Breaking the Ice: Investors Warm to Climate Change

A few years ago, climate change was a fringe issue. Ignored by mainstream investors, environmental resolutions were lucky to receive 5 percent support. Now, issuers who try to ignore the associated risks could face serious financial consequences.

The victory of Occidental’s shareholders was arguably the result of a perfect storm. Over the past few years, climate change resolutions have become increasingly sophisticated. Where once they tended to be overly prescriptive and confrontational, they now aim to appeal to all parties involved.Many resolutions exploit investors’ fiduciary obligation to act in the best interests of their clients by emphasizing the relevance of the disclosures being requested. Recent climate change proposals also make more of an effort to placate companies. Indeed, by being more general, and in many cases advisory, most current proposals rely on investor support to pressure companies into implementing what they want.

Source: Breaking the Ice: Investors Warm to Climate Change

Investors expect to meet with Exxon on climate-impact report | Reuters

Exxon Mobil Corp investors will push to meet with oil company officials this summer to hash out elements of a climate-impact analysis following a shareholder vote calling for studies of technology and climate-related risks to its business.Exxon has said that it will reconsider its opposition to the request, not that it would begin discussions or initiate new studies. The shareholder proposal, filed by 54 groups including financial, religious and corporate governance activists, won the support on Wednesday of 62 percent of Exxon holders.

“I anticipate we’ll be having a meeting this summer,” said Tracey Rembert, assistant director of Catholic Responsible Investing at Christian Brothers Investment Services, one of the 54 co-filers.The White House’s decision on Thursday to withdraw from the Paris agreement on climate change has no bearing on the proposal. “We expect the scenario assessment will start to be done quickly at Exxon,” Rembert said.

The investors behind the proposal routinely met in past years with Exxon between December and February to discuss annual meeting proposals, she said. Earlier discussions because of the majority vote are in order.

Source: Investors expect to meet with Exxon on climate-impact report | Reuters

Facebook, Apple, Google and Amazon are joining a campaign to support the Paris climate accord – The Washington Post

Apple, Amazon, Facebook and Google are among hundreds of U.S. businesses joining an effort to support the Paris climate agreement as part of a public campaign announced Monday. Dubbed “We Are Still In,” the launch of the initiative comes just days after President Trump said the United States would withdraw from the international accord, stunning much of the world and breaking with a broad host of industry executives who supported the deal.The campaign’s participants, which also include hundreds of investors, universities, local officials and state governments, have pledged to support the Paris accord and “pursue ambitious climate goals,” according to an open letter the campaign released.

Source: Facebook, Apple, Google and Amazon are joining a campaign to support the Paris climate accord – The Washington Post

Paris Agreement: Why Business Opposes Trump’s Withdrawal | Fortune.com

Alan Murray writes in Fortune:

President Trump announced yesterday he will withdraw the U.S. from the Paris agreement on climate change. That’s nothing new for a Republican president—George W. Bush steered clear of the Kyoto Protocol. But what’s changed in the last decade is the position of business. This time, a long list of CEOs urged the President to stay in the agreement. That not only included the left coast crowd—Apple CEO Tim Cook called the White House to lobby Trump, and Tesla’s Elon Musk quit the President’s advisory council after the announcement (as did Disney’s Robert Iger)—but also the likes of ExxonMobil CEO Darren Woods. GE’s Jeff Immelt and JP Morgan’s Jamie Dimon also dissented, while Goldman Sachs’s Lloyd Blankfein pointedly chose the President’s favorite medium, Twitter, to slam the decision (it was Blankfein’s first tweet since he joined the network six years ago).

Today’s decision is a setback for the environment and for the U.S.’s leadership position in the world. #ParisAgreement- Lloyd Blankfein (@lloydblankfein) June 1, 2017

Nick Akins, the head of American Electric Power—long one of the nation’s top coal consumers—typifies the change in business attitudes on climate change. In an interview with Fortune’s Susie Gharib, he argued that the U.S. should stay engaged in global climate agreements, and said Trump’s talk of reviving the coal industry was not realistic.

Source: Paris Agreement: Why Business Opposes Trump’s Withdrawal | Fortune.com

State Street: Meeting Environmental Goals Three Years Early

VEA Vice Chair Nell Minow interviewed the State Street executive who guided the company in meeting its environmental goals ahead of schedule, and wrote about it for Huffington Post:

Corporate executives and shareholders are increasingly aware that as a matter of strategy and branding they must play an active public role in addressing environmental risks. ExxonMobil’s Peter Trelenberg wrote to President Trump to ask him to meet the US commitments on the Paris accords. Occidental Petroleum shareholders voted in favor of a climate change shareholder resolution by an almost two-thirds majority. And State Street has announced that it has exceeded its environmental goals set for 2020, three years ahead of schedule, including reducing greenhouse gas emissions and water use by 20 percent per person and diverting 90 percent of waste sent to landfills. In an interview, Rick Pearl, Vice President, Corporate Citizenship at State Street Corporation, explained why this issue is so vital for State Street and how concerns about environmental risk are examined in operations and in evaluating investment risk and return in their portfolio decisions.
How were the environmental goals set and what was the baseline?
The environmental goals are set by our environmental sustainability (ES) committee and approved by State Street’s Executive Corporate Responsibility committee.  The ES committee evaluates company environmental data against contemporary international standards to determine its targets.  The 2020 goals were established against a 2012 baseline for CO2 emissions, water usage and waste diversion from landfill.  The new Science-Based Targets are set against a 2015 baseline with a 10-year time horizon (2025).  They were established in accordance with the Science-Based Target Initiative’s sectoral decarbonization approach which aims to limit global warming to 2 degrees Celsius over pre-industrial levels.
We think of environmental issues as being important for fossil fuel companies or manufacturing companies. Why does State Street consider this a priority?
Environmental issues are of increasing importance to our stakeholders, including employees, the communities in which we operate, clients and shareholders.  From a business standpoint, more clients are expecting their financial service providers to offer products and services that address environmental issues and State Street’s asset management arm, State Street Global Advisors (SSGA) – has several (low-carbon ETF, green bonds, etc.).  In addition, we have launched a program in our Global Exchange division that will help support clients in Environmental, Social and Governance (ESG) analysis and quantification of their investments.  Both clients (through the RFP process) and shareholders (through ESG indices) are expecting companies such as State Street to have strong operational approaches to environmental sustainability. It’s about helping out clients to do financially well, while doing good for the environment.
Does State Street factor environmental concerns into its assessment of investment risk or analysis of issues on corporate proxies?
Our shareholder engagement team at SSGA screens companies in client portfolios against a range of issues that could impact performance over time, including environmental factors such as climate change, water and energy consumption.
There is a popular conception that meeting environmental standards is expensive. Did you find that to be true? Were there cost savings?
State Street’s Environmental Management System is designed to capture efficiencies in its approach.  As a result, the business case can be cost neutral or there may be cost savings in the short and long term.  At this time, environmental factors have become part of our normalized decision-making processes (along with cost, etc.) in real estate, procurement and IT, to name three key areas.
What factors led to achieving the goals ahead of schedule? What’s next? 
Investments in new technology, designing new buildings that are more green and efficient, and creating greater awareness amongst our employee base are several of the factors that led us to achieve our 2020 goals three years ahead of time schedule.  As a result of our success, we are now moving to a Science-Based Target which is the new industry standard following the UN Climate Change Conference in Paris in 2015.

Shareholder Vote Amps Up Pressure for Energy Company Climate Risk Analysis and Disclosure With a Second Majority Vote

Investors today sent a strong signal regarding their growing concerns about climate risk with a majority vote at PPL Corp. in support of a shareholder proposal calling on the company to conduct two degree scenario analysis on its full portfolio of power generation assets and planned capital expenditures through 2040. The proposal calls on the company’s board and management to analyze the company’s business plans and practices against a range of scenarios including one where global temperature rise is limited to no more than 2 degrees Celsius, consistent with the global transition to a new clean energy economy.

“Investors understand that the transition to clean energy and a lower carbon economy is inevitable and well underway. We need to know what companies are doing to adapt and succeed in this new environment,” said New York State Comptroller Thomas DiNapoli who filed the resolution, which also was supported by CalPERS among others. “We need to know that the company has a comprehensive strategy, not just a piecemeal approach. We look forward to working with PPL to make progress.” The New York State Comptroller is also one of the lead filers of a similar resolution that will go to a vote at ExxonMobil on May 31.

Source: Shareholder Vote Amps Up Pressure for Energy Company Climate Risk Analysis and Disclosure | Ceres

Shareholder Concerns About ExxonMobil: Pay, Performance, and Climate Change

VEA Vice Chair Nell Minow writes in Huff Post:

