Tag: Risk

Featured Posts, Trends & Concepts

Can corporate social responsibility affect your company’s bottom line?

Nestlé share price drops

Your company’s share price can be negatively affected if you fail to behave responsibly in your business practices.

I have written here a couple of times about environmental risks companies could potentially face. This first time I wrote about this it was in reference to FaceBook’s decision to source the power for their new data center from a utility which uses coal-fired power primarily.

I followed that up with a post about how the EPA, the SEC and institutional investors are becoming more interested in environmental risk, asking companies to report on risks which may impact on a business’ sales, properties or even their reputation.

The importance of this has been driven home forcibly over the last couple of days as GreenPeace launched an international campaign targeting Nestlé. Why? Because it turns out Nestlé is purchasing palm oil from companies whose plantations cause deforestation of Indonesian rainforests with all the attendant knock-on effects this has (massive CO2 emissions, indigenous communities destroyed, and devastation of the Orang-utan’s habitat to name but a few).

As part of the campaign, Greenpeace launched a report called Caught Red Handed [PDF] outlining the connections between Nestlé, their suppliers and habitat destruction in Indonesia. As part of the launch campaign, Greenpeace had people on the ground at Nestlé offices in Orang-utan costumes publicising the report and they posted a spoof video on YouTube.

Unfortunately Nestlé, decided that instead of fixing their supply chain, that they should go down the censorship route. They quickly contacted Google and had the video removed from YouTube. Nestlé didn’t reckon with the Streisand effect though and in very short order the video was posted on vimeo and promptly re-posted on many other sites.

Nestlé’s lawyers quickly abandoned the take-down option realising they’d merely be playing a game of whack-a-mole if they continued. The storm of publicity which ensued even spread as far as CNN and within 24 hours Nestlé was forced to backtrack . The video is now back up on YouTube.

Nestlé censoring comment on FaceBook

As these things do, the debate took place on FaceBook and Twitter too with many people calling for a boycott of Nestlé products! In a classic social media shot to the foot Nestlé warned people:

we welcome your comments, but please don’t post using an altered version of any of our logos as your profile pic – they will be deleted.

Now, in any social media forum (or any forum for that matter), threatening people with censorship is definitely not a way to win friends or influence people. And predictably this threat inflamed an already upset audience. The censorship threat went viral and Nestlé’s reputation went into freefall.

The end result, as you can see at the top of this post, Nestlé’s stock price fell too.

This was eminently preventable.

And it is a clear demonstration of the need to be fully aware of all the potential risks in your supply chain.

If Nestlé was utterly transparent and ethical in its business practices, then it couldn’t have been ambushed by Greenpeace.

If Nestlé had ensured that its supply chain was completely free of controversy it would have avoided the pr storm, the reputational damage and the financial losses from loss of sales and the fall in its share price.

by-sa
Trends & Concepts

Investors, the EPA and now the SEC are making pollution an increasingly unattractive option

Shareholder
Photo credit Neubie

A perfect storm consisting of the EPA, the Securities and Exchange Commission (SEC) and investors is pressuring companies to come clean on their environmental risks and performance.

I wrote a post a couple of weeks ago about FaceBook’s decision to use a primarily coal-burning utility to power its new data center where I asked should FaceBook’s investors be worried about the decision.

Now the SEC has started taking an interest in this area as well and recently clarified that companies’ have responsibilities [PDF] to report on:

  1. the direct effects of existing and pending environmental regulation, legislation, and international treaties on the company’s business, its operations, risk factors, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations
  2. the indirect effects of such legislation and regulation on a company’s business, such as changes in demand for products that create or reduce greenhouse gas emissions and
  3. the effect on a company’s business and operations related to the physical changes to our planet caused by climate change — such as rising seas, stronger storms, and increased drought. These changes to the environment could have a number of material effects on corporations, such as impairing the distribution and production of goods and damaging property, plant, and equipment

In announcing the clarification SEC Commissioner Luis A. Aguilar stated that the SEC will begin to be far more proactive on environmental reporting:

The Commission’s action today is a first step in an area where the Commission will begin to play a more proactive role, consistent with our mandate under the National Environmental Policy Act of 1969, to consider the environment in our regulatory action. The National Environmental Policy Act charged the Federal Government “to use all practicable means” to, among other things, “fulfill the responsibilities of each generation as trustee of the environment for succeeding generations.”

