On Nov. 2-3, the Columbia Center on Sustainable Investment will host the 11th annual Columbia International Investment Conference, entitled “Climate Change and Sustainable Investment in Natural Resources: From Consensus to Action.” The conference, taking place one week before COP22, will offer a high-level opportunity to explore the complex challenges of the Paris Agreement in light of sustainable development, the Sustainable Development Goals, and the real challenges facing developing countries within the global economy. This blog series will help to frame some of the questions and issues that will be raised at the conference. For more information and to register (for free), visit the conference website.
By Wendy Hapgood
2016 was a hot year for climate change shareholder resolutions hitting the boardrooms of oil and gas companies. Although more familiar climate news headlines have carried calls to “keep it in the ground” and divest investment portfolios from fossil fuels, a patient strategy has been quietly gaining momentum: shareholder engagement on climate change.
Shareholder engagement on issues of social and environmental justice is not new. Its history as a movement spans over 40 years, started in the early 1970s by faith-based investors in the United States. It has been a successful strategy for enabling change both in the U.S. and internationally, exerting pressure on corporations over a range of social and environmental issues, from pushing companies to divest from South Africa during the apartheid regime and facing up to the harmful health effects of the tobacco industry to raising the standards for fashion companies in relation to safety and child labor. The movement is now being used as a tool to engage major oil and gas companies to acknowledge the imperative to act on climate change and to de-carbonize their long-term business models.
Engagement takes many forms, including closed-door meetings, written correspondence and voting at company meetings. Where dialogue fails, the issue can be put to a vote by all shareholders under the shareholder resolution process. In the U.S., under the rules of the Securities and Exchange Commission, shareholders owning at least 1 percent or $2,000 in shares of a company have the right to file a proposal in order to bring the issue to a shareholder vote at the company’s annual general meeting, raising awareness of both the issue at hand and the potential risk it poses to future earnings and shareholder returns.
Climate change has become a recurring theme on the annual meeting agenda for many carbon intensive companies. According to the Proxy Preview 2016 report produced by As You Sow, the Sustainable Investment Institute and Proxy Impact released in February, of the 370 shareholder resolutions filed in 2016 relating to environmental and social issues in the U.S., a record 94 were related to climate change.
Recurring themes of climate change-related shareholder resolutions request oil and gas companies to:
- Acknowledge the risks of climate change to their business;
- Adopt greenhouse gas emissions reduction goals;
- Support the goal of limiting warming to less than 2°C;
- Add a climate change expert adviser to the board;
- Invest in low-carbon technologies and renewable energy;
- Assess the long-term portfolio impacts of public climate change policies; and
- Disclose funding of lobbyists and organizations dedicated to influencing climate policy.
How did climate change-related shareholder resolutions evolve from a handful of concerned nuns and friars to a record 94 resolutions filed in 2016? A timeline of resolutions compiled by the Columbia Center on Sustainable Investment tracks news reports and shareholder resolutions on climate change and renewable energy for four of the largest publicly owned oil and gas “super majors”: Exxon, British Petroleum (BP), Dutch Shell and French Total SA.
The first climate change-related resolution in the timeline was filed with Exxon over two and a half decades ago in 1990, one year after the Exxon Valdez environmental disaster. The proposal requested Exxon’s board to “develop a company-wide plan to reduce carbon dioxide emissions from the company’s energy production plants and facilities worldwide” and was met by Exxon’s management with opposition and dismissal. The proposal won a 6 percent share of votes, which was considered a small victory.
Many of the early climate change shareholder resolutions, such as greenhouse gas emissions reductions goals, have been filed year after year with the same company, keeping the issue persistently on the agenda and in the minds of the board and shareholders.
The climate change heat around Exxon in particular continues to rise. A Pulitzer Prize-winning investigation published in September 2015 by Inside Climate News exposed Exxon’s knowledge of the dangers of climate change since as early as 1977. New York, California and U.S. Virgin Islands attorneys general are currently investigating Exxon for deliberately misleading its investors on the dangers of burning fossil fuels.
Meanwhile, Exxon continues to assert that its assets are not at risk of devaluation, sticking to its guns that overall demand for fossil fuels will remain high. “The fossil fuels of oil, coal and natural gas are expected to provide about 80 percent of global energy through 2040,” stated Exxon in its most recent energy outlook, noting that “oil will remain the world’s primary energy fuel.”
The regulators are not convinced. This month, the Securities and Exchange Commission announced it is investigating how Exxon values its assets given the mounting global pressure to respond to climate change.
Nuns, friars, pension funds and other responsible investors have been persistent and patient, continuing their strategy of engagement for decades. Finally their efforts appear to be paying off.
The “Aiming for A” coalition based in the United Kingdom is a mix of faith-based and institutional investors, including the heavyweight £150 billion Local Authority Pension Fund Forum and the largest members of the £15 billion Church Investors Group. The coalition’s 2015 resolution, Strategic Resilience for 2035 and Beyond, filed with both British Petroleum and Shell, was a milestone for the shareholder engagement movement. The resolution requested the targeted companies to report annually on their carbon emissions, the resilience of their business model to low-carbon scenarios, investments in low-carbon energy technologies, and their public policy positions related to climate change, while aligning executive incentives to performance against low-carbon goals.
For the first time in the history of shareholder engagement on climate change, the management of both companies supported the resolution, recommending that their shareholders vote “Yes” in support of the proposal. It was approved in landslide victories, with 98.9 percent of voters at Shell and 98 percent of voters at BP supporting the resolution.
This sent a strong signal, not only to British Petroleum and Shell but to all companies in carbon-related industries, about the importance investors place on the risks posed by climate change, and on companies’ long-term responses. The “Aiming for A” coalition resolution was supported by a long list of co-filers including churches, charities and pension funds from around the world. It was an example of international shareholder coalition building, a strategy that is building to encompass more countries, jurisdictions and shareholder voices.
And then there was Paris.
The Paris Climate Agreement, adopted at the 21st session of the Conference of the Parties (COP21) in December 2015, has now been signed by 197 countries and ratified by 75, accounting for over 58 percent of global greenhouse gas emissions. The agreement will enter into force on Nov. 4, meaning countries that signed up are obliged to report on progress towards their emissions reduction goals and to submit tighter pledges every five years.
French oil and gas company Total’s CEO Patrick Pouyanne called the Paris agreement a “watershed,” noting that “there will be a ‘before’ and ‘after’ COP21.” Total was also one among 10 major oil and gas companies pushing for a global price on carbon, joining the Paris Pledge for Action. In this declaration, the CEOs of the 10 companies that make up the Oil & Gas Climate Initiative declared their strategic alignment with a low-carbon future: “Our shared ambition is for a 2°C future. It is a challenge for the whole of society. We are committed to playing our part.” Total also joined 38 French companies in the “French Business Climate Pledge” on Nov. 26, 2015, aiming to commit 45 billion euros over five years toward renewable energy technologies.
“If nothing else, analysts and experts say, the accord is a signal to businesses and investors that the era of carbon reduction has arrived,” The New York Times reported. “It will spur banks and investment funds to shift their loan and stock portfolios from coal and oil to the growing industries of renewable energy, like wind and solar.”
The Paris agreement momentum continued into 2016.
The 2016 proxy season saw the most climate change related resolutions filed in the history of the movement, 94 compared with 82 in 2015. In addition to the oil and gas sector, mining companies with coal assets and major users of fossil fuels such as utility companies came under increased climate change shareholder pressure in 2016. In the mining sector, the boards of Anglo American, Glencore and Rio Tinto supported “Strategic Resilience” resolutions filed by the “Aiming for A” coalition, with resounding votes in support—96 percent, 98 percent and 99 percent respectively.
In the utilities sector, carbon asset risk resolutions were filed at Great Plains Energy, American Electric Power, FirstEnergy and Southern Company, shining a light in their boardrooms on the growing risk of stranded coal assets. Unlike the slow progress of oil and gas shareholder engagement, the Great Plains and American Electric Power resolutions were withdrawn in exchange for agreements and action by the utilities. FirstEnergy and Southern Company resolutions received strong levels of shareholder support, 31 percent and 29 percent respectively, a clear call for these companies to diversify away from coal.
Has shareholder engagement as a strategy to force major oil and gas companies to take climate action finally been successful? Can we learn from the timeline of past resolutions the types of strategies and issues in successful shareholder resolutions in order to guide engagement moving forward, to achieve a rapid transition to a low-carbon economy? Can shareholders also engage with other energy-consuming sectors (such as the power utilities, refineries and car-making industry), in support of the goals of the Paris Agreement?
These and other questions will be up for discussion in November at the Columbia Center on Sustainable Investment’s international investment conference.
Wendy Hapgood is a research assistant at the Columbia Center on Sustainable Investment.