Who could get sued for global warming

It's not who you think. One report identifies a toymaker and cruise operator among firms most at risk for not telling shareholders enough.

By Steve Hargreaves, CNNMoney.com staff writer
January 9 2008: 10:01 AM EST

NEW YORK (CNNMoney.com) -- A host of well-known companies are leaving themselves open to shareholder lawsuits because they're not telling investors enough about how much they contribute to global warming or what it might cost them to clean up, according to a recent report.

But the companies most exposed to lawsuits aren't the big utilities but a cadre of less obvious firms.

The corporate governance research group the Corporate Library ranked companies that both emit lots of carbon - either directly or through their major parts suppliers - and those that produce more emissions than their peers.

"The purpose of the study was to put up some red flags and say there are some things that look disturbing in our data," said Beth Young, a Corporate Library researcher and author of the report.

Toycompany Hasbro (HAS), fiber-optic maker Corning (GLW, Fortune 500), railroad Burlington Northern (BNI, Fortune 500), Royal Caribbean (RCL) cruise line and lawn and garden company Scotts Miracle-Grow (SMG) all scored below average in the report, while most utilities and other big emitters of carbon dioxide - who have long detailed their emissions and potential costs for cleaning them up in financial filings - scored better.

The firms that ranked below averageare at greater risk of shareholder lawsuits if and when a cap on carbon dioxide emissions is passed, the report said.

Since there are currently no federal laws restricting these emissions, there have been no suits of this type filed to date.

But lawyers say it's certainly a possibility, especially if a company's stock stumbles if expensive upgrades are mandated.

"A company that has a lot of carbon emissions and doesn't disclose it could be exposed," said Michael Gerrard, a New York-based lawyer specializing in environmental issues at the law firm Arnold and Porter.

Young from the Corporate Library said lawsuits would mostly likely come not from environmentalists, but from pension funds or hedge funds that take a loss, or index funds that don't have the option of dumping the company's stock.

"If someone sees an opportunity to recoup value, you don't have to be an activist shareholder" to take a company to court, she said.

While there's "unprecedented political heat and exposure on this issue," Jeffrey Smith, an environmental lawyer at Cravath, Swaine & Moore, believes winning a shareholder suit related to exposure from carbon emissions would be difficult.

First, management can do all sorts of things that cause a company to lose value and it's hard to prove they were acting irresponsibly. Second, no legislation capping carbon levels has yet been passed, so it would be hard for a company to put a dollar amount on any clean up costs required, Smith said.

CNNMoney.com contacted the companies that scored below average in the report.

"I'm pretty surprised we're on this list," Hasbro spokesman Wayne Charness said. "I'm not sure where it came from, but I think it's very misleading."

Like other company spokespeople, Charness wondered how the Corporate Library came up with their total carbon emission numbers and said a company target to reduce emissions 30 percent by 2007 had already been exceeded by Hasbro in 2006.

The Corporate Library relied on Trucost, an environmental research organization, for the carbon data.

A spokesman for Burlington Northern said the company does voluntarily disclose its carbon emissions, adding that rail transport is more efficient than other forms of land shipping.

Corning said it voluntarily reports its carbon emissions and has a reduction strategy in place.

But the disclosure and reduction strategies employed by Hasbro, Burlington Northern and Corning were not detailed enough to score high on the Corporate Library's list.

The other companies cited in the report either declined comment or could not be reached.

As investors try to determine which companies might benefit and which might suffer under carbon regulations, it's becoming more important for businesses to gather and release relevant information.

"The market is craving data and statistics," Cravath's Smith said. "Timely analysis of data by management will be vital in communicating to the marketplace that a company has its response to climate change well in hand."

But attempting to rank companies, as the Corporate Library and other studies have done, may be premature.

"It's a good first step, but these issues are developing rapidly, and the nuances of any individual company's decisions about what and how to disclose this information make them largely incompatible with such a scoring device," said Smith.

The Corporate Library devised the list by taking a combination of the 50 top emitters of carbon dioxide in the country and the top 50 companies that emit a greater percentage of carbon dioxide than other industries in their sector.

It then ranked the companies using a number of criteria, including whether they disclosed actual historical and current greenhouse gas emissions,had devised an emissions reduction strategy or had created business models around the future cost of carbon. The research group also looked at whether company boards included members with climate change experience and if their executive compensation packages included rewards for reducing carbon emissions.