Guest Blog | Shareowners to Companies: Take Action on Climate!
To maintain their social license to operate, companies must regularly engage a wide array of stakeholders. Consumers, employees, suppliers, government agencies and civil society groups are all connected to a company’s operations through varying levels of influence and investment. Shareowners—those with an active, long-term financial investment in a company—have a unique opportunity to influence the issues they believe a company should address by filing yearly shareholder resolutions at the company’s annual meeting.
Though non-binding, shareholder resolutions can resonate strongly with corporate leadership and external audiences and lead to lasting changes over time. Examining the vast array of shareholder resolutions filed each year can also help in identifying emerging investor priorities. According to the latest Proxy Preview, a comprehensive overview of the 2016 shareholder season, this may well be the “Year of the Environment”—with a focus on climate.
Environmental issues and sustainable governance now account for about 40 percent of the approximately 370 shareholder resolutions filed so far this year. More than 90 of those resolutions specifically address climate change. Many more resolutions address climate indirectly, such as those asking for clarity on lobbying and political spending that may impact climate policy.
Fossil Fuel Companies in the Spotlight
Many resolutions target fossil fuel extractors and suppliers. Investors are asking for detailed disclosure about how companies plan to respond to commitments made by the COP-21 Paris agreement to prevent runaway climate change. As Michael Passoff, CEO of Proxy Impact, points out, “investors in fossil fuels are concerned how the companies can transition to low-carbon economies.”
The focus with fossil fuel companies is on two key issues: carbon accounting and risk management disclosure.
Eleven energy companies are being asked to report on how global commitments to limit temperature rise to less than two degrees Celsius would affect their operations.
Another eleven energy companies are being asked to report on their capital expenditure plans within the context of a constrained carbon future and the risk of “stranded assets”—fossil fuel reserves that must be left in the ground to prevent global warming.
Eighteen companies that use hydraulic fracturing to extract shale energy are being asked to expand their disclosure on the risks associated with their operations; twelve of the eighteen are also asked to set methane reduction targets.
It’s Not Just about the Fossil Fuel Companies
A truly sustainable economy requires a collective shift in strategy by all energy consumers. Investors are prioritizing engagement with energy-intensive companies that have the most to gain—and the most to lose―in the transition from carbon-intensive fuels to renewables:
10 utilities have been asked to disclose their plans for adapting to distributed energy generation and low carbon resources, or to analyze how increasingly cost-competitive renewable energy sources can be incorporated into their business models
Another 14 resolutions ask major manufacturers and retailers to set renewable energy targets or to report on renewable energy strategies
Activism Case Study: First Affirmative Financial Network
First Affirmative interacts with companies on climate by voting climate related proxies in accordance with our published guidelines, engaging in dialogue with selected companies and filing shareholder resolutions. Here are highlights from the 2016 shareholder season:
Kinder Morgan. We filed a “carbon asset risk” resolution for a third time at Kinder Morgan (KMI). It requests disclosure regarding the company’s evaluation and management of the risks presented by reduced fossil fuel demand. This company owns a huge network of pipelines and terminals that transport and store fossil fuels. Given that a substantial majority of the company’s customers are adversely impacted by reduced fossil fuel demand, investors have ample cause for concern.
Recent events serve to highlight the need for investors to have access to this information:
Customers Arch and Peabody Coal have both declared bankruptcy, leading to the cancellation of Kinder Morgan contracts for services
Kinder Morgan withdrew from the Northeast Energy Direct pipeline, a $5 billion project designed to move Marcellus Shale gas into the northeast.
Franklin Resources. First Affirmative co-filed a resolution asking the owner of Franklin Templeton Funds to report on the inconsistencies between their proxy voting practices and their policy positions regarding climate change. Unlike First Affirmative, Franklin’s proxy voting record indicates virtually no support of climate resolutions, despite public statements indicating they take ESG issues seriously as an investment risk. In short, we are asking them to walk their talk!
Whole Foods. We joined Trillium Asset Management to co-file a food waste resolution with Whole Foods asking them to assess, disclose, reduce and optimally manage food waste. This was the first time such a resolution has been filed at any company, and it received a remarkable 28 percent support. Why is this a climate issue? Food decomposing in landfills emits methane, a greenhouse gas 80 times as potent as CO2. If global food waste were a country, its emissions would be third, behind only China and the United States.
There are many ways investors can engage with companies to promote policies and practices that address the financial, social, and environmental risks associated with climate change. With strong global momentum following the COP21 agreement, we hope our shareowner efforts help accelerate the business community’s transition toward more climate-friendly practices. Stay tuned for a proxy season recap later this year!
Holly Testa is the Director of Shareowner Engagement at First Affirmative Financial Network. Connect with her on LinkedIn.
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