In the past few months, an increasing number of investors have been pushing shareholder resolutions on the risks related to carbon regulations. Ceres (a leading sustainability non-profit organization) reports that in 2017 so far, almost half of investors in fossil fuel and utility companies are backing resolutions for carbon intensive companies to undertake and disclose 2-degree scenario analysis, in order to better align their business plans with the goals of the Paris Climate Agreement and the accelerated transition to a low-carbon economy that is already underway. The following are highlights from the 2017 shareholder season so far, as reported by Ceres:
Highlights from the 2017 shareholder season include:
- A historic majority vote of 62% at ExxonMobil. At ExxonMobil’s annual meeting on May 31, 2017, 62% of shareholders voted in favour of a proposal calling on the company to assess and disclose how it is preparing its business for the transition to a low-carbon future. Institutional investors with more than $5 trillion of combined assets under management co-filed the proposal, including lead-filers from the New York State Common Retirement Fund and the Church Commissioners for England.
- A first evermajority vote of 57% at PPL Corp. While the company has divested much of its power generation, it has not disclosed a long range greenhouse gas reduction strategy or goals.
- A 48% vote at Dominion Resources.Ceres indicates that the company appears to be relying too heavily on natural gas, which is not aligned with a 2-degree scenario, and the company ranks at or near the bottom for delivery of energy efficiency and renewable energy to customers.
- A 45% vote at DTE Energy.In an encouraging development, just one week after the vote, DTE Energy Chairman and Chief Executive Gerry Anderson announced that the company would reduce carbon emissions by 80% by 2050 and close its coal plants.
- A 46% vote at Southern Company. In a climate-related vote held on May 24, 2017, 46% of its shareholders asked the Southern Company to report on how it plans to align its business operations with a 2-degree global warming scenario, up from 34% last year. The company has made sizable, high risk bets on nuclear and carbon capture and storage (CCS) technologies and has not set long-range GHG reduction goals or disclosed plans for aligning its business with a 2-degree scenario.
- A 50% vote at PNM Resources. While the company recently proposed a shift from coal to natural gas and renewables, it has not disclosed a long range strategy consistent with a 2-degree Scenario.
- A 46% vote at Duke Energy. Duke Energy is the second largest emitter in the US, and does not have long range GHG reduction plans.
- Xcel Energy agreed to disclose its long-range GHG reduction plans. This move indicates that it is well-positioned to meet the expectations of international climate goals.
Ceres analyzed the resolutions and saw an average of 45% support this year for resolutions asking companies to report regularly on the kind of impact regulations aimed at reducing carbon emissions would have on their operations. The percentage in favor is up from 21% in 2014 and 34% in 2016.
These shareholder votes send a strong message that investors are slowly sitting up and taking notice of the material financial implications of climate change. Many investors recognize that if companies take advantage of a near term weakening of regulations and make investments that are not prudent over the long time horizon that these investments demand, they risk stranding assets and potential future write-downs on financial statements.
This trend in shareholder voting is taking placing within a broader push by global institutional investors to spur action at the governmental level to fully implement the Paris Agreement. Ahead of the G20 Summit in Hamburg, 400 investors with $22 trillion in assets under management sent a clear signal that climate action is essential through support of both the Paris Agreement and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD has laid out an ambitious five-year path for full implementation of the Paris Agreement, which will depend on companies taking a leadership role to start implementing the recommendations this year.