The Intergovernmental Panel on Climate Change (IPCC) will include more information on the impact of climate change on extreme weather risk:
“With flooding, hurricanes and other extreme weather causing devastating impacts on people and ecosystems, an important section of the report will be the science of attributing extreme events to a changing climate. “The reports will look at climate impacts already being felt as well as projections as the climate changes in the future. It is global in scope, covering land and ocean from the equator to the Poles. It importantly recognizes nature including looking impacts of climate change on species, ecosystems and biodiversity.”
Is Equifax the Next Enron? VEA vice chair Nell Minow appears on the Motley Fool Money podcast to talk about Equifax, Hurricane Harvey, corporate leadership on climate change, and the 2017 summer box office.
I’ve written earlier pieces about the failure of the people who manage our money, especially our retirement savings to provide essential feedback to the companies whose stock they buy on behalf of more than 40 percent of working Americans, charging us as many as 16 undisclosed fees and usually voting against shareholder initiatives on improving board, increasing the link between CEO pay and performance, and making better disclosures on climate change, cybersecurity, diversity, and other issues relating to investment risk and corporate reputation. There’s been a little bit of progress at Vanguard, one of the most powerful and influential money managers, with more than three TRILLION dollars invested, so I asked one of the most thoughtful leaders in this field, Tim Smith of Walden Asset Management, some questions about why that is important and what it means.
How much stock in big American companies is controlled by these firms? How much money is involved?
These are massive investment firms. BlackRock has over $5 trillion dollars in Assets they are managing and Vanguard approximately $3.5 trillion. The raw size of their holdings results in having tremendous power with the companies they own. Most firms that have outreach to their primary investors always make sure to arrange visits with Vanguard and BlackRock as a necessary stop.
Why does it matter how they vote on topics like climate change and disclosure of political contributions when even a 100 percent vote is advisory only and does not require the company do anything?
Shareholder resolutions filed on social and environmental issues have a 45 year history as investors raise important environmental , employee relations, human rights, workplace health and safety issues among others. These resolutions and the engagements that accompany them have had a significant long-term impact on company policies and practices. There are literally hundreds and hundreds of examples of companies responding positively to investor input by
* expanding their corporate disclosure for investors and the public
* changing their policies, practices, and behavior
* updating governance policy
*taking forward-looking steps on an issue like climate change
*making sure hazardous products are removed from food or a production process influencing workers.
*adding diverse candidates to the Board
And the list goes on. Whether a shareholder resolution is binding or not seems immaterial . Companies often see these issues as affecting their reputation and their credibility with investors or consumers as well as affecting them financially over time. Thus many companies take action stimulated by the case being made by investors — but also by their own sense of how acting in a responsible way is good for their business and long term shareholder value.
So how investors vote is vitally important because it is a clear indicator of how a company’s shareowners feel about an issue. To blindly vote for management in virtually all cases not only distances the investor from important decisions that affect them financially but is far from acting as a “responsible fiduciary.” In short, it definitely matters how they vote your shares!
How can people find out whether fund managers oppose climate change initiatives or support outrageous CEO pay?
Every mutual fund company files a form NPX each August disclosing how they vote. So there is a public record. In addition Ceres, the environmental organization, summarizes how funds vote on climate related issues, a good indicator of an investment firm’s voting stance. You can see which funds vote for climate resolutions 0 percent of the time or 15 percent or over 50 percent.
What have you been doing to try to get Vanguard and Blackrock to be more transparent and engaged in share ownership rights like proxy voting?
Over the last several years companies like BlackRock and Vanguard which had a consistent record of voting against all social and environmental resolutions faced growing pressure from clients and investors. In addition, media attention compared them unfavorably to companies like State Street which showed real forward progress in proxy voting. In addition, PRI expects its members to demonstrate seriousness in being an “active owner.”
