flows and balance sheets, but also in response to pressure from social and governance activists.

Several companies in Canada and around the world have implemented raises for frontline employees, be they food processors, bank tellers or grocery and retail workers. The Business Council of Canada has been keeping a tally of Canadian members that are stepping up financial and community support or retooling to deliver critical supplies. GM Canada is manufacturing roughly one million masks per month at its Oshawa plant and delivering them at cost to the federal government. Bombardier is delivering 18,000 ventilators and 40,000 visors.

European heavyweights have been rallying, too. Unilever, the consumer-goods giant, has not only donated US$155 million of soap, sanitizer, bleach and food, but also set aside US$775 million for early payments to small suppliers, and to extend credit to small retail customers. “Our strong cash flow and balance sheet mean that we can, and we should, give this support,” CEO Alan Jope said.

Zeroes

Sadly, plenty of bosses have unashamedly put their own interests first during the pandemic. Take Disney, which suspended pay for 100,000 workers at its theme parks but protected executive bonuses. Bob Iger, Disney’s chairman, earned US$47 million in 2019, or 900 times more than the median earnings of the company’s workers, the Financial Times calculated.

Similarly, the board of Denver-based shale oil producer Whiting Petroleum approved US$14.6 million in cash bonuses for top executives in late March, just days before it filed for bankruptcy protection. The CEO collected US$6.4 million, paid immediately.

Even where executives have made sacrifices, “I have a sense boards are doing the minimum necessary to shield themselves from reputational damage,” wrote Andrew Hill, the Financial Times’ management columnist. Examples abound of bosses taking 20% pay cuts, while junior staff have been laid off with nothing more to fall back on than government relief programs.

Some companies deserve a zero not so much for what they have done as how they did it. Bird, a Los Angeles–based start-up in the forefront of the scooter craze, invited staff working from home to log in to a Zoom session, whereupon an unnamed woman told them that more than 400 no longer had jobs. “Like everything we’re experiencing now, this is a suboptimal way to deliver this message,” the bearer of the bad news confessed. She allowed no questions.

Aramark, a big food and uniform services provider and a signatory of last year’s Business Roundtable pledge, is one of numerous companies that have laid off contract workers with no severance pay or rehiring timeline. Marriott, another Business Roundtable member, has told tens of thousands of hotel workers to take unpaid leave.

On another front, it’s hard to feel much sympathy for corporate leaders who have spent their lives telling government to get off their backs, only to pull out the begging bowl when the going gets tough.

Exhibit number one in the COVID-19 era is Sir Richard Branson, founder of the sprawling Virgin empire. Branson has paid no tax in his native U.K. since he moved his principal residence 14 years ago to the British Virgin Islands, where he owns a private island. Yet he has been quick to ask the British government for hundreds of millions of pounds to bail out Virgin Atlantic Airways. Virgin Australia asked a similar favour, but the government turned it down, forcing the airline into bankruptcy in late April. Alas, Virgin’s employees are set to suffer far more hardship than their boss.

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Sadly, there is no shortage of choice for the title of Worst Company on Earth. A host of sweatshops surely qualify, as do any number of corrupt corporate kleptocracies, mismanaged monopolies, climate-action-obstructing fossil fuel companies, price-gouging pharmaceutical companies, weapons manufacturers…the list goes on.

The Washington, D.C.-based advocacy group Mighty Earth recently took a stab at identifying the ultimate bottom-feeder in environmental governance and decided to award the dubious honour to Cargill, the agri-food giant.

The rap sheet against Cargill, the U.S.’s largest privately owned company, is a long one. In the foreword to Mighty Earth’s 7,000-word report, former U.S. Democratic Congressman Henry Waxman writes: “The people who have been sickened or died from eating contaminated Cargill meat, the child laborers who grow the cocoa Cargill sells for the world’s chocolate, the Midwesterners who drink water polluted by Cargill, the Indigenous People displaced by vast deforestation to make way for Cargill’s animal feed, and the ordinary consumers who’ve paid more to put food on the dinner table because of Cargill’s financial malfeasance – all have felt the impact of this agribusiness giant. Their lives are worse for having come into contact with Cargill.”

The report is especially scathing in regard to Cargill’s role in vast deforestation in Brazil by farmers from whom it buys massive amounts of soybeans (which largely become livestock feed).

