During the 2014 proxy season, investors are on track to file 142 shareholder resolutions—a record number—calling on companies to improve their environmental performance and increase their disclosure of relevant data.
This level of investor engagement with sustainability issues seems to represent the continuation of a broader trend that has been gaining momentum in recent years. Proxy Monitor notes that resolutions related to environmental and social policy have come to make up a larger proportion of shareholder proposals in recent years.
Not only are more resolutions being filed, but shareholder support for these initiatives is increasing. Last year, about 100 resolutions focused on sustainability received more than 20 percent support, according to Fund Votes. In 2012, less than 80 resolutions hit that level, and a decade ago, the number was less than 30.
Heidi Welsh, executive director of the Sustainable Investment Institute (Si2), said last season's results "show a critical mass of investors think companies need to tell more about how they manage sustainability risks." Welsh also noted that, as investor support for sustainability initiatives has increased, companies have shown more of a willingness to engage in meaningful negotiations with shareholders over pertinent issues.
Breaking down this year's resolutions
Ceres has compiled a list of the sustainability related resolutions that have been filed by investors who participate in its network. The proposals seemed to primarily reflect shareholders' desire to see an increase in corporate disclosure of environmental performance data.
Among the 142 resolutions that have been put forward this season, 39 of them—about 27 percent—include a call for increased sustainability reporting. Within this group, there is a wide range of specific requests. Some resolutions simply call for the company to issue a sustainability report based on an established standard, such as the Global Reporting Initiative's Sustainability Reporting Guidelines, while others demand the inclusion of specific goals, such as setting targets for reducing greenhouse gas (GHG) emissions.
Three energy companies—Chevron, Exxon Mobil and Pioneer Natural Resources—are facing specific resolutions demanding detailed information about how they are managing the environmental risks associated with producing oil and gas through horizontal drilling and hydraulic fracturing operations.
Although a wide range of environmental resolutions are being put forward, Ceres reports that less than half—48—of them specifically mention climate change. The lower level of shareholder pressure in this area may be part of the explanation for why corporations have been slower to adopt enterprise-level policies addressing climate change, compared to broader environmental policies.
Data compiled by IW Financial shows that 84 percent of companies in the S&P 500 have enterprise-level environmental policies in place today, compared to only 41 percent that have enterprise climate change policies. However, both of these figures have increased substantially in recent years, with the frequency of environmental policies up from 50 percent in 2009 and climate change policies nearly doubling from 23 percent.
Disclosure is also increasing. More than 40 percent of companies in the S&P 500 issue sustainability reports based on the GRI guidelines. This number has more than doubled since 2011. More than 70 percent make this type of information about their environmental performance available on their website and 84 percent provide at least a basic statement of environmental policy.
It seems clear that pressure from investors is a key driver of increasing rates of disclosure and policy action. However, not all stakeholders agree on the best way to go about encouraging companies to change their practices.
Engagement vs. divestment: The debate continues
Activist groups continue to push for outright divestment from fossil fuel stocks. The founders of 350.org argue that while shareholder engagement "can be an effective tool to make small reforms at a company," it will not produce the immediate actions that are needed to combat climate change. Citing the "rapidly closing window for action," they claim that divesting from oil and gas companies will have "a far greater impact than any shareholder resolution."
After all, for many companies, particularly in targeted sectors like the energy industry, shareholder resolutions related to sustainability have become something of an annual formality, with activist investors hard-pressed to garner a broad support for their proposals.
At the same time, as Ceres notes in its recap of sustainability-related shareholder resolutions filed this season, "These resolutions are part of broader investor efforts encouraging companies to address the full range of environmental, social and governance [ESG] issues."
Tim Smith, senior vice president at Walden Asset Management, which manages $2.8 billion worth of "responsible" investment portfolios, gave an interview to E&E ClimateWire reporter Daniel Cusick. Asked about how effective he believes shareholder resolutions are, Smith said, together with more direct forms of engagement, he sees significant potential to drive real change in corporate environmental policies and practices.
Smith explained that even proposals that fail to gain majority support can influence corporate behavior. He said "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. A company that simply counts ballots and only moves with a majority vote is being very shortsighted."
Investors view sustainability initiatives, disclosure as crucial tools for managing risk
Walden is one of many asset management firms integrating ESG factors into its practice. Mercer began incorporating ESG ratings into client reports in 2012, touting them as increasingly important "risk-return drivers."
According to a report from US SIF—The Forum for Sustainable and Responsible Investment—responsibly managed investments account for more than 10 percent of all professionally managed assets in the U.S. marketplace
Investors are looking at sustainability as a key element of long-term strategic planning across all industries, but it is becoming increasingly clear that oil and gas companies have an especially pressing need to begin planning for a future in which carbon emissions are either limited by law or taxed to the point of being prohibitively costly.
IW Financial is looking closely at this topic. In an upcoming report, we will examine shareholder engagement and divestment initiatives in the broader context of quantifying and managing risks related to corporate environmental performance.
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