Investors Demand Climate-Risk Disclosure in 2013 Proxies

Photographer: Dimas Ardian/Bloomberg

Cleared land designated for a palm oil plantation in Pelalawan, Indonesia in 2010. A big topic in 2013 is sourcing sustainable palm oil, as much of the tropical deforestation that contributes to climate change is driven by palm oil production, according to Kron. Close

Cleared land designated for a palm oil plantation in Pelalawan, Indonesia in 2010. A... Read More

Photographer: Dimas Ardian/Bloomberg

Cleared land designated for a palm oil plantation in Pelalawan, Indonesia in 2010. A big topic in 2013 is sourcing sustainable palm oil, as much of the tropical deforestation that contributes to climate change is driven by palm oil production, according to Kron.

Bloomberg BNA -- Shareholders are filing resolutions asking companies to disclose physical risks posed by climate change for the first time this proxy season, according to representatives of sustainable investor groups.

Shareholders also are continuing to file an increasing number of sustainability related resolutions asking companies to set greenhouse gas emission reduction goals, publish sustainability reports, pursue energy efficiency, and disclose information about hydraulic fracturing operations.

Although shareholder resolutions on sustainability rarely receive a majority vote, they can still prompt companies to take action to avoid risk to their reputation or address investor concerns, said Jonas Kron, director of shareholder advocacy at Trillium Asset Management. In addition, investors often are engaged in discussions with companies that lead to resolutions being withdrawn before they go up for a vote.

BNA spoke to experts in the socially responsible investment community to get a view of the current landscape for environment shareholder resolutions in 2013—what issues are getting the most attention, what are some of the key trends in recent years, and what actions are companies taking in response to resolutions.  Resolutions are an effective tool for getting companies to change, according to Kron and other sustainable investor experts.

"There was a shift this year in the realization that we are locked into some significant warming, sea level rise, ocean acidification, and more extreme weather."

The proxy season is when companies hold their annual shareholder meetings, which is usually in the spring.  Shareholders vote on issues related to the company, including issues raised through shareholder resolutions. Over the past few years, sustainability resolutions have made up a larger portion of all resolutions submitted to companies and are receiving higher numbers of votes, Kron said.

Environmental and social resolutions accounted for more than 40 percent of all shareholder resolutions submitted in 2012, up from 30 percent in 2011, according to Allie Rutherford, associate director of the corporate governance group at Ernst & Young LLP.  The resolutions also accounted for the largest proportion of resolutions withdrawn due to discussions with companies or corporate commitments, she said.

Of the approximately 600 shareholder resolutions Ernst & Young is tracking so far for 2013, 44 percent are focused on environmental or social topics, Rutherford said.

“Among the most common proposals we are tracking are proposals calling for sustainability reports, some of which focus on sustainability reporting across the supply chain,” she said.  The largest proportion of sustainability resolutions address corporate political spending, which became an issue after the U.S. Supreme Court decision in Citizens United v. Federal Election Commission, according to sustainable investor experts.

Fracking Resolutions

Hydraulic fracturing, or fracking, is continuing to get a lot of attention in shareholder resolutions in 2013, Kron said, as it has since the issue emerged in resolutions in 2010. The Sisters of St. Francis of Philadelphia, for example, have filed a resolution with Chevron asking the company to disclose its policies to minimize negative impacts from its hydraulic fracturing operations.

Investors have shifted the focus of fracking resolutions over the past few years from disclosing chemicals used in fracking fluids to addressing fugitive methane emissions, or gases that escape during natural gas production, according to Kron. Methane is a much more potent contributor to climate change than carbon dioxide, so if a large amount of methane emissions are going undetected or unaddressed, then producing natural gas could have a more drastic impact on climate change than is currently estimated, he said. This could threaten the role of natural gas as a bridge fuel from fossil fuels to more sustainable fuels, he said.

Stu Dalheim, vice president of shareholder advocacy for Calvert Investments, said fracking resolutions are also popular this year because of the regulatory focus on fracking, both at the state and federal level.

