We discussed the Copenhagen Climate Change Conference and its implications with Adam Kanzer, managing director and general counsel of Domini Social Investments. Domini was one of the first asset managers to offer a stable of socially responsible mutual funds and factor environmental issues into its investment decisions; we remain agnostic regarding the climate debate but were eager to get his take on what investments will make green for long-term investors. Although Kanzer agrees that the Copenhagen Summit failed to meet expectations, he believes that tighter carbon regulation will come to the US–with or without a broader international agreement.

Some climate-conscious observers have heralded the Copenhagen Climate Change Conference as a success based on the agreement for further talks; others have labeled it a complete failure simply because it didn’t produce any substantive resolutions. What’s your take?

I wouldn’t say that the conference failed to achieve anything, but a lot of investors–ourselves included–had hoped the Copenhagen talks would produce a strong resolution regarding carbon dioxide (CO2) emissions. In that regard, uncertainty still exists and presents real risks for investors and companies; it’s difficult for corporations to engage in long-term planning and capital investment without specific limitations on CO2 emissions or a definitive agreement.

On the other hand, establishing a framework for future talks with China was a critical step. The US and Europe could do everything possible to restrict CO2 emissions, but such efforts would matter little if China isn’t on board. And odds were high going into the conference that President Obama wouldn’t be able to secure a meaningful agreement; from a pragmatic standpoint, he achieved what was achievable. We hope that future talks will lead to a clear, binding resolution.

Could the US unilaterally enact stringent environmental regulation?

Ceres is a coalition of investors, environmental organizations and other public interest groups that work with companies to address climate change and other sustainability issues. The group issued a statement calling for participants in the Copenhagen summit to produce a strong resolution limiting CO2 emissions–an endorsement from money managers that oversee some $13 trillion in assets.

A group of leading US companies also has advocated for the certainty that comes from strong national legislation and a legally binding international agreement on climate change. All of that support is tough to ignore.

The Securities and Exchange Commission (SEC) also issued a bulletin last October permitting shareholder resolutions that explicitly ask how social and environmental risks affect a company’s long-term value. Investors will definitely see more proposals addressing climate risk.

Prior to the Copenhagen talks, the Environmental Protection Agency (EPA) declared carbon a pollutant. This follows new disclosure requirements that the EPA issued last year.

Uncertainty abounds about the form of future regulation, but it’s clear that new rules are coming and will put a price on CO2 emissions.

If an international accord is reached, would it be a patchwork system or a unified, global scheme?

I imagine that different nations would implement different regimes, giving rise to a patchwork system. But the global nature of climate change requires a binding international agreement. A ton of CO2 emitted in the US represents the same risk to China as a ton of carbon emitted in China represents to the US. International coordination is a must; it’s impossible to solve a global problem locally.

Any international agreement also would have to set up a pricing scheme for CO2 emissions that would establish strong disincentives for exceeding emissions limits.

Will developed economies have to help their developing neighbors?

Developing countries didn’t create the problem. China didn’t create the problem, but its coal consumption is growing rapidly with its economy and contributing to unacceptable levels of CO2 in our atmosphere. Developing countries need to be part of the solution by virtue of their size and energy mix but will require incentives to secure their participation. Developed countries likely will need to pick up the tab and take responsibility.

Are any companies taking proactive steps to prepare for new carbon regulation?

A host of companies have been preparing for years, and many put out annual reports discussing how they’re measuring and reducing their carbon footprints.

A few years back we participated in a dialogue with JP Morgan Chase (NYSE: JPM) that prompted the financial giant to adopt a comprehensive environmental policy focused on climate change. The bank now speaks to its clients about how they’re addressing climate change.

Nike (NYSE: NIKE), The Gap (NYSE: GPS), Starbucks (NSDQ: SBUX), and North Face Apparel are among a cadre of companies that participate in Business for Innovative Climate & Energy Policy, a business group that actively calls for strong CO2 regulation.

And IBM (NYSE: IBM), Dell (NSDQ: DELL) and Hewlett-Packard (NYSE: HPQ) are among a growing number of firms that have implemented measures to improve energy efficiency. Many companies are also analyzing how their supply chains contribute to climate risk. The Timberland Company (NYSE: TBL) has taken particularly innovative steps to label the carbon intensity of its products.

The insurance industry was ringing alarm bells years ago. Munich Re (Germany: MUV2) and Swiss Re (OTC: SWCEY), in particular, have made strong statements about potential risks. When reinsurers take a public stand on an environmental issue, the problem must be serious. Swiss Re and other insurers are concerned that the effects of global climate change could bring the industry to its knees–the risks involved are simply too big to cover. If CO2 regulation isn’t done right, insurance firms could find themselves deep underwater.

Even some companies that arguably would be hit the hardest by CO2 limits have acknowledged the reality of climate change and the need to act. A few years ago Cinergy, a utility that relies almost entirely on coal-fired facilities, issued a report on climate change to establish an open dialogue with its investors about climate change, the risk it poses to the company’s business and potential solutions.

Companies have implemented all manner of measures to understand how a low-carbon environment will affect their businesses and how to prepare for that eventuality, but an individual firm can only do so much planning without regulatory clarity.

Tighter regulation would entail higher costs, but is there a potential economic upside?

The transition to a low-carbon economy would create opportunities for technological innovation, new products, new ways of thinking about efficiency and design, and new ways of providing energy and transportation–it would affect every sector. We could be on the verge of an entrepreneurial revolution. Goldman Sachs (NYSE: GS) has a sustainability group that examines the risks and opportunities, and Deutsche Bank (NYSE: DB) has delivered presentations about the huge upside potential–after all, this new economy will require financing.

If regulation is implemented thoughtfully it will incentivize the shift to a low-carbon economy, drive innovation and remove as much uncertainty as possible. Unfortunately, it’s impossible to eliminate all uncertainty about how quickly this will play out. But the upside potential of strong, effective regulation should be significant, and smart companies are already positioning themselves to benefit. Investors should do the same with their portfolios.

Last year the SEC selected you to serve on its newly formed Investment Advisory Committee. Is that body working on these issues?

Part of the SEC Investment Advisory Committee’s mandate is to address the whole area of environment, social and governance disclosure by companies. The SEC has received substantial input on the topics, including recent proposals from Ceres and the Social Investment Forum on climate risk and mandatory sustainability reporting, respectively.

From my perspective, such information is material to investors; companies should disclose these details, though most do not at this point. I’m looking for the SEC to clarify that these issues are material and mandate some form of sustainability reporting. SEC Commissioner Ellisse Walter stated a few months ago that the time is right to classify climate change as a material risk and to require relevant disclosures.

As I mentioned before, some companies already disclose this information. The Carbon Disclosure Project surveys the world’s largest companies annually to determine their carbon footprint. Investors that oversee $55 trillion in assets endorse and use this information, and that number increases with each year. On the one hand, this effort is great and sends the message to companies that investors regard these issues as material. On the other hand, a lack of SEC requirements necessitates this project and reflects how difficult such information is to obtain–especially in a readily comparable format.

What’s your best advice for investors going forward?

Take a hard look at how climate change will affect the stocks in your portfolio and any of your prospective investments. Start asking hard questions about how companies–and your investment managers–regard climate risk and how they’re addressing it. Investors should also support shareholder proposals appearing on corporate proxy statements seeking disclosure of these risks.