The Environmental Fiduciary Project
The prevailing "wisdom" that the economy and the environment represent opposing interests has guided the thinking of many governmental and business leaders for generations, with a disastrous, worldwide effect on the environment, workers, and communities. But a tremendous body of data has been generated over the last several years showing that the old wisdom is hollow. As the metrics of measuring environmental performance have become robust, it is now clear that most corporations¹ environmental performance actually tends to correlate positively with their economic performance. It is also clear that environmental liability can be a significant drag an shareholder value, and that many companies today significantly under report the extent of their environmental liabilities in communications with shareholders. By exploiting technical loopholes in Generally Accepted Accounting Principles (GAAP), many companies sell shareholders the fiction that environmental liabilities do not hurt the value of their investment. Under reporting of expensive environmental liabilities by some companies also undercuts the efforts of many other corporate leaders who acknowledge their companies¹ environmental challenges as they strive to enhance long-term profitability through reducing environmental exposure and building a more sustainable operating model.

The Rose Foundation¹s goal for the Environmental Fiduciary Project is to encourage trustees who are responsible for pension funds, foundation endowments and other pools of capital managed on behalf of specific beneficiaries or society at large to respond to the increasing evidence that environmental performance is an economic value driver. Trustees who ignore this evidence poorly serve their fiduciary mission and may even be subject to legal challenge in future years.

Environmental Fiduciary Project Milestones:
Acting on the invitation of California State Treasurer Phil Angelides, and working closely with organized labor and established networks of shareholder activists, in late 2000 Rose achieved the Project¹s first milestone. CalPERS -- one of the largest pension funds in the country and the single largest stockholding entity in the world -- agreed to use environmental and labor standards to guide their $2 billion emerging market portfolio.

In 2002, Rose released the Project¹s first major report, ³The Environmental Fiduciary: The Case for Incorporating Environmental Factors into Investment Management Policies.² The report provides trustees and investment managers with the tools they need to improve their fund's performance by improving the environmental performance of the companies in which their fund invests. It showcases recent studies by leading academic, government and business experts indicating that companies that perform better environmentally also tend to produce better financial results and greater shareholder value. It also outlines innovative legal arguments examining fiduciaries¹ duty to consider environmental performance as part of their overall financial analysis and portfolio management.

The report concludes with policy recommendations and action steps designed to improve fund performance through: dialogue with companies about environmental performance, voting proxies in support of resolutions that seek to protect human health and the environment, and achieving greater diversity through strategically targeted environmental screening.The Rose Foundation followed up the report by filing a citizen petition with the United States Securities Exchange Commission (SEC) asking for a crackdown on environmental accounting fraud and new regulations to guide future corporate environmental liability reporting. The petition was immediately endorsed by more than 30 other foundations, as well as several mutual funds and labor organizations. The report and petition helped spark a Congressional General Accounting Office probe of the SEC¹s pattern of lax enforcement of corporate environmental reporting. In 2003, Rose published the Project¹s second major report, the ³Gap in GAAP: An Examination of Environmental Accounting Loopholes.² The ³Gap in GAAP² tracks 10 years of governmental, business and non-profit studies that all document significant under reporting by SEC registrants of financially material corporate environmental liabilities. The report also examines attempts by oversight agencies, advisory bodies and Congress to close the gaps in GAAP. It concludes with a set of recommendations for the SEC, including stepped up enforcement and enactment of the new regulations proposed by the Rose Foundation¹s petition to the SEC During the year, institutional investors throughout the country joined Rose in urging the SEC to require more transparent and forthright corporate environmental accounting. By the close of 2003, institutional investors collectively representing over $1 trillion were on record in support of the Rose petition, including the treasurers of eight states. In 2004, Rose proudly stood beside California Treasurer Phil Angelides as he launched his new ³Green Wave² initiative for California¹s two large public pension funds. ³Green Wave² calls for investments of $1 billion in environmentally screened portfolios, an additional $500 million investment in emerging environmental technologies, and a commitment to use the pension funds combined clout of over $200 billion to push for accurate corporate environmental accounting. During the launch, Treasurer Angelides specifically credited Rose as being the first entity to bring these issues to his attention.

We see the ³Green Wave² as the first of many steps that fiduciaries can, and should take to recognize the importance of environmental performance in optimizing portfolio management. In the coming months, Rose will continue to build awareness amongst foundation and public trustees of the prudence of protecting the assets they hold in trust by insisting on accurate and complete environmental disclosure from portfolio companies. Rose will also continue to educate fiduciaries about the long-term benefits of investing in environmental value.