406 Dirksen EPW Hearing Room

Hon. Denise Nappier

Treasurer, State of Connecticut

Good morning. My name is Denise Nappier, and I am Treasurer of the State of Connecticut. I appear before you as an institutional investor and the principal fiduciary of a $17 billion pension fund – representing 160,000 beneficiaries and plan participants. As Treasurer, I am elected by the people of my State, who, like millions of Americans, have sought to ensure their families’ economic future through investments in the capital markets.


I appreciate the opportunity to testify today on the relationship between climate change, corporate governance, and the well-being of institutional and individual investors.


I am sure you have heard considerable testimony from others more expert than I am on the science of climate change, so I won’t go there. What I will do is give you the perspective of an institutional investor whose responsibility it is to look to the long–term value of our pension fund.


You know, we all learned a number of very painful but very valuable lessons from Enron and the corporate scandals that followed, and we must not allow ourselves to lose sight of those lessons. We learned about the disastrous impact on our investment savings, our jobs and our economy…. That is when transparency, accountability and an honest assessment of risk are not viewed by companies as priorities, either by design or otherwise.


As institutional and individual investors, we need accurate and complete disclosure of information that could affect the current and future health of the companies we invest in… and that goes beyond accounting to include, among other things, climate change as a risk factor.


The consequences for those companies that do not act responsibly today and take steps to assess and mitigate the risk associated with climate change can be quite devastating. For example, companies could face the prospect of losing their competitive edge, incurring litigation costs, or being saddled with unforeseen capital expenses, just to name a few. All of these factors – and others – can erode shareholder value and place today’s seemingly solid investment in jeopardy.


Climate change may well be about our planet’s future, but it is also about the financial risks to corporations, and the impact on the retirement savings of millions of Americans. As a result, we have every right to know what is being done about it and how America’s corporations will protect their bottom line, and thereby the value of our investments.


I believe that this issue is quickly becoming the leading edge of the next wave of corporate governance issues, and that the market place must begin to closely scrutinize companies to determine whether they have honestly, directly and thoroughly evaluated climate change as a risk factor and developed a proper response to it.


You know, in finance, where there is risk, there can also be reward. A report by the Rose Foundation last year, “The Environmental Fiduciary”, reviewed the findings of a number of studies on this issue, and concluded that “in many cases improving environmental performance provides a measurable boost to profitability and shareholder value, especially over the long term.”

So, we have a real opportunity here to not only protect our shareholder value, but also to achieve added value.


While you in Congress are debating the merits of a legislative response to climate change, such as whether or not to enact mandatory caps on carbon emissions, other nations are preparing to implement the provisions of the Kyoto Protocol which include mandatory provisions. Many of the companies in which we invest – particularly companies such as GE, ExxonMobil, and Daimler Chrysler – operate in a global economy. For them, carbon regulation is not a future possibility, it is an imminent reality. And many state governments are also considering, and enacting, legislation addressing climate change.


Beyond the regulatory environment, shareholders are now advancing this issue. This year, resolutions on climate change were introduced at 23 U.S. companies – and the Connecticut pension funds filed two of these and co-filed on a third.


Shareholders are asking companies to report on their greenhouse gas emissions, or to set a goal to reduce emissions, or to report on the potential future financial risk to the company from their past, present, and future emissions and to issue a plan to mitigate that risk.


Some of these resolutions were withdrawn after productive discussions between shareholders and management. Most of the resolutions, however, were opposed by management and the directors. That opposition may prove to be shortsighted… penny wise and pound-foolish.


At the annual shareholder meeting of American Electric Power held this past April, the climate change resolution sponsored by Connecticut received the support of 27% of shareholders voting. While some people may say 27% is not a majority, I believe this vote is both extraordinary and virtually unprecedented. And I should add that an article in the Wall Street Journal the next day shared that view.


In fact, the percentage of shares voted in support of climate change resolutions has doubled in the last two years, according to data from the Investor Responsibility Research Center. Make no mistake, there is significant investor concern about the impact that climate change could have on our nation’s economy.


In addition to the shareholder resolutions, other efforts to encourage disclosure of potential risk are underway:

· Connecticut is a signatory of the Carbon Disclosure Project – which surveyed the 500 largest companies in the world, and found that while 80 percent acknowledge the importance of climate change as a financial risk, only about 40 percent were actually taking action to address the risks and opportunities.

· We also participated in a year-long dialogue sponsored by the Coalition for Environmentally Responsible Economies (CERES), which brought together investors, environmental activists and electric power companies to discuss the potential financial impact of climate change and efforts to mitigate its effects. That final report is to be issued shortly.

· We have joined other investors in urging the Securities and Exchange Commission to insist on more comprehensive disclosure of climate risk.

· And I have begun organizing an Institutional Investor Summit – which will be held this fall in New York City – to discuss these issues and set an agenda for action to protect the long-term value of our investments.

In conclusion, to look at climate change only as an environmental issue misses the point. Climate change is an investor security issue of the highest magnitude, and the work of corporations, legislators, regulators, and investors is intertwined and interdependent. That’s why it is so important that we work together to protect the long-term value of our investments, as well as our economic well-being.

I appreciate the opportunity to share my views with you today, and stand ready to work with you in the future. Thank you very much.