corporate climate risk management

Investors Increasingly Backing Shareholder Resolutions on Disclosure of Climate-related Risks

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.

World’s Leading Investors Issue Guidelines for Company Action on Climate Change

At the Investor Summit on Climate Risk & Energy Solutions held at the United Nations in New York in January 2012, the world’s largest investors issued guidelines detailing their expectations of how companies should approach responding to climate change. The guidelines, entitled “Institutional Investors’ Expectations of Corporate Climate Risk Management”, provide a unified global investor voice on the issue for the first time in response to concerns about the impact of climate change on their investments.

Co-ordinated by three leading investor groups on climate change, the US-based Investor Network on Climate Risk (INCR), the European Institutional Investors Group on Climate Change (IIGCC) and the Investors Group on Climate Change (IGCC) in Australia and New Zealand, the document outlines seven steps investors expect companies to take to minimize the risks and maximize the opportunities presented by climate change and climate policy:

Governance. Clearly define board and senior management responsibilities and accountability processes for managing climate change risks and opportunities.
Strategy. Integrate the management of climate change risks and opportunities into the company’s business strategy.
Goals. Make commitments to mitigate climate change risks: define key performance metrics and set quantified and time-bound goals to improve energy efficiency and reduce greenhouse gas emissions in a cost-effective manner; and set goals to address vulnerabilities to climate change.
Implementation. Make a systematic review of cost-effective opportunities to improve energy efficiency, reduce emissions, utilize renewable energy and adapt to climate change impacts. Where relevant, integrate climate change considerations into research and development, product design, procurement and supply chains.
Emissions inventories. Prepare and report comprehensive inventories of greenhouse gas emissions; data should be presented to allow trends in performance to be assessed and it should include projections of likely changes in future emissions.
Disclosure. Disclose and integrate into annual reports and financial filings, the company’s view of and response to its material climate change risks and opportunities, including those arising from carbon regulations and physical climate change risks.
Public policy. Engage with public policy makers and other stakeholders in support of effective policy measures to mitigate climate change risks. Ensure there is board oversight and transparency about the company’s lobbying activity and political expenditures on this topic.

In addition, the guidelines set out steps that investors will take in the following areas: analysis, inquiry, monitoring, engagement, collaboration and public policy. By moving beyond disclosure and clearly outlining the areas in which investors expect to see companies take action, the guidelines provide a platform from which investors can monitor the performance of companies and engage with them to encourage positive steps on climate change. Investors are already taking action by monitoring alignment with their expectations through initiatives such as the Carbon Disclosure Project, and collaborating with companies through investor networks and the UN Principles for Responsible Investment. This group of investors considers the guidelines to be of particular importance to companies in carbon-intensive sectors, and those who have not have adopted carbon reduction targets or a systematic approach to managing climate change risks.