Investors are becoming less green about investing their green towards the green

The economy and the environment seem to be the two main things keeping people awake at night. So while stock market woes are causing some investors to tighten their purse strings, others are simply tightening their investment decision standards.

A number of factors, such as market trends and financial risk, influence individuals’ investment decisions, but what makes things tricky is when these factors shift into new territories. Even in the midst of a recession, the environmental movement is increasingly occupying space in the world of investing and finances. Making things even trickier is the fact there are no real universal standards that dictate how businesses should measure and disclose environmental data.

Cementing this challenge is the abundance of businesses claiming to be the greenest guys in town. Take Ebay’s recent claim for example. The company implies their green status doesn’t have to represent any recent shift in operations, saying it’s “intrinsic”. The reasoning goes: as long as people keep buying other people’s used items, that’s recycling. As well, on their Green Team website, the company outlines a number of initiatives implemented throughout their operations, such as installing solar panels and purchasing carbon offsets.

Fair enough. Increased competition for the attention of investors wooed by the corporation’s green siren call may result in the demand to substantiate claims with hard facts and figures. That’s what investors look for, right?

But, while there is no shortage of companies tooting their own green horns with a host of glowing environmental claims, investors are left to wonder, not only how much of it is greenwashing but, perhaps more importantly, what are some of the environmental risks confronting the companies vying for their investment dollars?

The reality is climate change does not just present business opportunities, but business risks as well. And investors want to know.

This reality hit home for two major oil sands companies, Chevron and Canada Natural Resources, when they landed on a Boston-based investors group’s Climate Watch List for allegedly failing to address their climate change related business risks in their reporting practices. Chevron responded by outlining their disclosure practices saying, “”Chevron has been recognized as the only U.S.-based oil company listed on the 2008 Carbon Disclosure Leadership Index for carbon disclosure practices. In addition, Chevron has been included in the Dow Jones Sustainability Index for North America for the fourth year in a row.”

It appears the science behind climate change disclosure needs a bit of ironing out; a company that voluntarily discloses its climate change risks and opportunities through one organization, is being vilified for not disclosing such risks by another organization. Both organizations consist of institutional investors pressing for increased climate change related disclosure. Granted, one factor that contributed to Ceres putting Chevron and CNR on its Climate Watch List is the fact the companies operate in the oil sands. However, so do many other publicly traded energy companies.

Despite the ambiguities in disclosure standards, the investors’ movement toward increased climate change related financial reporting continues to pick up speed. The Carbon Disclosure Project (CDP), for example, represents an international coalition of institutional investors. According to a recent release, in 2008, 385 investors, including 40 based in Canada, with a combined asset base of $57 trillion were signatories to the CDP’s information request. The request was sent to 3,000 of the world’s largest publicly-traded companies, including the 200 largest Canadian firms by market capitalization traded on the Toronto Stock Exchange. The Council of Canada, which is the Canadian partner for administering and reporting on the CDP, recently released a report claiming “The CDP provides a mechanism through which responding companies can communicate their climate change related disclosures to institutional investors and stakeholders in a standardized format.”

The CDP has companies all across the world, from Korea to Japan to Ireland, disclosing climate change related information. In Canada alone, 103 publicly-traded companies, including Chevron, responded to the CDP information request in 2008, with 85 respondents indicating that climate change presented physical risks to operations, regulatory risks or general business continuity risks. Another 90 indicated that climate change presents economic opportunities for their business.

So if you’re thinking about investing, hopefully increased information disclosure will help you sleep a little easier. While the science behind carbon disclosure, such as the creation of universally accepted environmental standards, is still evolving, organizations like the CDP are bringing investors that much closer to obtaining the information they need to make smart, environmentally conscious investment decisions.