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April 18, 2008

Climate Change Resolutions Picking Up Heat
    by Anne Moore Odell

A new report from Ceres shows mutual funds are starting to move away from voting against climate change resolutions, to not voting on them at all. -- Sometimes silence can speak volumes. At least this is how a new report from the shareholders organization Ceres interprets mutual funds absenting from votes on climate change resolutions. Beyond moving from the previously strong opposition to these resolutions, the report shows mounting support for climate change resolutions from mainstream mutual funds.

Ceres' report, "Mutual Funds and Climate Change: Opposition to Climate Change Resolutions Begins to Thaw," examines the 2004-2007 proxy voting seasons. Jackie Cook and Bill Baue, co-authors of the report, find that votes against climate change resolutions have gone from 77% of fund votes to less than 65% in this time period. More telling perhaps is that the number of abstention votes on climate change resolutions has doubled from 12% in 2004 to 24% in 2007.

"It seems to be a confluence of events is changing mutual funds votes including: a stream of ominous climate science findings, Al Gore and the Intergovernmental Panel on Climate Change winning the Nobel Prize, Al Gore winning an Oscar for his climate change documentary, An Inconvenient Truth, hurricane Katrina, climate bills pending in congress, and governments such as the UK setting GHG reduction targets," said Rob Berridge, manager, Investor Programs, Ceres.

Berridge continued, "All of this appears to have pushed Wall Street to the tipping point of starting to treat climate as a major investment theme. There also appears to be consensus that the US will cap carbon emissions. It is now just a matter of when. These regulations will have widespread financial implications, creating winners and losers across the entire economy."

The report, the fourth produced for Ceres on mutual fund proxy voting practices on climate change shareholder resolutions, says that the movement by mutual funds away from opposing climate change resolutions mirrors the overall growth in shareholder support for climate change resolutions. Yet most mainstream mutual funds still don't support climate resolutions as strongly as other investors.

The report draws on Cook's database of voting results based on NP-X filings that mutual funds are required to submit to the SEC. The data is searchable by shareholder resolution category, one of which one is climate change resolutions.

The report singles out Goldman Sachs as a supporter of climate change resolutions. Charles Schwab and MassMutual also show above average support for climate change resolutions.

Other mainstream funds, for example, Ameriprise/AXP, Fidelity, and Janus have moved from historically opposing climate change resolutions to absenting on these resolutions.

"There are several possible interpretations of abstention votes on resolutions regarding climate change: if mutual fund firms used to oppose climate resolutions, then abstention may be a step on the road to support; or they may view climate resolutions as a social / environmental issue with no financial implications - if this were the case, then abstaining allows them to stay away from unnecessary controversy," said Berridge. "However, climate change has significant financial implications, so it is hard to understand this point of view."

Another possible explanation of the abstention votes Berridge suggested is that a mutual funds' proxy voting guidelines don't provide clear guidance about how to vote, so mutual funds abstain. Many mainstream mutual fund firms proxy-voting guidelines are silent on climate change.

Socially responsible investing (SRI) firms, however, have filed and supported many of the climate change resolutions. SRI mutual fund firms Calvert, Domini, Parnassus, Pax World, and Walden are named in the report as leaders.

However, the Ceres report also notes the conflict in proxy voting records on climate change resolutions and the introduction of new sustainable products by the same mutual funds. Morgan Stanley and State Street Global Advisors have both launched new climate-related products. However, neither have supported the dozens of climate change resolutions they voted on between 2004-2007.

Berridge suggested, "Many of the fund firms are very large, and it may be that parts of the firm understand the far-reaching financial implications of climate change, while other parts of the firm (for example, those responsible for proxy voting guidelines) don't view climate change as financially material,"

"Or, perhaps, the fund managers who vote against climate resolutions are not long-term investors and they are betting that the investment implications of climate change won't show up for a year or two. But their colleagues across the hall who are launching climate-themed products would probably disagree with this, " concluded Berridge.

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