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I am proud to serve on the board of the shareholder advocacy non-profit 5050 Climate Project, which had a major success last week with the first-ever majority shareholder vote on a climate change-related proxy proposal, at Occidental Petroleum. They also released a major new report this week finding that five major utility companies have failed to develop and disclose their sustainability strategies. A new analysis of ExxonMobil (NYSE: XOM) by 5050 raises some important concerns for shareholders relating to pay, performance, and climate change.
1. ExxonMobil’s documented policy of preventing investors from engaging directly with members of its board to discuss company strategy, financial performance, risks and opportunities, and other topics germane to the board. This antiquated policy is out of step with widely recognized best practices for corporate governance and undercuts the board’s ability to gain valuable outside advice and perspectives. [Note: for several days last week the company’s website interface for contacting board members was not functioning and a call to inquire about it was met with a recording explaining due to technical difficulties they were unable to answer the phone, or, apparently, take messages. They did not respond to an email inquiry about these issues, though the website function has been fixed.]
2. Lack of clear and transparent succession planning for retiring board members, particularly given the mismatches we see between the skills and orientation of outgoing directors and the strategic challenges facing the company. For example, ExxonMobil’s outgoing Audit Committee chair lacked relevant financial expertise during a time of regulatory scrutiny and business model transformation, and though his and other board members’ retirement dates were known in advance, no replacements have been nominated for the 2017 annual shareholder meeting nor has the company discussed plans for the directors’ replacements.
3. Board compensation practices that may create perverse incentives as directors approach retirement. ExxonMobil provides that most director equity-based pay does not vest until the mandatory retirement age of 72, an unusual proviso, under which directors can potentially forfeit what can amount to millions of dollars in pay if they leave the board before retirement. As they approach retirement, directors’ time until payout shortens while the value of their equity compensation increases – a dynamic that can compromise director independence and objectivity, as directors nearing retirement may not voice dissenting opinions for fear of putting their impending payout at risk of forfeiture.
ExxonMobil’s own statements acknowledge the realities of climate change and, without being specific, their role and their obligation to respond. “Addressing climate change, providing economic opportunity and lifting billions out of poverty are complex and interrelated issues requiring complex solutions. There is a consensus that comprehensive strategies are needed to respond to these risks. “ It is an encouraging sign that they have added Dr. Susan Avery, Former President and Director of the Woods Hole Oceanographic Institution, to their board of directors. A good next step would be making her available to meet with investors to hear their concerns about strategy and transparency.
5050’s mission is to “help large investors create market-based demand for meaningful climate disclosures and greater climate competency on corporate boards.” These large investors, mostly pension funds, mutual funds, and endowments, are permanent investors with very significant holdings in just about all public companies. They cannot sell the stock if they disagree with management, especially if the price of the stock is discounted by failure to align pay with performance or to create strategies for sustainable growth. All they can do is engage with management and the board to raise their concerns and ask for better answers. Given potential regulatory rollbacks and the government’s reduced role in providing data and research on climate change, institutional investors who understand the quantifiable risks of failure to address climate change are finding that it is cost-effective to assess and respond to these risks rather than wait for corporations or government to act on their own.

5 Top US Utilities Lag in Climate Change Readiness — 50/50 Climate Project

Five of the largest US utilities are unprepared for the economic risks of climate change, according to a new report by the 50/50 Climate Project and The Sustainable Investments Institute (Si2).

Duke Energy, Southern, FirstEnergy, DTE Energy and American Electric Power are not pursuing business strategies consistent with the scientific realities of climate change and the accompanying financial, strategic, operational and competitive risks.

Source: 5 Top US Utilities Lag in Climate Change Readiness — 50/50 Climate Project

For the First Time, A Climate Proposal Gets Majority Support: Occidental Petroleum

Emily Chasen writes in Bloomberg:

Occidental Petroleum Corp.’s shareholders approved a proposal Friday to require the oil and gas exploration company to report on the business impacts of climate change, marking the first time such a proposal has passed over the board’s objections.

The resolution, initiated by a group of investors including the California Public Employees’ Retirement System, received more than 50 percent of the votes at Occidental’s shareholder meeting in Houston on Friday, according to spokesmen for the company and Calpers. Occidental didn’t provide the tally, but said the exact figures will be submitted to the Securities and Exchange Commission in coming days.

“The board acknowledges the shareholders support for this proposal,” Eugene L. Batchelder, chairman of the board for Occidental, said in an e-mailed statement Friday after the vote. “We look forward to continuing our shareholder engagement on the topic and providing additional disclosure about the company’s assessment and management of climate-related risks and opportunities.”

The resolution came close to majority support last year. A crucial factor in exceeding the 50 percent mark was Blackrock, a major shareholder, who switched from voting against the proposal last year to voting for it. One reason might be the concerns that the new administration’s opposition to environmental regulation may mean that investors can no longer rely on the government to take care of the problem.

“The passing of this resolution is a sign of progress. It is a first in the United States. The vote at Occidental demonstrates an understanding among shareowners that climate change reporting is an essential element to corporate governance. I believe that we will see many more companies move in this direction. This vote shows that investors are serious about understanding climate risk.” – Anne Simpson, CalPERS Investment Director, Sustainability