While most environmental and social resolutions take several years to build up to a support level of 30 percent or 40 percent vote, voter support for fracking resolutions has increased rapidly since 2010, said Richard Liroff, executive director of the Investor Environmental Health Network. The rapid increase in votes reveals investors’ concerns about hidden risk in portfolios from fracking and methane emissions, he said.

Greenhouse Gases Reduction Goals

Asking companies to set greenhouse gas reductions goals is another big topic for shareholder resolutions in 2013, as it has been in recent years, said Rob Berridge, senior manager of investor programs for Ceres. Specific reduction goals help investors know whether a company is on a low-carbon path or not, he said. If an electric utility company has not set a greenhouse gas emissions reduction goal, for example, it may be considering building a coal plant, which could expose it to potential climate change regulations, Berridge said.

A new category in 2013 resolutions is disclosure of physical risks from climate change, as investors want to know if oil and gas companies plan to move or fortify their coastal refineries due to sea level rise, and how much that will cost, Berridge said.

“There was a shift this year in the realization that we are locked into some significant warming, sea level rise, ocean acidification, and more extreme weather,” he said, partly due to Hurricane Sandy and widespread U.S. drought in 2012. After the number of sustainability resolutions flattened following the financial downturn, “we’re now beginning to see renewed interest in the actual financial risks from climate change,” Berridge told BNA.

In addition, the Securities and Exchange Commission Feb. 13 issued a decision requiring PNC Financial Services Group to allow a vote on a resolution to disclose the company’s exposure to climate change risks. Boston Common Asset Management, which is sponsoring the resolution, touted the SEC’s decision, saying it allowed investors to seek information via shareholder resolutions on how the finance sector is contributing to climate change. But an SEC spokesman told BNA Feb. 19 the commission’s decision only addressed the PNC resolution and did not create a new duty for the entire financial sector.

An idea known as the “carbon bubble” hypothesis is the “elephant in the room” for shareholder resolutions in 2013, Berridge said. Scientists have said 80 percent of fossil fuel reserves cannot be burned if the world is to avoid a 2-degrees Celsius (3.6 degrees Fahrenheit) increase in temperature to avoid catastrophic climate change. For oil and gas companies, 50 percent to 80 percent of their valuation is estimated to be in their reserves, so shareholders are now asking them to address the carbon bubble hypothesis and how it may impact their future cash flow, Berridge said.

A resolution filed with Consol Energy this proxy season, for example, asks the company to publish its “plans to address global concerns regarding fossil fuels and their contribution to climate change, including analysis of long and short term financial and operational risks to the company and society.”

Sustainability Reporting

Sustainability reporting resolutions tend to get very high votes compared to other environmental resolutions, and are very successful as reporting has become more mainstream, Kron said. In 2012, a resolution filed with Equity Residential asking the company to publish a sustainability report received 45.1 percent support, and a similar resolution filed with Cabot Oil and Gas Corp. received 47.6 percent support. Other resolutions were withdrawn because companies committed to publish reports.

A shift in sustainability reporting resolutions in 2013 is that more smaller market value companies, so-called small-cap companies, are being targeted, according to Michael Passoff, CEO of Proxy Impact. This is due partly to the fact that most larger cap companies are already reporting, as well as increasing interest in monitoring supply chain sustainability. In addition, many small cap companies are suppliers, Passoff said.

Energy efficiency is also getting more attention in 2013 resolutions, Berridge said. Energy efficiency investments are a “win-win” for companies, because they provide very high returns, Berridge said. Because of the high rate of return, if a company does not have a plan to invest in energy efficiency, “it may be a sign that they are not particularly well-managed,” he said.

Sourcing Sustainable Palm Oil

Another big topic in 2013 is sourcing sustainable palm oil, as much of the tropical deforestation that contributes to climate change is driven by palm oil production, according to Kron.

Trillium filed a sustainable palm oil resolution with Yum!  in 2012 for the company to source sustainable palm oil, and the resolution received a 37 percent vote, but the company has not yet taken action, Kron said. Trillium refiled the proposal and is hoping the company will take action by the end of 2013. Some competitors, including Walmart and McDonalds, have made sustainable palm oil commitments, Kron said.

