Investors Demand Climate Change Action From Corporate Boards

This year is shaping up to put a whole lot of heat on companies that aren't adequately managing the risks associated with climate change. The Proxy Preview for 2014 came out this week, providing a forecast of all the shareholder resolutions that could go to a vote in this busy season of annual meetings. Climate change has taken center stage.

Source: LucAleria, Wikimedia Commons.

Proxy what?
If you're a shareholder, you have the right to vote on certain corporate matters. Since most people cannot attend companies' annual meetings in person, corporations offer shareholders the option to cast a proxy vote by mail.

Most proxy votes originate with company management and a few dozen large financial institutions, which typically vote automatically with management and hold the majority of a company's shares. It is thus difficult and rare to see a majority vote on a shareholder-initiated proposal. Still, even relatively modest shareholder votes can drive significant corporate policy changes, and the number of shareholder resolutions that gain a majority vote is increasing every year.

A coalition of three groups -- As You Sow, the Sustainable Investments Institute, and Proxy Impact -- publishes the Proxy Preview, which lays out all the sustainability-related shareholder resolutions for the 2014 season and frames the broader context of the issues at play. This year, climate change is the hot topic.

Stranded assets
The climate-change conversation is increasingly about stranded carbon assets. The concept here is that if global governments start passing legislation aimed at reining in carbon emissions, carbon-based assets like oil and coal may become unburnable, thus rendering them worthless. This prospect has some analysts and observers talking in terms of a "carbon bubble."

Last year, As You Sow's resolution at CONSOL Energy (NYSE: CNX  ) pioneered the stranded-assets theme. That resolution garnered 22.4% support in 2013, and it's back on the docket again this year. Investors are taking their stranded-assets concerns to other companies in 2014. A resolution with ExxonMobil (NYSE: XOM  ) asks that the company report on its "strategy to address the risk of stranded assets presented by global climate change, including analysis of long and short-term financial and operational risks to the company."

Source: Mark Rain, Creative Commons

Indeed, ExxonMobil may be living out some of that risk just this week. On Wednesday, the company reported that it would reduce capital spending by 6% this year, which is connected to broader questions around carbon-based asset valuation. Following the announcement, ExxonMobil's shares fell 3%, their biggest decline in more than a year.

Investors are asking not only how CONSOL Energy and ExxonMobil would be equipped to deal with such a scenario, but also how decreased demand for fossil fuels would affect the companies and their investment decisions. As Danielle Fugere, President & Chief Counsel of As You Sow, writes in the Proxy Preview:

This is a moment in time when leading fossil fuel companies can make a decision to end or reduce exploration and development of high cost, high risk reserves and begin a shift to participate in and profit from a clean energy future.

Climate change
This year, investors have filed more shareholder proposals than ever asking for carbon accounting, goal setting, and risk assessments. Domestic shale energy expansion has also prompted new concerns about methane emissions, alongside those about hydraulic fracturing.

Shareholders filed a resolution with WPX Energy (NYSE: WPX  ) asking the company to set quantitative goals for greenhouse-gas reduction, specifying that these goals should include methane emissions and flaring. WPX Energy is currently among the defendants in a class action lawsuit related to this issue. Owners of mineral rights are suing WPX Energy and others for the lost value of the methane that's wasted when companies burn it off through flaring.

Source: Wikimedia Commons.

Meanwhile, as the fate of the Keystone XL Pipeline is in President Obama's hands, investors will vote on whether it makes sense for PepsiCo's (NYSE: PEP  ) trucking fleet to avoid fuel from Canada's oil sands that may flow through the pipeline if it's approved. Investors are asking Pepsi to study how it might avoid the use of fuel for its trucking fleet that comes from refineries buying crude oil from oil sands. Refineries have to disclose if their oil comes from Canada's oil sands, and 19 large companies have already committed to avoiding fuel from that source. Pepsi has the largest private trucking fleet in the U.S., so this vote could have significant implications.

Shareholder activism is here to stay
Shareholders are growing ever more sophisticated in using the resolution process to drive change at major corporations. As Andrew Behar, CEO of As You Sow, explains:

Shareholders today are looking not at these issues in isolation. Instead, they articulate a systemic critique, pointing out the connections between excessive political spending, inadequate energy policy, the dangers of our changing climate and its damaging impact on water and agriculture, toxic hazards, and how these are related to human rights.

In our modern world, a well managed company is necessarily one that thoroughly and competently addresses the very real risk that climate change poses to business operations. Investors demand no less.

See what our analysts think is a great bet
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 09, 2014, at 6:28 PM, JGalt2B wrote:

    This is drivel. There is no man made climate change issue other than politicians and wealthy investors who want to capitalize on gullibility.

    Just today another very reputable group of scientists spoke out about this snake oil being peddled.

    "The group the 'Right Climate Stuff´ says there's no need to worry about catastrophic global warming

    The planet is not in danger of catastrophic man made global warming. Even if we burn all the world’s recoverable fossil fuels it will still only result in a temperature rise of less than 1.2 per cent. So say The Right Climate Stuff Research Team, a group of retired NASA Apollo scientists and engineers – the men who put Neil Armstrong on the moon – in a new report. “It’s an embarrassment to those of us who put NASA’s name on the map to have people like James Hansen popping off about global warming,” says the project’s leader Hal Doiron....

    Sun Mar 9 12:27:59 2014

    WUWT ^ | 3/8/2014 | Anthony Watts

  • Report this Comment On March 11, 2014, at 10:18 PM, 1941chief wrote:

    And I'll enjoy voting against all these ridiculous proposals.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2869764, ~/Articles/ArticleHandler.aspx, 8/27/2014 5:20:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement