A thought-provoking article at EUobserver.com considers how the European Union’s approach to regulation affects American companies and consumers. Leigh Phillips interviews Mark Schapiro, author of Exposed: The Toxic Chemistry of Everyday Products and What’s at Stake for American Power, which studies consumer product regulations in the context of “the massive global economic power shift” driven by “the eclipse of the United States by the European Union.”

I’ll leave aside the question of which side of the Atlantic is waxing or waning, but Schapiro does make some interesting points about the EU’s impact on corporate social responsibility (CSR) practices. He argues that the EU regulates more aggressively because government directly pays the price for corporate activity:

“There’s a really interesting distinction about how the EU and the US approach the basic idea of economics and profitability. One of the principles at the core of many European ideas is the question of externalized costs that make something appear economically possible….The key difference here is that you have a public healthcare system in Europe, so the costs of illness that come from chemicals or environmental degradation are borne by governments. Thus the state is looking at this and thinking: “Wait a minute - we’re paying the cost for this so-called low-cost production. Let’s shunt that cost back onto the producers and deliver an accurate rendering of the costs.”

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Al Gore recently challenged America to generate all of its electricity from carbon emissions-free sources by 2018. The Boston Globe has reported that John McCain and Barack Obama agree that Gore’s is a worthy goal. How can it be achieved?

Energy efficiency may be the biggest piece of the puzzle. “Efficiency is often referred to as the ‘fifth fuel’ for electricity generation. Coal, natural gas, nuclear, and renewables are the other four,” explains KLD Senior Research Analyst Andrew Brengle.

A new report entitled “The Size of the U.S. Energy Efficiency Market: Generating a More Complete Picture” (available for purchase here) details just how important the fifth fuel is to our economy. Andrew and KLD intern Ben Steinberg alerted me to the study, and they’ve analyzed the 60-page document in depth – thanks to both of them for providing assistance with this article. The report’s author, the American Council for an Energy Efficient Economy (ACEEE), is a non-profit “dedicated to advancing energy efficiency as a means of promoting economic prosperity, energy security, and environmental protection,” according to its website.

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In a recent post on Harvard Business’ “Leading Green” blog, Ceres president Mindy Lubber issued a “warning to U.S. companies: Just because national lawmakers are dawdling on global warming, don’t think your business can dawdle, too.”

Lubber explained that while the European financial services sector has a head start in addressing climate change, their U.S. counterparts are now offering investable products that focus on carbon mitigation and reduction. She cited KLD’s Global Climate 100 (GC100), which includes a mix of 100 global companies that pursue promising approaches to renewable energy, alternative fuels, clean technology and efficiency.

Investable products based on the GC100 include mutual funds and others as listed on the Product Fact Sheet at the GC100 FAQ page.

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The July 30th Boston Globe reported on a new initiative from the Rabbinical Assembly and the United Synagogue of Conservative Judaism (USCJ). Hekhsher Tzedek is a food product certification program that is being developed in partnership with KLD. Certification “indicates that a kosher product was made in compliance with a set of social justice criteria, in keeping with the teachings of the Jewish faith,” as explained by working guidelines listed at the USCJ website.

Reports of abusive labor practices at a large kosher meatpacking plant in Iowa helped inspire the new certification program. In a release from Hekhsher Tzedek, founder and director Rabbi Morris Allen explains:

“Hekhsher Tzedek is a holistic celebration of Jewish tradition, uniting ethical practice with ritual observance in the production of Jewish food. Jewish law is concerned not only about the smoothness of a cow’s lung, but also about the safety of a worker’s hand as well as the impact that kosher food production has on the environment. Hekhsher Tzedek grows out of Jewish tradition; it does not seek to redefine kashrut [the body of Jewish law that involves food] as much as enhance it.”

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The Oregonian reports that Oregon might add a socially responsible investment (SRI) option to its menu of 529 tuition savings products.

So-called “529 plans,” named after the relevant section of the federal tax code, differ significantly from funds held directly by states on behalf of their own employees. 529 savings plans are administered by state governments, but they are in fact private accounts held by individuals. Any American can invest in and receive tax benefits for participating in any state’s plan, although there may be additional tax advantages for investing in one’s home state.