Nonetheless, the choice of Cargill is somewhat surprising. Environmental activists even lauded it in the past for agreeing to a moratorium on buying soybeans grown on land stripped of trees in the Amazon rainforest. Cargill received a Leadership in Environment award in 2015 from the Keystone Policy Center, a non-profit.

Cargill stoutly defends itself against Mighty Earth’s charges. It noted in a statement that it donated almost US$60 million to charities in 54 countries and has agreed to a zero-deforestation commitment over a period of time in its cocoa, palm oil and soybean supply chains.

“It’s hard to hear,” Ruth Kimmelshue, the company’s chief sustainability officer, told the New York Times. “It doesn’t feel very good.”

Indeed, some may argue that other companies have a stronger claim to be the world’s worst. But in an era when business people constantly pat each other on the back with awards for excellence, no matter how obscure the achievement, it’s not a bad idea to highlight at least some of those that fall short.

Heroes: Business Roundtable

In August 19, more than 180 of the U.S.’s most powerful businesses broke with a long tradition by pledging to serve not only their owners, but also workers, customers, suppliers and communities. The Business Roundtable, America’s most influential lobby group of corporate leaders, retreated from its longstanding position that corporations exist principally to serve their shareholders.

Yet even as they did so, there was no shortage of evidence that many of these companies – and others – remain squarely focused on maximizing profits and driving up the price of their shares.

On the very same day as the announcement, three tech giants – Amazon, Facebook and Google – vowed to fight a 3% “digital” tax that France imposed earlier this year to counter the companies’ unrelenting efforts to avoid paying their fair share of taxes. A week later, an Oklahoma judge ordered another Roundtable signatory, the pharmaceutical group Johnson & Johnson, to pay US$572 million for its role in causing the opioid crisis that, in his words, had “ravaged” the state.

These are hardly the signs one would expect of a more caring and inclusive business community.

Even so, the Roundtable’s statement signals a welcome break from the past. Its original 1997 mission statement declared, “The paramount duty of management and of boards of directors is to the corporation’s stockholders.” The interests of other stakeholders, like employees or local communities, were only “relevant as a derivative of the duty to stockholders.”

Now, says the Roundtable, “Each of our stakeholders is essential.” To its credit, the new approach recognizes that rising public anger over issues like executive pay (and, more broadly, income inequality), climate change and the opioid crisis has sullied the reputation of business. As Jamie Dimon, JPMorgan Chase’s CEO and Roundtable chair, put it, “the American dream is alive, but fraying.”

The question is how effective the Roundtable’s new approach will be. Corporate Knights has suggested following up on the statement of purpose with concrete commitments to carbon-zero business plans and paying a living wage, for starters. Without these kinds of concrete commitments, World Resources Institute’s Kevin Moss says the Roundtable’s new statement “shows 200 CEOs are stuck in yesteryear’s (corporate social responsibility).”

However true that may be, the Roundtable’s new approach at least enables society to hold businesses to a standard based on more than quarterly earnings and return on investment. Let the scrutiny – and the consequences that flow from it – begin.

The post Heroes & Zeros: Business Roundtable evolves, while Cargill named worst company on earth appeared first on Corporate Knights.

Ontario and EDC turned to the University of Oslo’s Centre for International Climate and Environmental Research to help smooth their first forays into the fast-growing market for “green bonds,” fixed-income investments used to finance projects that help combat or adapt to climate change. The Norwegian group, known as CICERO, has emerged as the most influential arbiter of which borrowings qualify as “green.”

CICERO’s work underscores one of the biggest challenges facing the green bond market as it makes the transition from a pet project of environmental activists into the mainstream of global finance.

Which projects deserve to be classified as green? Who is best qualified to be the judge? Should there be a single set of international standards for green bonds? Should such standards be voluntary or mandatory? The answers to such questions will determine the future credibility of the green bond movement.

Demand for green bond issues has ballooned in the past two years as pension funds and other pools of capital – joined increasingly by retail investors – have sought to burnish their social-responsibility credentials.

“Green bonds are building an investor base that’s more aware of what the money they’re investing is achieving in terms of impact and outcomes,” says Heike Reichelt, head of investor relations and new products at the World Bank, which has raised over $7 billion (U.S.) from 77 green bond issues in 17 currencies since the market’s inception in 2007.

Investors bought less than $5 billion of green bonds a year between 2007 and 2012. But demand soared to $11 billion in 2013, and to more than $35 billion last year.

The market took an important step forward in January 2014 when 13 of the world’s biggest banks agreed on a set of voluntary Green Bond Principles that set out a process for designating, disclosing, managing and reporting on green bond issues. The original signatories included Bank of America, Citigroup, Crédit Agricole, Deutsche Bank, Goldman Sachs and HSBC. Several others, including Royal Bank of Canada, have subsequently signed on.

The market has gained sufficient traction that U.K.-based Barclays and MSCI, a compiler of capital markets data, launched a green bond index in mid-November. A bond’s eligibility for inclusion in the index is judged according to four criteria: use of proceeds, project evaluation, management of proceeds, and reporting.

Green bonds “have got a lot of momentum, but they’re still such a marginal portion of the bond market,” says Christa Clapp, CICERO’s head of climate finance. Clapp estimates that green bond issuance still makes up just 0.04 per cent of a total that amounts to about $80 trillion a year. “There’s just not a big awareness of it yet,” she says.

Educating the market

The time and effort involved in educating investors means that issuing a green bond requires more preparatory work – at least for the time being – than a regular public borrowing.

“The marketing process is maybe a little more involved than when we do a benchmark, plain-vanilla type issue,” says Michael Manning, executive director for capital markets at the Ontario Financing Authority, which launched the province’s maiden $500 million (Canadian) green bond last October.

Susan Love, EDC’s treasurer, says the Ottawa-based export-finance agency spent two years laying the groundwork for its first green bond, a $300 million (U.S.) issue.

“With a green bond there’s more information that has to be conveyed to investors,” Manning adds. “Sometimes you’re not just dealing with the portfolio manager. You might be dealing with a sustainability officer or the socially responsible investing manager. The fact that it’s a newer instrument means that we have to be a bit more patient in how we issue it.”

Negotiations on the pricing of the Ontario bond took six days, compared with as little as 10 minutes for a regular domestic deal.

But patience has paid off. Sixteen of 27 investors that subscribed to EDC’s issue last January had no previous dealings with the corporation. Similarly, Ontario’s green bond drew five new investors.

Love says in her almost three decades at the export-credit agency, “this is probably something where you feel you can really make a difference for my kids, and for the kids that come after that.”

On a less sentimental level, green bonds provide a rebuttal to the argument often heard around boardroom tables that protecting the environment runs counter to maximizing corporate profits.

Interest payments on a green bond are generally no more – and sometimes even less – than a conventional public borrowing. Conversely, for investors, “green bonds could be a good way to be responsible without taking a bigger risk,” says Olaf Weber, associate professor and chair of the sustainability management program at the University of Waterloo.

The recent Ontario bond, which is being used to help finance Toronto’s newest light-rail transit line, was more than four times over-subscribed. In a sign of investors’ enthusiasm, the bond was trading 35 basis points (0.35 of a percentage point) above the benchmark Government of Canada issue in mid-November, three basis points tighter than a similar conventional Ontario bond.

“It means that it’s a very easy credit committee argument to buy these bonds because they’re the same rating and yield as other bonds,” says Sean Kidney, chief executive of Climate Bonds Initiative, a U.K.-based non-profit. “The green feature addressing climate change is a bonus.”

Explosive growth

Kidney predicts that green bond issuance could more than double this year, and that a total of $300 billion in financings is “eminently achievable” by 2018. He cites several promising areas for growth – among them, private-sector companies, China, and the municipal bond market.

Corporate issuers have been a driving force in the explosion of green bond issuance over the past 18 months. Borrowers have included companies as diverse as Toyota, Unilever, and Stockland, Australia’s biggest real-estate trust.

Reichelt at the World Bank says many corporations are genuinely changing how they operate and are starting to incorporate these types of aspects into their business. “Green bonds are a good way to communicate that,” he says.

Then there’s China. Kidney sees the Chinese green bond market exploding over the next 12 months as Beijing steps up its anti-pollution drive and investment in renewable energy.

Ma Jun, chief economist at the People’s Bank of China, has pointed to green bonds as one of the financial instruments that China needs to put in place to support government policies. “They should have lower financing costs and greater support from the government, such as tax exemptions,” Jun reportedly said last spring.

Municipalities are also an obvious target for the green bond movement. Not only are they among the biggest borrowers on global capital markets, but much of the money they raise is spent on infrastructure well suited to closer environmental scrutiny.