Noting the interest of the SEC and their clarification around companies’ environmental risk reporting requirements, investors are now becoming more vocal and are increasingly asking companies to report more information about their environmental risks and responsibilities. These investors need to look after the long term interests of their funds and the last thing they want is to have their monies disappear in some environment-related mishap like the Kingston Fossil Plant coal fly ash slurry spill or a class action litigation.

Ceres, the non-profit network, reported recently that investors filed a record 95 climate change resolutions, a 40% increase over the 2009 proxy season! And these are serious investors. Jack Ehnes, CEO of CalSTRS for example, manages $131 billion dollars in assets. That’s billion, with a b!

As Ceres notes:

Many of the investors are part of the Investor Network on Climate Risk (INCR), an alliance of more than 80 institutional investors with collective assets totaling more than $8 trillion.

$8 trillion! Investors with a war chest of $8 trillion wield a lot of clout.

Combine this with the fact that on Dec 29th 2009 the EPA’s Mandatory Reporting of Greenhouse Gases Rule came into effect and it states:

suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA. The gases covered by the proposed rule are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF6), and other fluorinated gases including nitrogen trifluoride (NF3) and hydrofluorinated ethers (HFE).

So, the EPA is requiring the reporting of Greenhouse Gas Emissions from the top 10,000 emitters in the US, the SEC now has environmental risk reporting and transparency in its sights and investors with considerable resources are looking for more details on possible environmental risks from companies they invest in. You have to think that this is not a good time to be in the pollution business!

by-nc-sa
Featured Posts, Trends & Concepts

Should FaceBook’s investors be worried that the site is sourcing energy for its new data center from coal?
Mountain-top removal
Photo credit: The Sierra Club

Should FaceBook’s investors be worried that the site is sourcing energy for its new data center from primarily coal-fired power?

FaceBook is fourth largest web property (by unique visitor count) and well on its way to becoming third. It is valued in excess of $10 billion and its investors include Russian investment company DST, Accel Partners, Greylock Partners, Meritech Capital and Microsoft.

FaceBook announced last month that it would be locating its first data center in Prinville Oregon. The data center looks to be all singing and dancing on the efficiency front and is expected to have a Power Usage Effectiveness (PUE) rating of 1.15. So far so good.

However, it soon emerged that FaceBook are purchasing the electricity for their data center from Pacific Power, a utility owned by PacifiCorp, a utility whose primary power-generation fuel is coal!

Sourcing power from a company whose generation comes principally from coal is a very risky business and if there is anything that investors shy away from, it is risk!

Why is it risky?

Coal has significant negative environmental effects from its mining through to its burning to generate electricity contaminating waterways, destroying ecosystems, generation of hundreds of millions of tons of waste products, including fly ash, bottom ash, flue gas desulfurisation sludge, that contain mercury, uranium, thorium, arsenic, and other heavy metals and emitting massive amounts of radiation.

And let’s not forget that coal burning is the largest contributor to the human-made increase of CO2 in the air [PDF].

The US EPA recently ruled that:

current and projected concentrations of the six key well-mixed greenhouse gases–carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6)–in the atmosphere threaten the public health and welfare of current and future generations.

Note the wording “the public health and welfare of current and future generations”

Who knows what legislation the EPA will pass in the coming months and years to control CO2 emissions from coal-fired power plants in the coming months and years – and the knock on effects this will have on costs.

Now think back to the litigation associated with asbestos – the longest and most expensive tort in US history. Then note that climate change litigation is gaining ground daily, the decision to go with coal as a primary power source starts to look decidedly shaky.

Then GreenPeace decided to wade in with a campaign and FaceBook page to shame FaceBook into reversing this decision. Not good for the compay image at all.

Finally, when you factor in the recent revolts by investors in Shell and BP to decisions likely to land the companies in hot water down the road for pollution, the investors in FaceBook should be asking some serious questions right about now.

by-sa