It is the season for Corporate annual shareholders meetings, and once again energy companies will be attacked. Wealthy individuals and institutions will again brandish knives against the energy goose that made them fortunes. Those who have benefited the most from modern society’s use of fossil fuels now resemble a cancer eating away at the heart of prosperity. It is a puzzlement why they want to stop tapping the vast supply of underground energy before its benefits reach the impoverished masses in underdeveloped countries.
An outlook on the sparring ahead is provided at CNN Business
A standoff is brewing between investors, corporate boards and federal regulators as shareholders prepare to vote on resolutions that concern human rights, corporate governance, and climate change. Excerpts in italics with my bold.
Leveraging shareholder votes for environmental and social ends isn’t new, but such resolutions have been on the rise in recent years. Shareholders proposed 464 resolutions in 2018 compared with 407 in 2010, according to an analysis by the Sustainable Investments Institute.
Although that’s down slightly from a record of 494 resolutions in 2017, the number of proposals that were withdrawn jumped in 2018, often following quiet deals with management to accomplish some part of what the resolution called for without going to a public vote.
One key reason: Backing from the three largest asset managers in America. BlackRock, State Street, and Vanguard, taken together, are the largest shareholder in 40% of all public companies in the United States.
All three of those heavyweights have altered their shareholder voting guidelines in recent years to be more open to progressive resolutions, resulting in a series of high-profile votes in favor of them. For example, in 2017 the trio voted for resolutions requesting that ExxonMobil and Occidental Petroleum compile reports analyzing how future climate change regulations would change their businesses.
Most shareholder resolutions are technically non-binding, and completing a report on the potential impact of climate change may not seem like that big a deal. But companies see them as a first step on the road toward real limits on their activities, and ultimately their profits.
To cut back on this kind of resolution, ACCF and other trade associations formed a group called the Main Street Investors Coalition. It advocates for small-time shareholders who might lose out if “politically motivated” resolutions hurt investors’ portfolios.
Along with Nasdaq, the Business Roundtable, and the Chamber of Commerce’s longstanding Center for Capital Markets Competitiveness, the coalition has been pushing for legislation that would raise the threshold of support needed to re-submit a resolution that failed previously. They’re also asking the Securities and Exchange Commission to more tightly regulate proxy advisers.
Some changes already are taking root — including a narrower view of what’s considered fair game for proxy ballots.
In late 2017, the SEC’s staff issued a bulletin reinforcing the idea that boards of directors are better positioned to run the company’s everyday operations than are shareholders, leading to fears that climate change resolutions would be ruled out of bounds.
in early 2018, the SEC ruled in favor of the oil producer EOG Resources when the company complained that a resolution calling for greenhouse gas emissions reductions had too much to do with its “ordinary business.” Core business functions one of the categories considered off-limits for shareholders to micromanage.
Many of these resolutions are coming from Climate Action 100+, a group of 300 investors with $32 trillion in assets, including the investment arms of HSBC, Legal & General and the Church of England. For example, a resolution will be voted upon at the British Petroleum annual meeting.
In the proposal, BP is tasked with developing a business strategy in line with two of the Paris deal goals by the end of its 2019 financial year – holding temperature rises to well below 2C and reducing carbon emissions to net zero by the second half of the century.
BP has not specified what metrics and targets it might set if the resolution is passed, but they could include targets for the carbon intensity of its products and linking executives’ bonuses to carbon emission cuts.
But the company will not be setting targets any time soon for “scope 3 emissions” produced by customers using its products, such as burning petrol in a car. These emissions are much bigger than those from the company’s operations.
BP said it was not supporting a separate resolution, brought by the Dutch investor group Follow This, seeking to make BP set a goal for scope 3 emissions. The group has previously been credited with influencing Shell’s decision to set such targets.
The SEC rulings show the line in the sand regarding these maneuvers to shut down oil companies. On March 12, 2018 SEC wrote EOG Resources Action Letter allowing management to set aside an invasive shareholder resolution.