The Swedish city of Gothenburg has issued two green bonds to finance public transport, water management, energy, and waste management projects. Other municipal issuers of green city bonds include Paris, New York and Johannesburg.

At the national level, there has even been talk of “green quantitative easing,” through which central banks would inject money into the economy by purchasing only green infrastructure bonds. The idea is to both stimulate economic activity and boost the availability of capital for climate mitigation and adaptation projects.

Sir David King, the U.K. government’s former chief scientific advisor, has been a strong promoter of such programs, and proponents include the Green Party (U.K.) and Green Party (Canada). Kidney is also a fan of the idea. “Crazy that it’s taken so long to get on the agenda,” he says.  “We’re pushing it with our EU engagement.”

Whatever the attractions, the market’s long-term credibility – and thus its growth –

hinges on confidence among investors that projects financed by green bonds genuinely contribute to a cleaner environment. Clapp says her biggest fear is that “some sort of headline shows up that a green bond is invested in a coal plant, and investors start fleeing. That’s what we want to avoid.”

There’s also the issue of so-called additionality. In other words, if a green bond isn’t attracting new – additional – investment to low-carbon projects, is it anything more than just an exercise in greenwashing?

Renat Heuberger, chief executive officer of carbon management consultancy South Pole Carbon, recently elaborated on this concern in a Huffington Post commentary: “How can the issuer ensure that the proceeds are indeed used for the declared ‘green’ purpose and that the new green bond is not just a re-branded normal bond that would have been issued anyway?”

The same question has long plagued the credibility and growth of the market for carbon offsets.

Shades of green

Meanwhile, a vigorous debate has erupted in the green bond community – researchers, bankers, issuers, investors and environmental activists, among others – over what criteria should determine whether a project is eligible to be financed by a green bond, and who should decide whether those criteria have been met.

Some banks favour a minimum of outside supervision. Deutsche Bank’s chief sustainability officer Sabine Miltner told a conference in London last September that calls for eligibility standards and requirements were premature and risked choking the fledgling market. The focus “should be on expanding issuance and investor interest,” Miltner said. “Over-burdening the market with prescriptive green standards is counter-productive at this stage.”

Others take the opposite view. According to Love at EDC, “what’s important is that we need to have high standards in the process and high standards of transparency. We heard from many investors that it was very important to have second-party validation.”

The Climate Bonds Initiative has set up several working groups to draw up eligibility criteria for specific sectors, similar to the Fair Trade designation on products as varied as coffee, gold, wine and clothes. “Some banks think we’re killing the market, but so be it,” Kidney says. “We would argue that we’re not being stringent, we’re just being clear but also science-based.”

Adds Kidney: “Clarity will be the friend of a long-term sustainable market. But it’s tough for a capital markets person who sees his clients walk away because it all looks a bit too hard.”

Some take a more middle-of-the-road approach. The World Bank, one of the first and still one of the biggest issuers of green bonds, has developed its own criteria for eligible projects. In doing so, it sought advice from investors and a second opinion from CICERO. “This was the investors telling us, ‘These are the types of projects you finance that we want to support’,” Reichelt says.

Reichelt is among those who question the practicality of a “one-size-fits-all” standard. “There are differences within countries and from country to country as to what people think is green, or good for the environment,” she notes. “People in countries like France, for example, may tend to be more supportive of nuclear energy than in Germany. Some people might see a mix of energy sources, including ‘cleaner’ fossil fuels, as important for going forward, and others may say definitely not.”

CICERO also favours a balanced approach. “The most important thing is that investors have disclosure,” Clapp says. “That’s done through a second opinion or through a standard. I just don’t see that one standard fits all – not right now”.

The Norwegians have so far issued second opinions on about 30 bond issues – including the recent EDC and Ontario bonds. They broadened their base last June by joining forces with four other research groups to set up an Expert Network on Second Opinions, known as ENSO. The new partners include the International Institute for Sustainable Development, based in Winnipeg; the others are in Spain, China and Sweden.

Announcing the new network, CICERO insisted that it “will operate independently from the financial sector and other stakeholders to preserve the unbiased nature and high quality of second opinions (on green bonds).”

Clapp says CICERO’s work is based, above all, on science. “We are trying to tie our second opinions to … what we know to be the climate risks on investments and what we know to be in line with the pathway towards a zero-carbon future in the long term.”

