Climate Change in the Boardroom

How to account for that risk? Utilities facing the threat of new emission curbs have already taken the first steps, as have multinationals trying to look green and acceding to pressure from shareholders. Meanwhile, some activists want the courts to do the figuring and to apportion the blame.

In 2005, a group of property owners in Mississippi brought a lawsuit against several oil, chemical and coal companies. The residents claimed that Exxon Mobil (XOM), Chevron (CVX), Duke Energy (DUK) and others were liable for emitting greenhouse gases that contributed to global warming, which in turn raised the temperature of seawater in the Gulf of Mexico and intensified Hurricane Katrina's strength.

The case, Comer vs. Murphy Oil USA, was dismissed last August and is now under appeal, one of several lawsuits brought by individuals and environmental groups attempting to hold industry accountable for its contributions to global warming.

In another case, the state of California sued GM (GM), Toyota (TM), Ford (F) and other car makers in 2006, alleging that vehicle emissions were causing climate changes and hundreds of millions of dollars in damages to the state. (The case is also under appeal.)

Proving what contribution to global warming was made by a particular utility, car maker or refinery is difficult to say the least. David Montgomery, who directs the environmental practice for CRA International, a consultancy in Washington, D.C., says it's a doomed effort. "It's basically harassment. The notion that you can sue someone for causing global warming is absurd," Montgomery says.

Still, such suits are on the rise as the case for global warming hazards gains acceptance with every major scientific report, corporate acknowledgment and award for Al Gore. Not content to wait for federal legislation moving at its current glacial speed, groups are trying to bring about change on a smaller scale.

The Securities and Exchange Commission is also being pressured to act. A coalition of environmental groups and investors asked the SEC in September to require companies to assess and disclose their climate change risk exposure along with other financial risks. But Montgomery says it's already part of a company's fiduciary duty to report "material" risk — which would include climate change where applicable. We asked Montgomery to guide us through a regulatory maze that remains a work in progress.

SmartMoney.com: How important is potential carbon-reduction legislation to companies? Will these regulations be akin to corporate governance regulations?

David Montgomery: If there's legislation that's going to put a price on carbon emissions, most companies interpret that and ask what's that going to mean for us. So yes, it's really important. We do a tremendous amount of work with companies as they understand what the risks are and as they come to think about strategies to reduce those risks and protect shareholders. We are finding companies are increasingly sensitive to them. I think this is going to be an important part of corporate governance. We've helped companies that have gone through precisely this; they've written reports to shareholders detailing those risks. Southern Co. (SO) gave a report a couple years ago. KCP&L [Kansas City Power & Light, a subsidiary of Great Plains Energy (GXP)] did one last year. They're good examples of how electric power companies are approaching this issue.

SM: Should the SEC make this sort of disclosure mandatory?

DM: Absolutely not. Making companies disclose risks due to climate change is absurd.

SM: Why?

DM: Companies are already required to report all the material risks that they foresee — for anything. And that covers climate. And they're doing it. They're doing it not because of a regulatory requirement, but because it affects their business. They're there to make money and protect their shareholders. If they don't do it, the market will punish them.