On Your Behalf - June 2007 Report

Global Warming, the Business Community and the Faith-Based Investor

Global warming is more than just a buzzword or the latest political cause. It is an environmental phenomenon deeply affecting the lives and well-being of people around the world.

What Is Global Warming?

Greenhouse gases, such as carbon dioxide, methane and nitrous oxide, are naturally-occurring substances found in the earth’s atmosphere. These gases help regulate the earth’s temperature by trapping infrared radiation that has been reflected off the earth’s surface. Higher levels of greenhouse gases enable the atmosphere to absorb more infrared radiation, disturbing the balance between incoming and outgoing energy. The end result of this imbalance is an increase in the earth’s surface temperature, or global warming.

According to the Intergovernmental Panel on Climate Change (IPCC), a joint project of the World Meteorological Organization and the United Nations Environment Programme, the 11 years between 1995 to 2006 “rank among the 12 warmest years in the instrumental record of global surface temperature (since 1850).” The panel concludes, “Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level.” (Climate Change 2007: The Physical Science Basis, Summary for Policymakers, released in February of 2007 and available at http://www.ipcc.ch/SPM2feb07.pdf).

Signs of Global Warming

The IPCC has documented many signs of global warming:

• Snow cover and glaciers in mountainous areas have declined throughout the world.
• The global average sea level has risen.
• Droughts have been longer and more intense, especially in tropical and subtropical areas.
• There are more frequent occurrences of heavy precipitation over most land areas.
• Mid-latitude westerly winds have increased in strength in both Northern and Southern hemispheres.
• Intense tropical cyclonic activity has increased over the North Atlantic.
• Polar sea ice continues to shrink.

These signs are just the beginning. Continued emissions of greenhouse gases such as we have seen over the past two centuries could have widespread negative repercussions on our world. Some possible outcomes of continued global warming include:

• Areas susceptible to drought will increase.
• An increase in the number of more frequent heavy precipitation events will result in more flooding.
• Water availability will decrease because of shrinking glaciers.
• Possibly 20%-30% of plant and animal species will experience increased risk of extinction.
• Crop productivity will decrease at lower latitudes.
• Coastal flooding will increase.
• An increase in cardiorespiratory diseases could occur due to higher concentrations of ground level ozone.

The Business Community: How Environmental Sustainability Can Increase Profits

Companies confront special challenges relating to global warming. Many face significant regulatory issues as governments consider ways to limit greenhouse gas emissions. Others, located in areas hardest hit by global warming, must plan for potential operational disruptions and risk to property and other assets. All companies could suffer a loss of “reputation” if perceived as unconcerned or unconvinced of climate change issues.

Anticipating how global warming and climate change may affect a company’s ability to do business into the future is a serious issue for shareholders. Fortunately, reducing energy usage and greenhouse gas emissions is good for both the environment and business, as energy-saving measures translate into cost-saving and profits. As Wal-Mart CEO Lee Scott described his company’s initiatives to implement energy-saving policies and subsequently save over $350 million a year, “This is a business philosophy, not a social strategy.”

The General Board: Taking Action Through Advocacy

In response to this potential for crisis, The United Methodist Church urges the elimination of “energy-producing technologies that endanger the health, the safety, and even the existence of the present and future human and non-human creation” (¶160B, The Book of Discipline 2004).

In addition, the Church has called for the “control of global warming” (Resolution 5.8, The Book of Resolutions 2004), to move beyond “dependence on high carbon fossil fuels that produce emissions leading to climate change” (Resolution 6.1) and to “support measures calling for a reduction of carbon dioxide, methane, nitrogen oxides, and sulfur dioxide, which contribute to acid rain and global climate change” (Resolution 7).

The General Board, as an investor for The United Methodist Church, is charged with being a steward, protector, and defender of all creation. As such, the General Board has an important role to play in the promotion of environmental awareness and corrective environmental actions. Along with other social issues, the General Board advocates for environmental stewardship through dialogue and discussions with company executives, through the filing of shareholder resolutions and by actively voting the proxy ballots of almost 3,000 companies each year.

One way the General Board urges companies to reduce their environmental impact is through the publishing of sustainability reports, which document how company operations take place so as not to negatively effect long-term viability, shareholder value, the environment or stakeholders. By embracing sustainability, companies strive to “meet the needs of the present without compromising the ability of future generations to meet their own needs.” Since January 2007, the General Board has been engaged with the following companies on the issue of sustainability reporting:

• Best Buy
• Caterpillar
• FedEx
• General Mills
• Kroger
• Marsh & McLennan
• Morgan Stanley
• Nike
• Sara Lee
• Sunoco
• Timberland
• Time
• Wal-Mart

All of these companies have either published or committed to publish a sustainability report.

In addition, a representative from the General Board, along with other faith-based investors affiliated with the Interfaith Center on Corporate Responsibility (ICCR), served on Wal-Mart’s sustainability report advisory committee. Wal-Mart will publish its first sustainability report later this year.

The General Board, through the Carbon Disclosure Project, also has joined more than 200 institutional investors in soliciting information on greenhouse gas emissions from more than 2,000 companies around the world. The results will help investors assess the impact that climate change has on shareholder value and to identify leaders in environmental stewardship.

The General Board has entered into dialogue with many companies on policies and practices concerning energy efficiency. Through dialogue, companies can identify potential strategies for shrinking their environmental footprints, for becoming more accountable and ultimately for enhancing shareholder value.