Even so, the group stops short of prescribing specific criteria or standards for green-bond eligibility. Citing the example of different biofuels, Clapp says a lot of questions are asked of the issuer about the context a project. “The regional context is important – how they view the lifecycle analysis and greenhouse gas emissions,” she explains. “We dig into those grey areas and try to provide context, rather than just saying you can include or exclude that specific category.”

CICERO is working on a green-bond grading system that Clapp describes as a “menu of choices,” ranging from dark green for projects that are most effective in combating climate change, to lighter shades for those that make a more modest contribution but need to take other realities into account.

“I think there’s some value for investors in being able to choose their own environmental risk profile,” Clapp says. “We’d love to see the whole record be dark green, but if that means fewer green bonds, we haven’t made much progress towards our ultimate goal of an improved climate. We recognize that some investors care somewhat about the green, but don’t need it to be the darkest, perfect colour.”

The post Going big with green bonds appeared first on Corporate Knights.

Such questions are one sign of mounting interest in the cost of tougher greenhouse gas emission standards, tighter renewable energy requirements and other policies that are designed to stem global warming but could, in the process, hurt the commercial viability of carbon-intensive projects.

“It’s part of our overall strategy of encouraging all participants in the market to wake up to the possibility of very real carbon constraints,” said Dermot Foley, manager for environmental, social and governance analysis at Vancouver-based Vancity.

Starting with Royal Dutch Shell and BP in 2002, a growing number of oil and gas producers, including several Canadian ones, have expressed the future cost of containing carbon emissions as a notional dollar amount, known as a “shadow” carbon price. Indeed, shadow carbon pricing is now standard practice in the energy industry, though company approaches vary and public disclosure levels remain weak.

According to Alex Wood, senior director for policy and markets at Sustainable Prosperity, an Ottawa research group, “the pricing that (companies) use is clearly meant primarily to inform decisions about capital expenditures – project X versus project Y – and how to reflect the anticipated compliance cost for that facility.”

For example, Syncrude, one of Alberta’s oldest and biggest oil sands producers, says that it runs a sensitivity analysis “from time to time, as needed” on the impact of various future carbon policy and pricing proposals on its business.

Scott Arnold, director of sustainability at Canadian Oil Sands, which holds a 37 per cent stake in Syncrude, compared the carbon-pricing analysis to other, more familiar aspects of the company’s business, such as assumptions on oil prices, foreign exchange rates, input costs and royalty rates.

No standard formula exists for calculating an appropriate shadow carbon price, given that no one can be sure what policies and regulations governments around the world may adopt in future years.

“We can make educated calculations about the potential impact of carbon regulations,” said Brett Harris, a spokesman for Cenovus, “but we can never know all of the factors that will be included in a particular set of regulations until the government publishes them.”

Existing carbon taxes provide a starting point for shadow pricing calculations. Syncrude uses a price of $15 per tonne of carbon dioxide equivalent for its planning and investment models, based on the level set in Alberta’s specified gas emitters regulation.

But the Alberta tax has serious shortcomings as a proxy for a realistic carbon price. For a start, Canada does not have a federal carbon tax, which arguably should also be factored into the equation.

The Conservative government in Ottawa has resolutely opposed putting a price on carbon emissions. “Everyone has their own approach and we know a carbon tax would increase the price of everything in Canada,” federal Environment Minister Leona Aglukkaq told the annual climate change conference in Warsaw in mid-November.

But business is one step ahead. Wood said most companies that use shadow carbon pricing reference a price that’s higher than the regulatory threshold. “The rationale is the expectation that the price will increase,” he said. “That needs to be factored into their investment decisions.”

Cenovus and Suncor also use the Alberta carbon tax of $15 per tonne as a base for their calculations of long-term market risk. “We will update that ($15 model) if Alberta’s price changes,” Harris said. But both companies also use models based on much higher prices – about $50 per tonne for Suncor and $65 for Cenovus.

“By running these scenarios, we’re able to create a marginal cost curve that gives us a better sense of the economics of various technology alternatives,” Harris explained. “So for instance, a technology that has the potential to reduce carbon emissions may be uneconomic to pursue when carbon is priced at zero, but it becomes more economic when carbon is priced at $65 per tonne.”

