Climate and Insurance.org | takefive with Gary Guzy

Gary S. Guzy is a senior vice president and the National Practice Leader for Emerging Environmental Risk at Marsh. He develops new solutions for clients in responding to emerging environmental risks and trends, spearheading Marsh’s efforts in the climate change arena.

Guzy is based in Washington, D.C. and has extensive experience in the environmental field. He was appointed by the President and confirmed by the U.S. Senate to serve as the general counsel of the U.S. Environmental Protection Agency from 1998 to 2001. In that role, he served as the agency's chief legal officer, as a member of EPA's senior management team working with the administrator to establish and carry out strategic regulatory, legislative and public relations goals, and was known for bringing together disparate groups to resolve major environmental conflicts. He has also served as counselor to the administrator at EPA and as the agency's deputy general counsel, as well as having been a senior attorney at the U.S. Department of Justice, where he handled major environmental litigation from the Everglades to Alaska.

Guzy also has practiced environmental law in the private sector and has served as a consultant to the U.S. Senate Environment & Public Works Committee and the Chesapeake Bay Foundation, and has been a Visiting Scholar at the Environmental Law Institute.

Guzy graduated from Cornell University with a B.A. in 1979 and from Cornell Law School in 1982.

Takefive:
Mr. Guzy, you are the national practice leader for Emerging Environmental Risk at Marsh and spearhead the organization’s Climate Risk Initiative. Can you briefly describe what these job responsibilities entail?

Gary Guzy:
As a leading risk advisor and an insurance broker that operates in more than 100 countries, Marsh has tremendous resources for assisting its clients in maximizing their resilience in the face of global climate change and optimizing the kinds of business opportunities climate change presents.

In this role, I have had the privilege of bringing together our global resources in this area, driving the development of new products and services related to climate risk, and working with our sister MMC companies, tapping into the emissions trading expertise of the National Economic Research Associates, for instance, the enterprise risk modeling capabilities of Oliver Wyman, and the brand value expertise of Lippincott.

I also have been developing Marsh’s sustainability policy positions with our company’s senior leadership – things like affiliating with leading and thoughtful groups like the Pew Center for Global Climate Change’s Business Environmental Leadership Council, developing our training program for independent corporate directors with Yale and the Ceres institutional investor coalition, working on climate issues with the World Economic Forum’s Global Risk Network, and assessing carbon capture and storage insurability issues with the World Resources Institute.

It’s a terrific opportunity and a great fit for me, given my environmental regulatory background.

Takefive:
You stated recently that there appears to be “a convergence of views” on the issue of climate change. Can you explain what you meant by that statement?

Gary Guzy:
A number of important developments have come together to make it plain that climate change presents real challenges to business and governance and this recognition is growing in the business community. These developments have centered around the science, economics, law and legislation, investor expectations, and risk.

The most recent scientific findings by Intergovernmental Panel on Climate Change (IPCC) demonstrate a new certainty around the fact of warming, the human cause, and the wide-spread scope of the impacts as the baseline development. When else have you heard a group of hundreds of leading scientists find that something is “unequivocal”?

The understanding of the economics of climate policy has changed as well, with the work of Sir Nicholas Stern shifting the question from what is the cost of addressing climate change, to instead comparing those costs to the far greater costs of waiting to undertake policy responses.

On the legal front, the Supreme Court’s decision – particularly affirming the standing to bring federal court challenges around climate change – is momentous and has created an atmosphere that federal regulation of greenhouse gases is seemingly inevitable.

Add to that more robust investor expectations on climate behavior and disclosure and the understanding of business disruption potential caused by events such as Katrina, and there is a new reality to this risk reflected by the number of business leaders who have called for federal action and the growth in emerging carbon markets.

These changes on the climate front also correspond to greater concerns over energy security and greatly increased energy prices, so that there are a wide variety of reasons to get to the same point.

Takefive:
You recently wrote an article in which you described the case, Massachusetts v. EPA, as “a marker of the importance of global warming in the national political debate.” Now that the U.S. Supreme Court has ruled in Massachusetts’ favor, what do you see as the possible political fallout of the court’s decision?

Gary Guzy:
The Supreme Court considers only a handful of cases every year and usually these result from controversies that have been long percolating in the federal courts and that frequently have resulted in a variety of conflicting lower court opinions calling out for resolution. Not so with climate. There was no so-called split among the federal circuit courts. Nor have the climate litigation issues been around for years. What seems to have motivated the Supreme Court was the sheer importance and sweep of this issue and their opinion ultimately reflects a deep concern over the impacts from climate risk.

I think the ruling will have two consequences: first, it will strengthen the hand of those who argue that federal legislation is needed to clarify this area, because the decision leaves EPA with few outs from going forward with regulation; and second, the Court’s “standing” ruling my loosen a floodgate of litigation about the impact of greenhouse gas emissions, bringing many in industry into the fold of becoming proponents of clarifying legislation.

Takefive:
You have commented in the past on the increased scrutiny of sophisticated investor groups who are seeking to develop corollaries to financial accounting and disclosure for climate risks. In your opinion, how effective have these investor groups been in raising awareness about the climate change issue?

Gary Guzy:
My sense is that these groups have been tremendously effective and that they will gain even more traction in their argument that climate change – at bottom – is a corporate governance issue.

The first of these efforts was the Carbon Disclosure Project (CDP), which started out with a handful of niche institutional investors calling for the 500 largest global companies to provide the public with their greenhouse gas emissions inventories.

In the past five years, the CDP’s efforts have grown so that the requestors now reflect some $41 trillion in assets under management – a significant portion of total global market capitalization – and they are targeting thousands of corporations. Not only that, but the CDP is joining with other investors to pioneer efforts that look at more than emissions footprints, but also seek to generate reporting of assessments of physical risk, strategic impacts from operating in a future carbon constrained environment, and management structures and responses.

And these efforts are being enforced by shareholder resolutions targeted at non-responders and by public listing of the worst performers. As a result, more than three-quarters of the Global 500 public corporations responded in some fashion to CDP. Furthermore, it is not unreasonable to expect to see litigation over the quality of company disclosures to investors – something that will surely concentrate the mind.

The recent experience with the largest leveraged buyout ever – where key investors compelled future fuel mix changes by the coal-fired utility that was being purchased – really show that investor-led concerns have reached main stream economic activity.

Takefive:
Finally, in September 2006, Marsh announced that it had joined forces with Yale University and Ceres, an investor coalition, to help educate independent corporate board members about the potential liabilities and strategic business opportunities that global climate change can create for companies. Can you tell us the status of this collaboration?

Gary Guzy:
Of our many efforts to elevate the global dialogue around climate risk, this one in many ways is the most exciting because it brings together the complementary capabilities of these different organizations. We have been working together to conduct research and develop materials for these training sessions and will be holding our first ones in June.

We also have tapped into an amazing advisory board of leading thinkers from the business, governmental, academic, and activist communities to help guide this effort. To have access through Yale to leading academic scientists and business analysts as well as to an NGO such as CERES, with such deep insights on climate governance concerns derived from the perspective of institutional investors, has been a real privilege and I think should make for engaging, lively, informative, and provocative sessions with corporate directors.

I am tremendously impressed by the dedication of these organizations to this effort and know that the chance to work with them also deepens the level of understanding of climate risk that we can bring to Marsh’s clients.

I will look forward to sharing with you more about these sessions once we have had our first series of training engagements.