Chia-Yu Chang @ Law, P.C. 315 W. 70th Street, #12L New York, NY 10023
(212)769-1756 cychang at cychanglaw dot com
Chia-Yu Chang is an attorney admitted to practice in NY and before USPTO, and practices primarily in intellectual property (patent, trademark, copyright, trade secret), corporation, commercial transaction, finance, and estate planning. Before joining the legal profession, Chia-Yu was a fixed-income research analyst with Salomon Brothers. He holds a BS degree in geology from National Taiwan University, MS degrees from Indiana University and Columbia University, and a JD degree from Benjamin N. Cardozo School of Law. On the personal side, Chia-Yu has practiced Tai-Chi for over 20 years, and is currently learning Taiko drumming.
The Inevitable, But IMPORTANT, Disclaimer
All the materials presented in this web site are for information only. They are not legal advices.
© 2005-Present Chia-Yu Chang.
Thursday, February 16. 2012
- Augmenting shareholder activism
In recent years, institutional investors concerned with climate risks, particularly public pension funds, have sought to leverage their financial prowess to effect changes in climate-related regulations and corporate governance. For example, they petitioned SEC to require expanded disclosures of public corporations’ exposures to climate risks and their contingency plans, resulting in the promulgation by SEC in 2010 of a set of guidelines regarding such disclosure requirements. (See here.) Furthermore, investors have undertaken shareholder activism via resolutions and proxy votes to influence corporate policies regarding climate risks, for example to demand greater disclosure. (See here.)
These efforts have placed in the public domain more and more information related to the climate risk exposures and policies of publicly traded companies, which can spawn further public scrutiny and analyses, increase public awareness, encourage broader participation, and induce further disclosures in a benign cycle. There are, however, limitations to both approaches. On the one hand, regulators are reluctant to impose stringent regulations on the private sectors due to the weak economy. On the other hand, unlike public pension funds, shareholder activism is generally not viable for mutual funds, because of regulatory requirements on diversification, costs, and conflicts of interests; or for hedge funds, because of their short-term time horizons. (See here.)
Therefore, it may be useful to augment shareholder activism with bondholder activism to effect changes in corporate climate risk practices. US corporate bond market is sizeable, exceeding $7 trillion as of Q2 2011 according to Wikipedia, dominated primarily by institutional investors. Corporate bondholders as a whole, consequently, can exert significant influences on bond-issuing corporations.
As I mentioned previously, equity shareholders affect corporate governance primarily through shareholder resolutions, proxy votes, or even derivative actions. This means the influences of shareholders arise primarily after the purchase of the shares. Bondholders, on the other hand, affect corporate governance primarily through the terms of the bond indentures and therefore can assert influences both before and after the purchase of the bonds. For example, if prospective buyers are concerned with potential negative impacts from climate-related events (hurricane, flood, coastal line erosion, drought, etc) on the payment capability of an issuer corporation, the prospective buyers may negotiate to modify the interest rate, maturity, call/put features, or other numerical terms of the bonds. Or, they can negotiate to add a climate risk covenant to the bond indenture that is linked to certain climate risk factors such as enactment of climate legislation, inclusion of US in an international climate treaty, or the occurrence of some physical events. The threat of the inclusion of such climate-related provisions in the bond offering may impose significant influence on the borrower corporation’s climate policies.
Since such pre-purchase negotiations improve the performance of the bonds, mutual fund managers should be more willing to participate in the negotiations, without being overly concerned with the possibility of upsetting the corporate managers and thus losing future businesses from the corporation. Hedge funds may also find it easier to agree to terms that comport with their short-term profit strategies, as well as other long-term climate concerns. As a result, the aggregate influence of all potential bondholders can be much greater than that of shareholders. Finally, post-purchase/issuance, monitoring & enforcement of the terms and covenants of the bond indentures may be performed by hedge funds, which have gained tremendous experience in enforcing bondholder rights in recent years. (See here.)
As far as I know, this idea of augmenting shareholder activism with bondholder activism in affecting corporate climate policies has not been practiced before. Will it work? I am hoping to find out soon.
