[Ed. Note: In the March 5th issue of Risk & Governance Weekly, RiskMetrics analyst Carolyn Mathiasen surveyed this season’s environment-related proxy proposals. While much of the information in that report is available only to RiskMetrics clients, Carolyn and R&GW Editor Ted Allen graciously agreed to share an edited version with ESG Insight readers. Learn more about the 2010 proxy season at the Proxy Season Resource Center.]
Environmental questions are receiving a lot of attention from shareholders during the spring US proxy season, including 39 resolutions about global climate change. Other prominent shareholder concerns include the impact of hydraulic fracturing, a method of extracting natural gas that may contaminate major US aquifers; the toxicity of common consumer goods; and the quality of corporate reporting on environmental, social and governance (ESG) issues.
Investors should note that the SEC has been generally supportive of 2010 resolutions on these ESG topics, which was not always the case in years past. Also notable is that some companies are resisting an AFL-CIO climate-related resolution because, they argue, it is too broad in its demands.
2009 SEC Bulletin Opened Door to Resolutions on Climate Risk Materiality
Along with the 39 resolutions on climate change, RiskMetrics Group's ISS Governance Service is also tracking 55 resolutions about other environmental issues, many of which, such as forestry, have implications for the global warming debate. In addition, many of the 36 resolutions that ask companies to report on their sustainability efforts call for better climate change-related disclosure.
Most climate change proposals, as in earlier years, ask companies to report on efforts to reduce their greenhouse emissions or to set reduction goals. There are a few new wrinkles, though, including some proposals asking directly about financial risk from climate change and an AFL-CIO campaign to get companies to adopt a set of principles to reduce greenhouse emissions.
Resolutions calling for firms to address material climate risks are made possible by the Securities and Exchange Commission's Staff Legal Bulletin in October 2009. That Bulletin legitimized ESG-related resolutions that request an evaluation of business risk as long as the underlying issue raises a significant policy question.
New resolutions from the Christopher Reynolds Foundation, the Needmor Fund, and the State of Connecticut asked Chevron, ConocoPhillips, and ExxonMobil to report "on the financial risks resulting from climate change and its impacts on shareholder value over time."
Past Climate-Related Campaigns Now Bearing Fruit
As in past proxy seasons, many shareholders are asking for reports on "how the company is responding to rising regulatory and public pressure to significantly reduce greenhouse gas emissions." This wording had run into trouble under the SEC's old risk assessment policy, but is now likely to survive corporate challenges.
According to the Ceres coalition, which is coordinating shareholder activity on environmental resolutions, resolutions with this wording are pending at Consol Energy and International Coal. The Unitarian Universalist Association withdrew the same resolution at Alpha Natural Resources after the company agreed to analyze its climate risks and develop a strategy to address them.
Some Companies Push Back on AFL-CIO Proposal
A new AFL-CIO resolution asks companies to adopt a set of six principles, ranging from setting emission reduction targets to using revenues from the carbon market to invest in clean energy and assist states in addressing global warming impacts.
A spokesman for the campaign told RiskMetrics the proposal had been withdrawn at American Express and Best Buy after the companies had committed to substantially implementing it. He said the labor federation was in discussions with other firms regarding similar withdrawals. Safeway and Walmart, however, have filed “no-action” challenges to the AFL-CIO proposal, arguing that the resolution is impermissibly vague and improperly combines six requests in a single resolution.
SEC Permits Resolutions about Fracturing
The biggest new campaign involves hydraulic fracturing--the process in which water, sand, and a mix of chemicals are blasted into tight layers of shale to extract natural gas. (See this December 2009 ESG Insight article for more about fracturing.)
Investors ranging from the New York State Common Retirement Fund to Green Century to the As You Sow foundation are asking for reporting on the environmental impact of fracturing and potential policies to reduce the hazards from the process.
The fracturing resolution is now pending at a number of gas production firms, including Cabot Oil & Gas and EOG. Both of these firms submitted early challenges to the resolution on ordinary business grounds, and both were turned down by the SEC. Commenting on its decision, the SEC staff said, "In our view, the proposal focuses primarily on the environmental impacts of [the companies'] operations and does not seek to micromanage the company to such a degree that we believe exclusion of the proposal would be appropriate."
The issue of Gulf Coast wetlands is coming up this year for the first time in shareholder resolutions. Some religious investors have joined Green Century in asking ExxonMobil and ConocoPhillips to adopt policies about the environmental hazards of their oil and gas-related activities in coastal Louisiana. The resolutions cite studies that conclude that "the direct and indirect effects of oil and gas exploration, recovery, and processing are together responsible for 40 to 60 percent of documented wetland loss."
Bisphenol A and Pesticides a Risk for Food Companies?
In other environmental issues, the Investor Environmental Health Network is in its fifth year of coordinating filing of resolutions asking companies to review or reduce the toxicity of their products. Among the new proposals is one at Coca-Cola on the use of bisphenol A (BPA) in can liners. The issue took on new relevance after the Jan. 15 announcement by the US Food and Drug Administration that it now has concerns about the health risks of the substance.
The proponents--Domini Social Investments, Trillium Asset Management and As You Sow--released a March 3 statement seeking support for the proposal, arguing that the use of bisphenol A is "exposing the company to significant financial and regulatory risks" and asserting that "the information that Coca-Cola posts on its website is distressing and suggests that the company lags behind its peers in addressing potential risks associated with BPA and aggressively exploring alternative packaging options."
Another new toxics proposal comes from Trillium to Chipotle asking for a report on how the company is addressing pesticide use reduction in its supply chain. That proposal stresses concerns about the effects of pesticides on farm workers.
Fleshing Out the Sustainability Report
The number of resolutions asking companies to file reports on their efforts to achieve sustainability remains at a high level. RiskMetrics has tracked 36 for 2010, 16 of which were withdrawn after agreements with companies. Withdrawal agreements have been common in the sustainability area; 20 of 30 proposals were withdrawn in 2009.
As in the past, many of the resolutions suggest that companies follow the sustainability-reporting format of the Global Reporting Initiative, an offshoot of a joint project by Ceres and the United Nations Environmental Program. Some of this year's proposals also suggest that target companies use the Carbon Disclosure Project as a means to specifically report on greenhouse gas emissions and reduction efforts.
For more, please visit the Proxy Season Resource Center .