Financial markets, pension funds, insurers and banks are increasingly interested in the carbon risk profile of companies.

As the financial sector was recently reminded by Bank of Canada governor David Dodge, our capital markets depend on transparency. But when it comes to environmental issues, many companies have taken the position that the risks are 'immaterial.' That view may result in lost opportunities and future problems.

Catalyst Paper Corporation published its first public environmental report in 2001, and has since developed a degree of competency that is transforming the company's environmental performance from a risk management issue to one of brand differentiation. Lyn Brown, vice president of corporate relations and social responsibility, says, "This is a process of continuous improvement, but we have the management systems and the reporting discipline in place.

"That can be helpful in customer markets as well as capital markets. It's granted us recognition for being better prepared for the scrutiny that is beginning to arise, particularly among lenders and insurers as they assess companies' readiness for increased regulation."

Affirming the adage that 'what gets measured gets managed,' Catalyst has reduced its greenhouse gas emissions by 70 per cent since 1990. "It's not impossible to do the right thing in business," says Ms. Brown. "Investors, advertisers, consumers and regulators are paying attention to carbon. As a manufacturer and a large energy user, we have to pay attention to that as well. We have the potential to participate in a greener economy."

That body of expertise, built over time, is also valuable to Catalyst's customers. "It makes us a better partner, not just as a product supplier, but in moving the marketplace forward in a way that keeps pace with social expectations."

At Enbridge Gas Distribution, which over the past five years has reduced its emissions by 18 per cent while adding an average of 50,000 new customers annually, Chris Gates, manager of sustainable energy, says, "We're maintaining our system, using it more efficiently and maximizing our asset. It's good for the environment, it's certainly good for the company, and it's good for the shareholder."

He notes, "We're doing this without any regulatory requirement to reduce our emissions. We're doing it because it is good business and because it enhances our ability to access capital markets and other financial services at a lower cost to our customers and shareholders. Demonstrating that we're good environmental stewards also pleases our investors - and we think it's the right thing to do."

In preparation for a greater degree of scrutiny by investors, the first step for companies is to know where they are at, says Bennett Jones LLP partner Gray Taylor. "Almost every organization is an emitter of some sort, and there are protocols that allow companies to inventory emissions. You then have to know your abatement curve - what it is going to cost you to reduce your greenhouse gas emissions."

Uncertainty destabilizes capital markets, and a regulatory framework is necessary in order to measure investment risk. "It's really important that industry reach out and work with the government and the public to make sure there's a real understanding of what the situation is," he says.

A former securities lawyer, Mr. Taylor says, "My view is that you never want to surprise your investors. Climate change and a carbon-constrained future are not going to go away."

As risks increase, management and disclosure of emissions may also serve as an indicator of competent governance and unrecognized investment value. "Socially responsible investing is growing. With pension plans in particular, it's the teachers' money, the firemen's - people who really care about the environment. So you know ultimately other investors are going to be driven more and more by environmental issues in the future."