According to Suncor’s latest annual sustainability report, “our base case future carbon price assumption takes into account the best information we have from carbon markets and developing public policy. Our base case assumes that by 2025, the carbon price applies to an increasing percentage of our emissions.”

Suncor also assumes that the U.S. and Canadian governments will balance tighter environmental controls with economic and energy security concerns. It thus expects, according to its 2012 annual report, that “regulation will evolve with a moderate carbon price signal, and that the price regime will progress cautiously.”

Among other big Canadian producers, Imperial Oil follows the lead of ExxonMobil, its U.S. parent. According to ExxonMobil’s latest Outlook for Energy, the two companies assume a shadow (or “proxy”) price for carbon dioxide for most of their North American operations of “more than” $40 per ton in 2040 (measured in 2012 dollars). One exception is the Arctic, where the shadow price is under $20 per ton – the same level assumed for Africa, the Middle East and parts of Latin America. A recent report from the Carbon Disclosure Project has ExxonMobil disclosing that it uses $60 per ton as its internal benchmark.

However, some academics and environmental activists take the view that these shadow prices are far too low. They contend that the shadow price should be closer to $100 per ton given the tough measures needed to avert the looming global warming crisis.

Many companies are wary of disclosing full details of their calculations. Cenovus declines to describe the methodology behind its shadow carbon pricing model “for competitive reasons,” while Canadian Natural Resources declined to comment on any aspect of its carbon pricing policies.

Ryan Salmon, senior manager for oil and gas at Ceres, a U.S.-based research group, said it boils down to a single question for investors in these companies: “How robust are these companies’ business plans against a scenario that looks much different from the present in terms of carbon price, oil demand and other factors?”

A crucial issue for Canadian producers, Salmon said, is the commercial viability of the technology known as carbon capture and storage. Several pilot projects are underway in Alberta and Saskatchewan that involve capturing carbon dioxide emissions from the oil sands and transporting the gas through pipelines to deep underground rock formations, where they will theoretically be trapped forever.

“There should be a higher carbon price to make that kind of project economic,” Salmon said. “It’s unclear how much abatement could be gained from carbon capture and storage. It would certainly be interesting to know more about what companies are assuming.”

More generally, as Vancity’s questions to the banks and insurers suggest, pressure is intensifying for a credible measure of the cost of containing greenhouse gas emissions.

A report commissioned by the Association of Chartered Certified Accountants, representing accountants around the world, noted in October that “current financial reporting standards, stock market listing requirements, industry reporting frameworks and non-financial reporting guidelines do not alert investors to the risks of reserves associated with climate change.”

The report, compiled by Carbon Tracker, a U.K.-based non-profit, concluded that the strategies laid out in corporate annual reports talk of growth that is “incompatible with emissions limits.” It recommends that oil and gas producers be required to:

• Convert reserves into potential carbon dioxide emissions;
• Produce a sensitivity analysis of reserve levels for different price and demand scenarios;
• Publish reserve valuations using a range of disclosed price and demand scenarios;
• Discuss the implications of this data when explaining their capital spending strategy and risks to their business models;

On another front, last fall, a group of 70 money managers lit a fire under several dozen of the world’s biggest oil and gas producers, coal miners and power utilities. In a letter to 45 companies, the investors called on each one to conduct a wide-ranging review of the financial risks posed by climate change.

“We would like to understand (the company’s) reserve exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by 80 per cent by 2050,” the investors wrote.

The companies were asked to evaluate, among others, “the risks to unproduced reserves, due to factors such as carbon pricing, pollution and efficiency standards, removal of subsidies and/or reduced demand.”

Jack Ehnes, CEO of the influential California State Teachers’ Retirement System and one of the signatories to the letter, said in a statement: “The world is taking climate change seriously and global pressures to reduce fossil fuel use will only grow stronger.

“As long-term investors, we see the world moving toward a low-carbon future in which fossil fuel reserves that companies continue to develop may actually become a liability, which could take a toll on share value.”

When and by how much remains the big gamble that investors make.

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Yet for all the kudos showered on Puma, few – if any – other global companies have so far followed its lead.

Jochen Zeitz, a director of PPR, Puma’s parent, asserted in an interview with Corporate Knights that “I only get positive remarks…. It’s been overwhelmingly positive.” Zeitz was a driving force behind the environmental profit and loss account – known as EP&L – during 18 years as Puma’s CEO.

