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Regulate by Retail: Assessing Shareholder Risk in Corporate Supply Chains
By Lauren Morrell

A panel of experts at the 25th annual SRI Conference discussed the power of investors, consumers, and public interest groups to influence corporate practices and regulations that seek to guide more responsible company behavior. The panel included Robert Frisbee, CEO of the Green Electronics Council, and Glenn Hurowitz, Managing Director of Climate Advisers, who shared observations on the progress made by their organizations to improve the way businesses operate around the world.

Climate Advisers works to create and implement large-scale, cost-effective strategies to strengthen climate action and ultimately create a low-carbon economy. Hurowitz detailed Climate Advisers’ work on the conservation of tropical rainforests. The strategy is focused primarily on pressuring large commodity companies to dramatically change their practices and then encouraging their industry colleagues to follow suit.

Voluntary corporate action cannot be expected to create a long-term change without adequate incentives. Fortunately, companies are sensitive to the risks of stakeholder action, particularly when it comes from three directions simultaneously—from consumers, investors, and the media.

Climate Advisers has witnessed huge companies that have historically lobbied and bribed officials to discourage the strengthening of environmental regulation now finding a great deal of financial incentive to instead lobby for stronger environmental regulations. After NGO and supply chain pressures caused them to change their practices and meet consumer and investor demand, these companies want the playing field leveled so that their competitors don’t have an unfair advantage. Large companies can have a powerful positive impact, when the incentives are structured right.

Hurowitz thinks the same thing is likely to happen in the fossil fuel industry. As more utility companies come under pressure to change their energy mix, we are likely to see certain companies getting out of the business of extracting oil from tar sands, for example. As company priorities change, it also changes the dynamic for politicians—the same companies that were lobbying for weaker regulations will begin to see compelling financial incentives for stronger regulations.

The Green Electronics Council, made up of industry experts, environmental experts, and purchasers’ representatives, sets global standards for electronic products based on product life cycles and environmental impacts. The organization is not a regulatory body; it recognizes that regulation can only provide a floor, motivating companies to meet minimum standards.

Frisbee explained that the Green Electronic Council creates an aspirational leadership standard where there are always incentives for companies to create better, more environmentally conscious products.

The success of this model speaks for itself, as the GEC has grown to control $165 billion of the electronics market in 43 countries, including almost all global brand managers and purchasers like Marriott, Microsoft, Deutsche Bank, Ford, and the Indian Railway. Frisbee describes this as “a major shift as the purchasers are the driving force behind these advances.”

When governments are becoming less and less effective as catalysts in creating environmental change, investors are becoming the action agents. “That is why a conference like this is so important,” Frisbee said.

 

At First Affirmative, we understand that the ways we save, spend, and invest can dramatically influence both the fabric and consciousness of society. We believe that in addition to the benefits of ownership, investors bear responsibility for the impact our money has in the world. Are you making conscious decisions about the impact of your consumer purchase and investment decisions?

 

Mention of specific companies or securities should not be considered an endorsement or a recommendation to buy or sell that security. Past performance is no guarantee of future results.

 

 

Posted: December 10, 2014