Southern Company, TXU Agree To Report To Shareholders On Preparedness For Greenhouse Gas Limits; Reliant Energy To Expand 10k Disclosure On Issue
In response to shareholder requests for disclosure on how companies are planning for potential constraints on carbon dioxide and other emissions, electric power giant Southern Company and power company TXU have agreed to report publicly on how they are planning for those scenarios, while Houston-based power provider Reliant Energy has agreed to take steps to improve measurement and disclosure of the financial impact of its emissions.
Southern Company and TXU have agreed to assess the impacts of and potential responses to a number of policy scenarios, including various proposals in Congress and existing state legislation to limit carbon dioxide and other air pollution responsible for smog, soot, toxic contamination, acid rain, and global warming. Both companies agreed to the shareholders' for board oversight of the report. Reliant Energy agreed to expand its securities filings' 10-K disclosure to include an assessment of environmental issues, amend the charter of its Board Audit Committee to include an annual formal review of those issues, and establish an area on the corporate website with information about environmental issues. As a result, shareholders have withdrawn resolutions facing the three companies.
The resolutions focused on the potential risks to shareholders posed by the companies' emissions of CO2, the primary pollutant causing global warming. They were filed at Southern Company [NYSE: SO] by Connecticut Retirement Plans and Trust Funds, Sisters of Charity, Elizabeth, NJ, and Sisters of St. Dominic, Caldwell, NJ, at TXU [NYSE: TXU] by the Congregation of Benedictine Sisters, and at Reliant Energy [NYSE: RRI] by New York City. The resolutions were coordinated by Ceres, a coalition of investors and environmental groups, and the Interfaith Center on Corporate Responsibility (ICCR), a coalition of 275 religious institutional investors.
The shareholders heralded the agreements, which bring this year's total electric power company agreements to five out of six companies approached, as a victory for uncovering the financial risks associated with pollution and with greenhouse gases in particular.
William Thompson, Comptroller, City of New York, said: "I am encouraged that the boards of directors of some electric companies are now addressing the eventual regulation of greenhouse gases and other emissions with respect to the potential financial impacts on companies and the industry. We will continue to expand our efforts to engage the boards of directors that have not yet focused on this issue."
Southern Company, the second-largest electric power company in the nation and one heavily reliant on coal as a fuel source, is known for its aggressive opposition to controls on CO2 emissions, the major greenhouse gas that comes from the burning of fossil fuels. Yet the company agreed that financial risks should be disclosed, writing in a letter to the shareholders:
We share your position that management and the Board have a fiduciary duty to carefully assess and disclose to shareholders appropriate information on the company's environmental risk exposure...and agreeing to prepare a report that would include:
An evaluation of the actions the company is taking and proposes to take to respond to current and future requirements and an assessment of these current and proposed actions on shareholder value; this will include how these actions affect and will affect the company's total annual emissions of SO2, NOx and mercury and the net emissions of CO2 after accounting for offsets, for the timeframe 2000- 2020.
Barbara Aires, Treasurer and Coordinator of Corporate Responsibility of the Sisters of Charity of Elizabeth, NJ, said: "Shareholders have been raising this issue since the early 1990s, so it's significant that we're working together to cooperate on an action plan. We're hoping that this report will also be a leading example of risk assessment and disclosure that can be taken up by other companies, and we're looking forward to working closely with Southern to see that this report acknowledges emerging realities as the company makes investment decisions."
Similar global warming shareholder resolutions were also filed this year at American Electric Power, Cinergy Corp, and Xcel Energy. The resolutions at AEP and Cinergy were withdrawn by shareholders earlier this year when those companies also agreed to issue risk reports, while Xcel Energy challenged its resolution at the Securities and Exchange Commission and received permission to omit it from the company's proxy statement. The shareholders say that permission signals a need for clarification from the SEC that risks related to climate change should be disclosed routinely in securities filings, leading to standardization of disclosure.
American Electric Power, Southern, Xcel, Cinergy, Reliant, and TXU are, respectively, the first, second, fourth, fifth, nineteenth, and thirty-first largest emitters in the electricity industry o the global warming pollutant carbon dioxide.
Leslie Lowe, Director of Energy and Environment Programs for ICCR, said: "Corporations are operating in a new environment given the Sarbanes Oxley requirements that company financials fairly and accurately present a picture of corporate performance going forward. We believe that global warming, with its implications for the future of fossil fuels and companies dependent on those fuels, is and should be regarded as a part of that future performance picture."
Mindy Lubber, Executive Director, Ceres, said: "For these companies to move from total opposition to shareholder requests to agreement to work together is an historic breakthrough for shareholders who are worried about how global warming will affect their portfolio value over the long-term. The agreement opens the door for a discussion about the best corporate strategy to create certainty for companies that will surely be affected by the growing world consensus to reduce carbon dioxide emissions."
The agreements come on the heels of increasing pressure on the electric power industry to address the issue of coming carbon constraints. Similar resolutions last year garnered the support of Institutional Shareholder Services, a group that advises institutional investors on proxy voting, resulting in record high votes - an average 23% vote in favor- with 27% of shareholders voting for such disclosure at American Electric Power, and 24.7% voting in favor at Southern Company.
Becky Stanfield, Senior Policy Advisor, Clear the Air, said: "A breakthrough of any kind with Southern Company is a rare achievement and one to take note of. Over the next 12 months we will know whether this breakthrough signals the beginning of a change in direction for Southern Company or not, and if it is, it will be go down in history as a turning point on global warming more generally."