Thursday, January 26. 2012
- Making the case for the formation of national climate-change insurance markets
In mitigating the impacts of climate change, market-based regulations (aka, cap-&-trade) have been championed as the preferred policy tool. (See my previous post on regulations, markets, & innovations.) EU has adopted cap-&-trade regulations for carbon emissions and established carbon credit markets, under the Kyoto Protocol, since 2005. And the northeastern states in US have been auctioning off carbon emission allowances to the power generators under the RGGI (Regional Greenhouse Gas Initiative) platform since 2008. California is set to begin emission trading soon.
The prices of the carbon credits traded in EU and under RGGI, however, have plunged precipitously. (See here & here.) Moreover, the Chicago Climate Exchange ceased trading carbon credit products in 2010. Recently, Canada withdrew from the Kyoto Protocol, and New Jersey broke away from RGGI. These developments raised serious doubts whether markets can be an effective policy tool with respect to climate change.
If not viewed as a policy tool, nonetheless, the carbon markets have done exactly what they are supposed to do. – Efficiently reflecting the aggregate balance of supply and demand. The decline in carbon prices reflects (among others) the over supply of credits issued by the EU governments, and the under demand in US & China for lack of policy supports (and also in EU for the weak economy). Therefore, as much as policy-makers and businesses engage in the wishful thinking that the markets would do the works on their behalf, the markets know better to call their bluff.
The lessons: Markets cannot function as an effective regulatory tool without adequate policy supports or implementation. On their own, however, markets can function as an efficient signal as to the aggregate impacts of supply and demand factors, including policy supports and economical conditions.
These lessons learned from the market-based efforts in climate change mitigation may have some important bearings on climate change adaptation. Adaptation has taken a back seat to mitigation in the climate change debates. This is understandable. After all, it makes sense to target directly the root of the problems (free emission of carbon). Moreover, reducing carbon emissions is associated with one clear objective, finite risk parameters (atmospheric CO2 concentration, mean temperature, & mean sea level), acceptable predictive models with large data sets, quantifiable risk levels and reduction targets, tangible commercial products, well-articulated technological solutions, and a definable timeframe.
Adapting to climate change, on the other hand, has none of these characteristics. There is not one central theme, but rather a murky set of sundry tasks that must be performed locally in response to unpredictable local conditions (eg, hurricane, flood, drought, extreme precipitation, sea level rise, heat wave, biodiversity changes, vegetation shifts, disease spread, healthcare, allocation of water & food, etc). And, other than water, there is no easily identifiable tangible commercial products associated with climate change adaptation. Adaptation, in short, is simply a tough sale!
The falling carbon prices, however, attests to the difficulties in achieving the mitigation goals considered necessary to maintain the atmospheric CO2 concentration at comfortable levels. Adaptation, therefore, is increasingly becoming an inevitable reality in the 21st century. And yet, even though the public sectors have taken initiatives to address adaptation needs (see eg here), for the private sectors, adaptation remains a murky set of ill-defined speculative sundry tasks, and very little concrete actions have been taken to address the issues. (Eg, see here.) Without the extensive participation of the private sectors, public sector efforts in adaptation will not likely to be effective.
This is where I think markets may play a useful policy role in stimulating private sector adaptation efforts, not as a regulatory tool but by providing a signal as to the aggregate balance of the supply & demand factors, including climate science developments, policy supports, or economic conditions. Specifically, the market I have in mind is the catastrophe insurance market.
Currently, climate sciences are still unable to reliably forecast local climate variations (city or town) for more than a few days into the future. (Even if some high-resolution modeling tools may exist, my guess is they are likely to be extremely pricy and not widely available.) As a result, the most common way for businesses or individuals to manage their climate change risks is to purchase catastrophe insurances. These insurance markets thus provide a signal as to the aggregate supply & demand for climate change risk shifting, which in turn point to the aggregate supply & demand for adaptation.
If these insurance market prices are widely accessible to the general public, like the prices of Treasury and other debt securities widely available to the public through the media or internet, they may serve to better inform the public of the state of climate change risks, and thus stimulate more concrete actions. In most markets in US, both private insurance carriers and public governments (states & federal) offer climate-related insurance coverage, such as flood or hurricane insurance policies. (Eg, see here.) In fact, in some markets, the federal government plays a significant role. For example, by 2007, the federal National Flood Insurance Program (NFIP), established in 1968, has become the primary flood insurer in US. (See here.)
