Environmentalists for Enron

CERES, the Coalition for Environmentally Responsible Economies, is terribly concerned about corporate governance. Worried by the recent corporate scandals, this coalition of environmental groups and institutional investors has taken a hard look at one of the biggest threats facing corporate America today in its eyes: global warming. 

It has concluded that American energy, automobile and oil corporations are not doing enough to shield their investors from this imminent danger by disclosing the risk, and recommend ways in which the companies can get their acts together. Yet a close look at the strategies recommended shows that they actually advocate one of Enron’s biggest money-making schemes. CERES appears to want more Enrons, not fewer.

Founded in 1988, CERES exists to further the view that “corporations have a responsibility for the environment, and must conduct all aspects of their business as responsible stewards of the environment by operating in a manner that protects the Earth.” CERES believes that corporations “must not compromise the ability of future generations to sustain themselves.” It advances its agenda by trying to persuade companies to adopt certain principles and guidelines.

As already mentioned, CERES is a coalition of groups with environmental agendas, such as the World Wildlife Fund, Friends of the Earth and the AFL-CIO, who have grouped with institutional investors like the Presbyterian Church, the New York City Comptroller’s Office and the Calvert Group to achieve these goals. It is safe to say that CERES puts advancing its classic Green environmentalist agenda at the forefront of its policies.

When CERES announces that it has guidelines for good corporate governance on the subject of climate change, one is entitled to ask who will gain. The guidelines are designed to weave environmental “concern” into the very fabric of American corporate life, making environmental sustainability more important to the corporation than sustainable competitive advantage. CERES would have every corporation appoint a Chief Environmental Officer reporting directly to the CEO or his executive committee. No doubt these officials would become the automotive, oil and energy industry equivalents of Standards and Practices in the entertainment industry, vetoing otherwise sound moneymaking projects because they do not pass environmental tests. It is also fairly easy to see that these positions would require such specialized knowledge of environmental issues that they would likely be filled from outside the company, creating a plethora of highly paid jobs for Green activists.

Yet that is not the only risk companies face if they follow CERES’ guidelines. The program is based on a series of highly questionable premises: that the science of global warming is settled and that restrictions on CO2 emissions are therefore inevitable and that a market-based system of trading emissions allowances is the best way of achieving those restrictions. Each of these is debatable, which means that if companies are to disclose “opportunities and risks” related to climate change then they really need to look at the full spectrum of possibilities.

There are many feasible scenarios for how climate change may effect economic interests, but CERES only wants reporting on one of them: that climate change will be detrimental and that we must take action to reduce emissions. Yet climate change may not be detrimental (a little warming will probably be good for the world as a whole), in which case taking action to restrict emissions can be seen as a bad investment. Or climate change may be detrimental and happen anyway, and restricting emissions might cripple businesses’ ability to adapt to the change, in which case the action would be an even worse investment. If we want to let investors know what environmental risks their company faces, we should not restrict ourselves to just one particular scenario.

Yet there is an even greater risk to which we should pay attention. The solution recommended by CERES–a greenhouse gas emissions trading program, in which firms would trade allowances to produce carbon dioxide and other greenhouse gases–represents a tremendous moral hazard for companies. It was enthusiastic trading in financial instruments like this that proved too much of an incentive for Enron to cook its books. In fact, Enron was the leading lobbyist in Washington, D.C. for such a “market mechanism” for implementing the Kyoto protocol, which it thought would “do more to promote Enron’s business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the United States.”

CERES and Enron seem to be singing from the same hymn sheet. That, more than anything else, should let investors know exactly how concerned CERES is that American companies should be governed properly.