As The Oregonian’s Bill Graves explains, the broad reach of state government – investing in companies that it regulates, protecting citizens while seeking returns with their money – can lead to contradictions. Some objected to Oregon’s simultaneously fighting Big Tobacco while investing in a cigarette company: (read more…)

N.B.: The following Q&A is based on a recent exchange between an Australian business reporter and Peter Kinder, President of KLD Research & Analytics.

Socially responsible investors believe businesses must incorporate environmental, social and governance (ESG) factors into their management strategies.

Institutional funds are major shareholders and play an important role in corporate governance. Australia, for example, has the fourth-biggest superannuation pool [money in pensions] in the world. That money could influence industries worldwide.

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Sound investment is built on information, and socially responsible investment (SRI) requires accurate reporting of every aspect of corporate activity. A traditional balance sheet doesn’t reveal a company’s environmental, social and governance (ESG) risks and opportunities, which makes reporting on these “intangibles” critically important to the SRI community.

Since 2005, KLD has studied the S&P 100’s sustainability reporting practices for the Sustainable Investment Research Analyst Network (SIRAN), a working group of the Social Investment Forum (SIF). The 2008 Sustainability Report Comparison reveals encouraging news. Of the 100 largest U.S. publicly-traded companies, 86 maintain corporate sustainability websites and 49 produced sustainability reports in 2007. These numbers represent significant progress over the past three years.

Pensions & Investments quotes KLD Senior Research Analyst Katy Chapdelaine and Research Products Managing Director Noel Friedman in an article on the SIRAN study. Friedman explains:

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The Sustainable Business 20 (SB20) highlights “20 public companies that are leading the way to a sustainable society,” according to Progressive Investor, which has produced this list for the past seven years.

SB20 companies must excel by both sustainability and financial criteria, and they include both established companies and smaller innovators, like Accsys Technologies – an English firm developing sustainable substitutes for precious hardwoods. Larger players include IBM, which aims to cut data center energy use by half by 2010, while increasing computing capacity by a factor of 10.

KLD Senior Research Analyst Andrew Brengle was one of five judges for this year’s SB20. “As tough as it is to narrow down the choices and find consensus among the judges as to which companies are the 20 best, it is nevertheless a rewarding process,” he said. “Every year I learn about several new companies that are doing great work, and every year the field of choices gets better.”

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The July 14 Christian Science Monitor asks: “Should Ethical Investors Dip into Water Stocks?” The CSM’s Laurent Belsie discusses the potential for investment in water-related businesses with KLD Research Director Eric Fernald and Chris Brown of Pax World Investments.

Observers such as the Unitarian Universalist Service Committee argue that privatization of water supplies threatens the “right to water.” Fernald and Brown acknowledge that contracting out the management of public water supplies (i.e., water utilities) or selling the right to use public water supplies (i.e., bottled water firms) is fraught with ethical risks. However, in some circumstances private companies can manage or use public water supplies in a responsible manner. Both warn that ethical investors need to be vigilant if investing in companies that engage in this aspect of the water industry.

Both experts also highlight companies that are developing promising technologies for public and private use. As Fernald explains:

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After languishing for most of the 1990s, gold prices have risen steadily, enriching mine owners and some investors. The true cost of metals extraction and refining, however, is often borne by people and places far removed from the mercantile exchanges. Open-pit mines like Argentina’s Alumbrera disturb the landscape and pollute surrounding communities, which is tragic; now, in what could be a portent, it may also be a crime.

In June 2008, a provincial court in Tucumán, Argentina charged the vice president of mining company Bajo la Alumbrera with “crimes against the environment.” Three multinational corporations jointly own Bajo la Alumbrera: Xstrata, Yamana Gold and Goldcorp, a Canadian company. The Canadian Mining Journal reports that Julian Rooney, Vice President of Bajo La Alumbrera, was “not jailed, but his possessions were impounded.”

David Modersbach of the National University of Rosario, Argentina has written a thorough summary of the case against Alumbrera. The charges were ten years in the making:

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