Therefore, the federal government should establish an agency to oversee and underwrite all federal climate-related insurances, and also ensure the establishments of sound and secure secondary markets in these insurance products and extensive distribution of the pricing information to the general public. Just like the Treasury securities markets, such national climate-related insurance markets may serve as a benchmark for the creation and pricing of other related markets, and as the basis for the creation of other analysis and decision-making tools. These national markets, pricing information, and additional tools should hopefully raise the public awareness of the risks of climate change, and thus the needs for adaptation, and facilitate informed and educated concrete actions in adaptation.
Of course, this is a very primitive idea. Many further considerations need yet to be worked out. For example, many insurance policies are not standardized, unlike Treasury securities. The premiums may not properly reflect the market supply & demand because of government subsidies. The markets may lack liquidity if the risks rise above a certain threshold. But, hopefully this will be a start!!!
Friday, December 9. 2011
- At the Climate Change & Green Energy seminar
Here is the ppt slides of my presentation at the 11/14/2011 Climate Change & Green Energy seminar, co-sponsored by TECO & ACUNS. The program can be found here. The title of my presentation is "Global Warming Mitigation -- Challenges, Taiwan, & Geoengeering".
Wednesday, March 11. 2009
-- Risk & reward
[NOTE: This article was originally written in Chinese in January 2009, and published in the newspaper World Journal on 2/26/2009. I want to thank the World Journal for its generous permission for me to post this updated English version here.]
In light of these risks, and the surging federal deficits, the rate of success of the stimulus package will depend on its ability to attract diverse private investments and international participation. To the private sectors, on the other hand, these risks may represent new demands and new markets. When viewed from the right angle, risk and rewards are often two sides of the same coin.
For a Chinese version published on the World Journal, please click the link at the end of this paragraph. 欲閱讀在世界日報上發表的中文版, 請按此連結鍵 here.
Friday, March 7. 2008
-- In the context of greenhouse gas emission and climate change
Tuesday, March 4. 2008
-- According to United Nations estimates
"Global investments in the magnitude of from 15 trillion to 20 trillion United States dollars may be required over the next 20-25 years to place the world on a markedly different and sustainable energy trajectory."
Friday, February 22. 2008
[Note: The abbreviation "GHG" represents "Greenhouse Gas".]
Please click the link below for the Chinese version. 請按以下連結鍵閱讀中文版.
Continue reading "Potential size of the greenhouse gas markets"
Tuesday, December 18. 2007
Last weekend at the UN Climate Change Conference in Bali, UN member countries agreed on a road map to hammer out the post-2012 replacement for the Kyoto treaty, after a dramatic last-minute reversal of position of the US delegation. Today, the House passed an energy bill that will increase the fuel efficiency standard for all vehicles by 40% to 35 miles per gallon by 2020. The bill also requires that ethanol use increase 6-fold by 2022. The bill was sent to the White House. (See here & here.)
As shown in the table, an energy policy must address various issues other than global warming. Meanwhile, a climate policy needs to address factors not associated with fossil energy use. For example, livestock feeding and agricultural activities have been known to account for around 15% of greenhouse gas emissions. Also, the global nature of climate change requires much greater international interactions than energy.
Please click the link below for the Chinese version.
Continue reading "Climate policy & energy policy"
(Page 1 of 1, totaling 8 entries)
Freedom of Speech
Friday, July 14 2017
Treasure and preserve what we have
Tuesday, July 19 2016
Bitcoin regulations proposed by New York regulator
Thursday, July 24 2014
Treasure and preserve what we have
Wednesday, June 4 2014
Global banking v global judgment enforcement
Thursday, April 10 2014
Expanded “prior use” defense under AIA
Monday, March 31 2014
Bondholder activism in affecting corporate climate policies
Thursday, February 16 2012
Climate change adaptation & market-based regulation
Thursday, January 26 2012
11/14/2011 Presentation on Climate Change
Friday, December 9 2011
Software patents and venture capital
Monday, September 5 2011