But Richard Tipper, chief executive of Ecometrica, a London-based consultancy, noted that many chief financial officers would “hold up their hands in horror” at the thought of an accounting system that adds a sizable liability to their balance sheets. It’s a view that would undoubtedly be shared by their boards of directors, Tipper added.

Such hesitancy raises questions about the quest for a wider natural capital accounting system. Is Puma’s EP&L merely ahead of its time, raising the prospect that others will sooner or later catch up? Or are Zeitz and his colleagues idealists out of touch with the rest of the business world?

Zeitz explained the rationale behind the new accounting system when he introduced it in 2010:

“I wanted to know how much we would need to pay for the services nature provides so that Puma can produce, market and distribute footwear, apparel and accessories made of leather, cotton, rubber or plastic for the long run. I also wanted to know how much compensation we would have to provide if nature was asking to be paid for the impact done through Puma’s manufacturing process and operations.”

The EP&L puts a monetary value on Puma’s greenhouse gas emissions, water use, land use, air pollution and waste. It includes the impact of Puma suppliers around the world. The first EP&L estimated a total cost of €145 million in 2010. An updated version is due to be published later this year.

PPR’s other luxury and sport brands, such as Gucci, Stella McCartney, Bottega Veneta and Alexander McQueen, are also now working on EP&Ls. They plan to publish them in 2016. (The EP&L has no bearing, at least for the time being, on the companies’ traditional financial statements.)

Puma has also set a number of targets to shrink its footprint on the environment, including a 25 per cent cut in carbon emissions, waste and water usage; sourcing all paper and packaging supplies from sustainably managed forests, with a minimum 50 per cent recycled content; and phasing out the use of hazardous chemicals by 2020. It has also committed to more sustainable and humane sourcing of leather supplies.

Mark Anielski, an Alberta-based consultant who specializes in “well-being” economics, noted that a handful of companies – notably Interface, a Georgia-based maker of commercial carpet tiles – have been even more aggressive than Puma in actually shrinking their ecological footprint.

Interface founder Ray Anderson – often described as “America’s greenest CEO” – adopted a “Mission Zero” policy, committing the company to eliminate any negative impact on the environment by 2020. Shortly before his death in August 2011, Anderson estimated that the company was more than halfway towards that goal.

But Interface and Puma are exceptions.

Zeitz acknowledged other companies’ fear of negative publicity if they disclose the full cost of their environmental impact. Nonetheless, he asserted, some are working quietly behind the scenes to develop environmental accounting systems.

He said more details will emerge with the official launch in a few months of The B Team, an initiative spearheaded by Zeitz and Sir Richard Branson, the flamboyant founder of the U.K.-based Virgin Group. The B Team aims, according to its website, “to make business work better … by shifting the focus from just financial gains towards environmental and social gains as well.”

One of its self-described “Grand Challenges” is to create “a global standard to help businesses account for the environmental impacts of their operations.”

Puma itself recently won support from a panel of 22 outside experts commissioned by the company to review the EP&L. In a report published in December, the group described the initiative as “an innovative and pioneering corporate approach to transparency.”

Despite some shortcomings, such as the system’s complexity, the panel said that Puma’s methodology “clearly applied credible valuation approaches.”

It also cited numerous benefits of an EP&L, and not only for Puma. For example, “by providing greater transparency on the impact of business on society, the EP&L can provide companies with leverage in public policy discussions which can ultimately help shape better-enabled and more sustainable business operating environments in the future.”

As Anielski sees it, business will come under growing pressure to adopt not only EP&Ls but also broader measurements of well-being.

“We’re seeing a whole generation that are now accustomed to seeing sustainability reports, and expecting these kinds of accountability,” he said. “Young people want authenticity.”

Zeitz acknowledged that the approach will be more challenging for small or mid-sized companies because of the amount and detail of data that needs collecting. “You may say that’s too much of an effort and the costs are too high.”

Still, he’s confident that momentum will build as big companies adopt an EP&L system, after which the approach will be simplified and standardized so it can be more easily adopted by small businesses.

“I’m convinced that eventually this will happen,” said Zeitz. “Whether it will be called an EP&L or something else, it doesn’t really matter. It’s the principle of accounting for natural capital and environmental impact which is important.”

Despite his reservations about the EP&L methodology, Tipper said he appreciates Puma’s effort. “This is a good initial start, and I would welcome it if other companies did it.”

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