On Your Behalf - January Report

Sustainability: A Pledge to Future Generations

Recently, the General Board of Pension and Health Benefits of The United Methodist Church (General Board) joined more than 200 other institutional investors in soliciting information on greenhouse gas emissions from 1,800 companies located around the world. This solicitation, the fourth of its type, was coordinated by the Carbon Disclosure Project. The results will help investors assess the impact that climate change has on shareholder value. It also will help investors identify those companies that are leaders in environmental stewardship.

Emissions of greenhouse gases (primarily carbon dioxide) have been increasing since the early days of the Industrial Revolution. Today, these emissions are primarily the result of the burning of fossil fuels. Though scientists disagree on the connection between such emissions and global climate change, most recognize that increased levels of carbon dioxide in the earth's atmosphere can contribute to a gradual warming of the planet.

For the General Board, this is an issue not just about climate or the potential erosion of shareholder value, but about sustainability: do our actions today hinder our ability to support future generations?

Defining Sustainability

Sustainability is not a new concept, but, in recent years, it has assumed greater prominence among socially responsible investors. It has been defined in many ways, but the most frequently used definition refers to "development that meets the needs of the present without compromising the ability of future generations to meet their own needs." This was the definition coined in 1987 by the World Commission on Environment and Development, sometimes knows as the Brundtland Commission.

Understanding sustainability is perhaps easiest in an environmental or ecological context. Some agricultural practices can exhaust the soil and make farming either impossible or impractical for future generations. The unchecked emission of greenhouse gases (such as carbon dioxide and methane) may cause changes in atmospheric conditions that can permanently alter ecosystems. Exclusive reliance on fossil fuels for the production of energy will eventually eradicate important minerals from the earth. When we endorse sustainability we are committing ourselves to protect our environment not only for ourselves but for future generations.

Sustainable practices are not limited to the environment, however. Businesses may operate in ways that degrade labor, ignore communities and flout regulations. Corruption or arrogance may typify management style. Company polices may obscure accountability and responsibility. Such businesses are not sustainable. Sooner or later, they fall into disrepute, losing consumer confidence and, ultimately, shareholder value.

The Need for Sustainability Reporting

Because socially responsible investors are increasingly interested in a company's sustainability, companies are responding by documenting their business policies, practices, goals, opportunities and challenges in a sustainability report. In general, a sustainability report allows a company to illustrate how it affects (and takes responsibility for) the environment and the communities in which it operates.

Not all companies prepare sustainability reports and existing reports vary widely both in style and content. In 1997, the United Nations Environment Programme (UNEP) and the Coalition for Environmentally Responsible Economies (Ceres) created the Global Reporting Initiative (GRI) in an effort to standardize sustainability reporting around the globe. In 2000, the GRI published its first Sustainability Reporting Guidelines to be used by "organisations for reporting on the economic, environmental, and social dimensions of their activities, products, and services." A revised version of these guidelines is scheduled for release in late 2006.

General Board Sustainability Resolutions

Along with other socially responsible investors, the General Board believes that sustainability reporting is important. A report does not prove that a company is, in reality, "sustainable," but it does imply that, in preparing the report, the company has had to consider the implications of its behavior and operations in a wider context. Because of this and the many references to sustainability in both the Social Principles and The Book of Resolutions 2004, the General Board has filed or co-filed shareholder resolutions asking the following companies to produce sustainability reports:

Caterpillar Inc.
Kroger Co.
Marsh & McLennan Companies
SBC (now AT&T)
Wal-Mart Stores, Inc.

Counting similar resolutions from other socially responsible investors, at least 15 corporations are being asked to prepare sustainability reports this year.

During the 2005 proxy season, two sustainability reporting resolutions filed by the General Board with Best Buy and Office Depot were withdrawn when these retail companies agreed to publish the reports.

Examples of sustainability reports may be found on the Timberland and Ford Web sites.

In 2004, General Conference readopted the 1992 resolution, Environmental Justice for a Sustainable Future. This resolution firmly declares that "[d]evelopment must be centered in the concept of sustainability..." and calls upon the Church to "[s]upport measures calling for the reduction of carbon dioxide, methane, nitrogen oxides, and sulfur dioxide, which contribute to acid rain and global climate change."

If you agree with the General Board's call for sustainability reporting, we encourage you (or your investment managers) to vote FOR the resolutions the General Board has filed.

A commitment to sustainability is a commitment to the future and an affirmation that the "earth is the Lord's and the fullness therof..." (Psalm 24:1)

The General Board administers a pension fund with assets in excess of $12 billion for more than 66,000 active and retired clergy and lay employees of The United Methodist Church. In addition, the General Board restricts investments in companies deriving significant revenue from the manufacture or sale of alcohol, tobacco, armaments, pornography and gambling.