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Shareowners to Companies: Take Action on Climate!
By Holly Testa, Director, Shareowner Engagement

Originally published as a Future 500 blog.

Shareowners have the opportunity every year to weigh in on issues they believe companies should CLimate Action Creative Commonsaddress by filing shareholder resolutions at the company's annual meeting. By taking a close look at the resolutions filed each year, investor priorities emerge. According to the latest Proxy Preview, a comprehensive overview of the 2016 shareholder season, this may well be the "Year of the Environment"-with a focus on climate.

Environmental issues and sustainable governance now account for about 40 percent of the approximately 370 resolutions filed. More than 90 of those resolutions specifically address climate change. Many more resolutions address climate indirectly, such as those asking for clarity on lobbying and political spending practice that may impact climate policy.

Fossil Fuel Companies in the Spotlight

Many resolutions target fossil fuel extractors and suppliers. Investors are asking for detailed disclosure about how companies plan to respond to commitments made by the COP-21 Paris agreement to prevent runaway climate change. As Michael Passoff, CEO of Proxy Impact, points out, "investors in fossil fuels are concerned how the companies can transition to low-carbon economies."

The focus with fossil fuel companies is on two key issues: carbon accounting and risk management disclosure.

  • Eleven energy companies are being asked to report on how global commitments to keep temperature rise to less than two degrees Celsius would affect their operations.
  • Another eleven energy companies are being asked to report on their capital expenditure plans within the context of a constrained carbon future and the risk of "stranded assets"-fossil fuel reserves that must be left in the ground.
  • Eighteen companies that use hydraulic fracturing to extract shale energy are being asked to expand their disclosure on the risks associated with their operations; twelve of the eighteen are also asked to set methane reduction targets.

It's Not Just about the Fossil Fuel Companies

A truly sustainable economy requires a collective shift in strategy by all energy consumers. Investors are prioritizing engagement with energy intensive companies that have both the most to gain, and the most to lose, in the transition away from carbon intensive fuels to renewables:

  • 10 utilities have been asked to disclose their plans for adapting to distributed energy generation and low carbon resources, or to analyze how increasingly cost competitive renewable energy sources can be utilized
  • Another 14 resolutions ask major manufacturers and retailers to set renewable energy targets or to report on renewable energy strategies

Activism Case Study: First Affirmative Financial Network

First Affirmative interacts with companies on climate by voting climate related proxies in accordance to our published guidelines, engaging in dialogue with selected companies, and filing shareholder resolutions. Here are highlights from the 2016 shareholder season.

Kinder Morgan.  We filed a "carbon asset risk" resolution for a third time at Kinder Morgan (KMI). It requested disclosure regarding the company's evaluation and management of the risks presented by the reduced fossil fuel demand. This company owns a huge network of pipelines and terminals that transport and store fossil fuels. Given that a substantial majority of the company's customers are adversely impacted by reduced fossil fuel demand, investors have ample cause for concern. We are pleased to report that the proposal received 27% shareowner support at the annual meeting in May.

Recent events serve to highlight the need for investors to have access to this information:

  • Customers Arch and Peabody Coal have both declared bankruptcy, leading to the cancellation of Kinder Morgan contracts for services
  • Kinder Morgan withdrew from the Northeast Energy Direct pipeline, a $5 billion project designed to move Marcellus Shale gas into the northeast.

Franklin Resources.  First Affirmative co-filed a resolution asking the owner of Franklin Templeton Funds to report on the inconsistencies between their proxy voting practices and their policy positions regarding climate change. Unlike First Affirmative, Franklin's proxy voting record indicates virtually no support of climate resolutions, in spite of public statements indicating they take ESG issues seriously as an investment risk. In short, we are asking them to walk their talk!

Whole Foods.  We joined Trillium Asset Management to co-file a food waste resolution with Whole Foods asking them to assess, disclose, reduce and optimally manage food waste. This was the first time such a resolution has been filed at any company, and it received a remarkable 28 percent support. Why is this a climate issue? Food decomposing in landfills emits methane, a greenhouse gas 80 times as potent as CO2. If global food waste were a country, its emissions would be third, behind only China and the United States.

As you can see, there are many ways investors can engage with the companies in which they invest.to promote improved policies and practices that take natural capital—our precious planet—into account. All it takes is a long term focus and a lot of patience. With the 2016 voting season underway, we are excited to see what outcomes our efforts will have and how they will pave the way for 2017!

First Affirmative understands that the ways we save, spend, and invest can dramatically influence both the fabric and consciousness of society. We believe that in addition to the benefits of ownership, investors bear responsibility for the impact our money has in the world. Are you making conscious decisions about the impact of your consumer purchase and investment decisions?

NOTE: Mention of specific companies or securities should not be considered an endorsement or a recommendation to buy or sell that security. Past performance is no guarantee of future results.

Posted: May 26, 2016