Investors spotlight global warming
But disclosure may not be enough to change corporate behavior, says Fortune's Marc Gunther.
By Marc Gunther, Fortune senior writer

New York (Fortune) -- Can shareholder power be mobilized to deal with the threat of climate change?

It's not going to be easy, but about 225 institutional investors, who together have $31 trillion in assets, have put their names behind an ambitious and growing effort to analyze the ways that the world's biggest companies are dealing with climate change.

The analysis, which is known as the Carbon Disclosure Project (CDP), is intended to provide investors with useful information about which industries and companies are preparing for the threat of climate change - and which ones are not.

This is the fourth year that the CDP has been released, and each year it attracts more support from investors and big companies. Investors such as Merrill Lynch (Charts), Goldman Sachs (Charts) and CalPERS, the California public employee pension fund, are among those seeking disclosure, and companies like General Electric (Charts), Ford (Charts) and Wal-Mart (Charts) are providing it.

This year's report was released Monday at Merrill Lynch's global headquarters in New York with the support of, among others, former vice president and climate-change activist Al Gore.

The trouble is, disclosure by itself does not inevitably lead to changes in corporate behavior.

What's more, as even supporters of the Carbon Disclosure Project concede, the financial markets, on their own, are probably not up to the job of dealing with global warming.

"The good news is that awareness is at an unprecedented high," said Matthew Kiernan, the CEO of Innovest Strategic Value Advisors, a research firm that produced the CDP report. "The bad news is that the follow-through lags behind, both on the investor and corporate side," he said.

This is true, Kiernan said, even though the day is approaching when the world's emissions of carbon will be regulated, bringing about "a massive transfer and redistribution of wealth."

In other words, even as more big investors and companies take global warming seriously - and even though they see its potential financial impact - they are not changing quickly or dramatically enough to deal with the problem.

There are at least two reasons for this.

The first is the short-term focus of investors. Serious as it is, the impact of climate change will not be felt this quarter, or this year.

Al Gore, who has helped put climate change on the national agenda with his movie, "An Inconvenient Truth," put it this way: "Today, the majority of the investment community acts in ways that give the impression that the long-term doesn't matter any more."

Too many businesses, Gore argued, are failing to make long-term investments that could address the issue of climate change because they fear dampening short-term earnings. Think, for example, of how U.S. automakers have been slow to produce and market energy-efficient cars.

The CDP report estimates that fewer than 0.1 percent of all invested managers integrate "climate change risk research systematically into their stock selection and portfolio construction processes." What this suggests is that the Merrill Lynches and Goldmans of the world are asking for disclosure but not using the information in a serious way.

The second problem is even more fundamental. There's no U.S. government regulation of carbon emissions, so it doesn't cost companies anything to emit carbon into the air, at least for now.

This could change, of course. California just passed legislation to dramatically reduce its carbon emissions. And the Supreme Court has agreed to hear a case this year about whether the Environmental Protection Agency should regulate CO2 emissions.

For now, though, markets don't provide an immediate reward to companies that reduce their carbon emissions.

Again, Gore: "It is naïve to think that the market, by itself, will provide a magic answer...Governments must enact new policies to speed up responses to the climate change crisis."

Indeed, much of the activity now going on in corporate America - investments in alternative energy, for example - is predicated on the belief that the federal government will regulate carbon.

You can read a lot more about the Carbon Disclosure Project, and get access to the responses from more than 900 corporations, at