Additionally, there is a surplus of sustainable palm oil on the market now, so Yum! is risking its reputation by not making a commitment, Berridge said.

Companies are more likely to respond to resolutions with commitments if they face a risk to their reputation for not taking action, and if it is fairly easy for them to make a commitment, Berridge said. Successful negotiation rates on the palm oil issue are very high, he said. Success rates are also high on fracking and sustainability reporting, but they are lower for issues such as greenhouse gas emission reduction goals, because those goals can be challenging for companies to set, Berridge said.

Working With Companies

The response of companies to shareholder resolutions depends on the company, Kron said. Some companies respond if a resolution gets a 20 percent support vote, some will not respond until a 40 percent vote, and some companies might not respond even then, he said.

It sends a strong message to management if a resolution gets more than 20 percent support, Dalheim said.

The number of shareholder resolutions related to sustainability has generally increased in recent years, although there was a slight dip in 2008 and 2009 after the financial crisis, Dalheim said. “The long-term trend is more resolutions focused on sustainability and higher votes on those issues,” he said.

The average voter support for environmental and social shareholder proposals more than doubled from 2005 to 2011, increasing from 10 percent in 2005 to 21 percent in 2011, according to a study released Feb. 12 by the Investor Responsibility Research Center Institute.

Dalheim also said he expects higher votes on climate and energy proposals this year due to the re-election of President Obama and his remarks thus far in his second term on climate change.

Pat Daly of the Tri State Coalition for Responsible Investment said vote numbers do not tell the whole story. Most of the work on sustainability issues goes on through ongoing dialogues with the companies, not shareholder resolutions, she said. “The real work and the real progress are in the dialogues,” she told BNA.

The coalition is meeting this month with ExxonMobil, Chevron, Southern Co., and ConocoPhillips to discuss fracking, water, and other issues, she said. Members of the Interfaith Coalition on Corporate Responsibility, a group focused on promoting sustainable practices, of which the Tri State Coalition for Responsible Investment is a member, have filed 180 resolutions and engaged in 225 corporate dialogues this season, marking the second year in a row that the organization is involved in more dialogues than resolutions.

About one-third to one-half of all shareholder resolutions filed are withdrawn through dialogues with companies, according to Passoff.

Selecting Companies to Target

When selecting companies to target with shareholder resolutions, Trillium looks at the environmental footprint of the company, whether they are leading or lagging behind their peers, whether there are opportunities to make changes at the company, and whether it is a significant holding for Trillium, Kron said.

Dalheim said Calvert also looks at its holdings, considers how companies are performing in comparison to their peers, and assesses their potential for improvement.

Liroff said filers often select companies to target that have ended up in the headlines, or based on what issues are receiving significant media attention, such as conflict minerals or toxic chemicals in cleaning products and cosmetics in recent years.

Corporate Response to Resolutions

Bob Varettoni, a spokesman for Verizon, said when the company receives shareholder resolutions related to sustainability topics, it generally discusses the resolutions with the filers. A group of shareholders led by the Maryknoll Sisters recently filed a proposal on lead-acid battery recycling.  The company discussed its policy of ensuring proper recycling of lead-acid batteries with the organizations, through correspondence and conversation, and the resolution has since been withdrawn, Varettoni said.

“We always take shareholder comments into consideration, and we particularly want shareholders to be fully informed about how seriously we take our environmental responsibilities,” he said.

Morgan Crinklaw, a spokesman for Chevron, said the company’s board of directors and senior management is currently reviewing all shareholder resolutions filed this season. “In addition, we currently are in the process of communicating with the proponents,” he said.

The company will provide information related to the resolutions in its 2013 proxy statement, which will be published in April, Crinklaw said. “Chevron is continually striving to communicate proactively and transparently on the issues raised in stockholder proposals and other issues of interest to our stockholders,” he said.

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For More Information 

The Investor Responsibility Research Center Institute study, Key Characteristics of Prominent Shareholder-Sponsored Proposals on Environmental and Social Topics, 2005-2011, is available at

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