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CEOs face rising shareholder interest in managing corporate climate risks

By Daniel Cusick
E&E Publishing
Activist investors will put forward a record 142 shareholder resolutions during the upcoming proxy season asking corporations to strengthen their environmental commitments in areas ranging from greenhouse gas reductions and energy efficiency to deforestation and water use.

Activist investors will put forward a record 142 shareholder resolutions during the upcoming proxy season asking corporations to strengthen their environmental commitments in areas ranging from greenhouse gas reductions and energy efficiency to deforestation and water use.

The resolutions, a list of which was released this morning by the nonprofit group Ceres, cover a broad range of topics and industries. But a common thread running through many of the documents is a demand for greater transparency about the risks associated with the production and use of carbon-based fuels and the resulting greenhouse gas emissions.

"Investors are not standing still as the climate crisis worsens," Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk, said in a statement announcing the resolution campaign by 35 institutional investors, including public pension funds in New York, California and Connecticut. "These wide-ranging resolutions reflect a deepening concern that stronger actions from companies are needed."

For a number of targeted companies, especially those in the energy sector, such resolutions have become a perennial event, and relatively few of the climate change resolutions garner overwhelming, or even majority, support from shareholders.

But backers of the resolutions maintain that they do have an effect, and shareholder support for such measures has grown -- in some cases from the single and low double digits to upwards of 40 percent when companies' environmental risks and liabilities are well understood.

Tim Smith, a senior vice president at Boston-based Walden Asset Management, said in a telephone interview that shareholder resolutions are just one tool investors use to push corporate boards to do more to address climate change, along with direct engagement and face-to-face negotiations, and even a modest level of support can send a strong message.

"If it's a resolution on the environment, we're pleased if it gets a 35 percent vote," said Smith, whose firm, a subsidiary of Boston Trust & Investment Management Co., manages $2.8 billion in "sustainable and responsible investment" (SRI) portfolios.

"But if I'm a CEO of a company, and I see 41 percent or 45 percent [support] for a resolution, I'm still getting a message from my investors," Smith added. "A company that simply counts ballots and only moves with a majority vote is being very shortsighted, in our view."

Is reporting on sustainability 'prudent'?

According the nonprofit group As You Sow -- which filed climate change resolutions this year with Anadarko Petroleum, Chevron, Consol Energy and Southern Co. -- shareholders are increasingly viewing climate change as part of a complex and interrelated web of issues that factor into companies' overall performance.

"Shareholders today are looking not just at these issues in isolation," Andrew Behar, the group's chief executive, wrote in the organization's latest "Proxy Preview" report, which summarizes the efforts of a wide range of socially minded investment groups.

"Instead, they articulate a systemic critique, pointing out the connections between excessive political spending, inadequate energy policy, the dangers of our changing climate and its damaging impact on water and agriculture, toxic hazards, and how these things are related to human rights."

According to Ceres, investor groups filed 23 resolutions this year asking companies to set greenhouse gas reduction targets and increase transparency on how they are managing climate risks. Among the firms weighing such resolutions are oil and gas giants Exxon Mobil and ConocoPhillips, along with electric utilities like Ameren, Dominion Resources and Southern Co.

The 2014 list of greenhouse-gas-related petitions also extends beyond the traditional energy sector to include retailers like Lowe's and Advance Auto Parts, manufacturers Emerson Electric Co. and Polaris Industries, and even satellite television provider Dish Network.

In one of the few shareholder votes to have been taken this year, the Emerson Electric resolution garnered 38 percent support at the company's Feb. 3 stockholders' meeting in St. Louis, despite a recommendation from Emerson's board against the measure. Among other things, the company said in its proxy statement that "preparing a 'sustainability report' is not a prudent use of our human and financial resources, nor are such expenditures in the best interest of our stockholders."

Backlash from conservatives with agendas

While it is not unusual for corporate boards to recommend against such resolutions -- often claiming that companies state their environmental values and report performance metrics in other ways -- there is evidence of a growing backlash by conservative groups against shareholder-led efforts to make environmental concerns a top boardroom priority.

In an incident last Friday that garnered widespread attention, Apple CEO Tim Cook reportedly became visibly angry during an exchange with a representative of the conservative National Center for Public Policy Research after the NCPPR official, Justin Danhof, challenged Apple's social and environmental sustainability initiatives, including investments in renewable energy projects.

According to media reports, Cook suggested that Danhof "get out of this stock entirely" after Danhof argued that Apple should only invest in projects and programs that produce a financial return on investment.

In a telephone interview, Danhof confirmed the exchange with Cook but said his purpose was not to challenge all of Apple's social and environmental priorities. Rather, he contends, many companies, including Apple, are allowing independent organizations to impose de facto rules and regulations on their operations, often to the detriment of stockholders.

Danhof also argued that certain environmental policies, such as capping carbon dioxide emissions, that have garnered political support from companies like Apple actually have negative consequences for the companies' supply chains and balance sheets. But such concerns are often ignored in the interest of burnishing its environmental credentials.

"We do believe there are many instances where sustainability and environmentalism can work in tandem with the free market," Dahhof said. "What we don't want to see is a lot of greenwashing going on."

But environmentally minded shareholder groups see a wholly different picture, one in which ignoring the risks of climate change will place companies at much greater risk of operational and financial hardship in the future.

They also point to recent studies showing that many U.S. businesses have reported a higher rate of return on investments in carbon-reduction technologies than on overall corporate capital investments.

For example, an analysis publishsed last year by the World Wildlife Fund and the British nonprofit CDP (formerly the Carbon Disclosure Project) found that companies that commit to cutting carbon emissions by 3 percent annually over the next six years could save as much as $190 billion through lower energy bills (ClimateWire, June 19, 2013).

Environmental groups also point to the growing number of companies that have acknowledged that climate change is a pressing issue that warrants immediate action from the private sector. More than 700 firms, for example, have signed onto Ceres' "Climate Declaration" stating that climate change provides a huge economic opportunity in the 21st century (ClimateWire, April 11, 2013).

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