What Trillium Asset Management Demanded of EOG
Resolved: Shareholders request EOG Resources, Inc. (EOG) adopt company-wide, quantitative, time-bound targets for reducing greenhouse gas (GHG) emissions and issue a report, at reasonable cost and omitting proprietary information, discussing its plans and progress towards achieving these targets.
Whereas: The Paris Climate Agreement of 2015, agreed to by 195 countries, established a target to limit global temperature increases to 2-degrees Celsius above pre-industrial levels. To meet the 2-degree goal and mitigate the most severe impacts of climate change, climate scientists estimate it is necessary to reduce global emissions 55 percent by 2050 (relative to 2010 levels), entailing a US reduction target of 80 percent.
According to a 2015 report by Citigroup the costs of failing to address climate change could lead to a $72 trillion loss to global GDP.
EOG states: “Our safety and environmental management processes are based on a goal setting philosophy. The company sets safety and environmental expectations and provides a framework within which management can achieve safety and environmental goals in a systematic way.” Despite this philosophy, EOG has not established time-bound or quantitative emissions reductions goals. Motivated by the imperative to reduce emissions, cut costs, and/or achieve the goals of the Paris Agreement, many companies are setting goals:
• Over 300 global businesses have committed to setting GHG emissions reduction targets consistent with the 2-degree goal.
• Hess, Apache, Kinder Morgan, and Southwestern, are among EOG’s peers in the U.S. Oil and Gas sector that have set quantitative, time-bound GHG and/or methane reduction targets.
• The 10 major international oil and gas companies that constitute the Oil and Gas Climate Initiative recently announced their intention to work towards near-zero methane emissions.
• Over half of EOG’s peers in the S&P 500 have set GHG reduction targets.
Setting GHG reduction targets is frequently found to be a sound business strategy. A 2013 report by CDP, WWF, and McKinsey & Company found that companies with GHG reduction targets achieved 9% better return on invested capital than companies without targets.
Setting targets would address a common concern of investors that are increasingly attune to the risks of climate change. State Street Global Advisors recently published disclosure recommendations for oil and gas companies, wherein it states, “We view establishing company-specific GHG emissions targets as one of the most important steps in managing climate risk.”
One of the recommendations of The Task Force on Climate-related Financial Disclosures, whose members include JPMorgan Chase, UBS Asset Management, Generation Investment Management, and BlackRock, is: “Describe the targets used by the organization to manage climate-related risks and opportunities and performance against these targets.”
While EOG has implemented various emissions reduction strategies, proponents believe establishing time-bound, quantitative emissions reduction targets would serve to align new and existing initiatives, spur innovation to drive further emissions reductions, lower costs through enhanced efficiency, mitigate risk, and enhance shareholder value.
What EOG Said and SEC Confirmed:
At the outset, it bears noting that, in our December 20, 2017 and January 12, 2018 letters to the Staff (and in our website and other public disclosures), EOG acknowledges that climate change and emissions reductions are social issues of general importance. Our December 20, 2017 letter to the Staff discusses, in detail, (i) the emissions-related practices and processes that we have implemented in furtherance of the reduction of greenhouse gas emissions throughout our operations and (ii) our emissions-related quantitative disclosures (i.e., metrics) on our website which allow investors to evaluate EOG’s year-to-year reductions in emissions from our operations.
However, as stated in EOG’s letters to the Staff, it is the implementation of the proponents’ Proposal that would require EOG’s management to potentially prioritize quantitative emissions reduction targets over a wide variety of factors involved in oil and gas exploration and production operations (such as geologic formation characteristics and operational considerations), in each case at the expense of our management’s own judgment. The quantitative targets requested by the Proposal would also potentially displace or disrupt management’s judgment regarding, among other operational factors, the location, timing, and mix of production, which are at the core of EOG’s daily business decisions as an exploration and production company. EOG continues to maintain that this is the very definition of micro-management.
Note: Wealthy climatists are also active outside the boardroom and across borders, as shown in this Canadian Broadcasting Corporation video:
See Also: Climatist Manifesto