Walden Asset Management, where I serve as Director of ESG Shareowner Engagement, led a shareholder resolution to both companies and was joined by other investors as cofilers. This prompted both companies to sit down with us to see if we could come to an agreement allowing the resolution to be withdrawn before the vote. As I said, even non-binding shareholder proposals can have an impact.
Both discussions were productive, leading to agreements, and both companies disclosed their new thinking about proxy voting on their websites, highlighting their deep concern about climate risk and their strong support for diversity on boards of directors.
What does this latest statement from Vanguard signify? Does it go far enough?
These are important steps forward by two of the world’s largest investment managers. Their engagements with companies send a strong message to executives that it is necessary to address and urgently act on climate change, for example. But their voting record is still at the bottom of the ladder. They voted for two resolutions, at ExxonMobil(62.3 percent shareholder support) and Occidental (67 percent shareholder support) but they voted no on dozens of other climate-related resolutions. It’s a start but still demonstrates a very modest voting record. Pressure will doubtlessly mount on these two giants to match their rhetoric with actual votes pressing companies to move with some sense of urgency on key environmental and social issues.
What more would you like money management firms like Vanguard and Blackrock to do?
Vote more aggressively, be transparent about what is put on the table in their meetings with companies (no need to mention companies by name), join other investors in speaking out on key environmental/social/governance issues affecting companies financially, meet with shareholder resolution proponents to better understand their positions, speak publicly about the value of the shareholder resolution process, and make sure will not be eradicated by proposals by led by the Business RoundTable or Chamber of Commerce.
For nearly 40 years ExxonMobil publicly raised doubt about the dangers of climate change even as scientists and execs inside the oil giant acknowledged the growing threat internally, according to a Harvard University study.
“We conclude that ExxonMobil misled the public,” the researchers wrote in the peer-reviewed study that was published on Wednesday.
The Harvard study could add to the controversy and legal scrutiny surrounding Exxon’s (XOM) handling of climate change.
Exxon dismissed the Harvard study as “inaccurate and preposterous,” saying in a statement that the research was “paid for, written and published by activists.”
The Harvard researchers examined 187 public and private communications from Exxon about climate change between 1977 and 2014, ranging from internal documents and peer-reviewed studies to company pamphlets and editorial-style advertisements in The New York Times known as “advertorials.”
The study found that the more public-facing the Exxon communication, the more doubt it expressed about climate change.
Exxon’s advertorials “overwhelmingly emphasized only the uncertainties, promoting a narrative inconsistent with the views of most climate scientists, including ExxonMobil’s own,” the Harvard study concluded.
Vanguard Group on Monday said it has urged companies to disclose how climate change could affect their business and asset valuations, reflecting how the environment has become a priority for the investment industry.
Under pressure from investors, Vanguard and other fund companies have pushed to pass several high-profile shareholder resolutions on climate risk at big energy firms like Exxon Mobil Corp and Occidental Petroleum Corp during the spring proxy season.Vanguard manages about $4 trillion and is often the top shareholder in big U.S. corporations through its massive index funds – giving it a major voice in setting corporate agendas.
Vanguard, the biggest U.S. mutual fund firm by assets, had not supported climate activists on similar measures. But Glenn Booraem, Vanguard’s investment stewardship officer, said in a telephone interview on Monday the issue as well as shareholder proposals have evolved.
Guardians of the New Zealand Superannuation Fund announced the $14 billion global passive equity portfolio will employ a low-carbon methodology, exiting active investment in companies including Genesis Energy and NZ Oil and Gas.This, according to fund chief executive Adrian Orr, makes the fund more resilient to climate change investment risks such as stranded assets, and brings its focus on addressing climate change risk in line with current global best practice by institutional investors.
“There is a global consensus that climate change presents material risks for long term investors,” Orr said.
“Leading investors around the world are adjusting their portfolios to address climate change risk and capture opportunities stemming from the transition to a low-carbon economy.”
Fund chief investment officer Matt Whineray said financial markets were under-pricing climate change risk over the fund’s long investment timeframe.
a. CBA knew, or ought to have known, that CBA’s Climate Change Business Risks might have a material or major impact on the operations, financial position, and prospects for future financial years of CBA’s business and CBA’s Customers;
b. CBA had, or ought to have had, one or more business strategies to manage CBA’s Climate Change Business Risks; and
c. CBA’s Members would reasonably require, in order to make an informed
assessment of the operations, financial position, business strategies, and prospects for future financial years, of CBA: a summary of CBA’s Climate Change Business Risks and of the business strategies employed by CBA to manage those risks (including whether it had any strategy or strategies to manage those risks)
The Financial Stability Board’s industry-led “Task Force on Climate-Related Financial Disclosures” has issued its final report with standards and guidance for voluntary climate-related financial risk disclosures in SEC filings. The most significant aspects are the imprimatur of the G20 and the credibility and support it lends to investor initiatives calling for portfolio companies to adopt its recommendations. The report notes:
As you know, warming of the planet caused by greenhouse gas emissions poses serious risks to the global economy and will have an impact across many economic sectors. It is difficult for investors to know which companies are most at risk from climate change, which are best prepared, and which are taking action.
The Task Force’s report establishes recommendations for disclosing clear, comparable and consistent information about the risks and opportunities presented by climate change. Their widespread adoption will ensure that the effects of climate change become routinely considered in business and investment decisions. Adoption of these recommendations will also help companies better demonstrate responsibility and foresight in their consideration of climate issues. That will lead to smarter, more efficient allocation of capital, and help smooth the transition to a more sustainable, low-carbon economy.
The industry Task Force spent 18 months consulting with a wide range of business and financial leaders to hone its recommendations and consider how to help companies better communicate key climate-related information. The feedback we received in response to the Task Force’s draft report confirmed broad support from industry and others, and involved productive dialogue among companies and banks, insurers, and investors. This was and remains a collaborative process, and as these recommendations are implemented, we hope that this dialogue and feedback continues.
Since the Task Force began its work, we have also seen a significant increase in demand from investors for improved climate-related financial disclosures. This comes amid unprecedented support among companies for action to tackle climate change.
Harry G. Broadman has an excellent suggestion for reducing the ability of fossil fuel companies to externalize their costs:
Imagine a country increasingly referred to as a ‘failed state’ taking a responsible action that imposes a surcharge on fossil fuels that both reduces consumption of them to curb emissions of greenhouse gases and helps finance investment to modernize the world’s largest economy’s embarrassingly dilapidated and unsafe infrastructure network.As the Trump White House and the Congress try to turn their attention to tax reform, there is simply no excuse for them to not enact the addition of a specific tax to the retail prices of gasoline and diesel fuel. It’s a classic ‘twofor’ and a policy prescription that pays for itself.
The TCFD wants to improve the quality of climate-related financial disclosures, and that means company filings that capture the impact of climate change on businesses over time.This goal goes beyond just producing, as the TCFD calls it, “forward-looking” climate information. It also requires that both the risks and opportunities of climate change be broadly integrated with financial statements.
But big challenges arise from the TCFD recommendations. The obvious one is that there are no specific standards or methodologies to integrate such disclosures into accounting practices.Financial accounting standards do not mention “climate change” and by definition are backward looking, designed to produce financial statements that portray the true and fair position of a company at a year-end. They are a snapshot of the past, not the future.
Jon Williams, a member of the TCFD and PwC Sustainability & Climate Change Partner, says: “In my view, rather than trying to spend the next decade coming up with a new climate-change reporting standard, it will be useful for the TCFD or another body to produce an interpretation of accounting standards through the lense of climate change.”
The TCFD final report highlights the “interconnectivity of its recommendations with existing financial statement and disclosure requirements” of the IASB and FASB. It explicitly mentions IAS 36 (impairment of assets) and IAS 37 (provisions, contingent liabilities and contingent assets).
