Shareholder Advocacy on Climate Change Won’t Let Up

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By Andrea Vittorio

Pressure by pension funds, endowments and other large investors for corporate action on climate change is expected to become even more prevalent this proxy season.

“We can assume we’re not going to see government leadership on climate change” under the next administration, Edward Kamonjoh, former head of U.S. strategic research and analysis at Institutional Shareholder Services Inc., told Bloomberg BNA.

Given President-elect Donald Trump’s skepticism of established climate science, it will be up to shareholders to push companies such as Chevron Corp. and Exxon Mobil Corp. to assess and address business risks from climate change, he said.

Last proxy season, there were about 175 climate-related shareholder resolutions, according to a tally by the sustainability advocacy group Ceres. This season, the total could climb even higher.

Targeting Boards

If investors aren’t satisfied with companies’ response to the resolutions and engagement, Kamonjoh said their boards could later be targeted with a director-nomination mechanism called proxy access. Proxy access typically allows a group of up to 20 investors who have collectively held at least 3 percent of outstanding stock for at least three years to nominate a portion of the board.

After decades of corporate resistance to the idea, more than a third of S&P 500 companies have adopted proxy access provisions over the past two years, according to a tally by Ernst & Young LLP. So far, a shareholder has tried only once to nominate a board candidate via proxy access. Gamco Asset Management Inc. withdrew its nominee after its eligibility to use the process was challenged by National Fuel Gas Co.

“Most investors view proxy access as a last resort, if all engagement fails,” Jamie Smith, of EY’s Center for Board Matters, said.

In the past, shareholders have tried using resolutions to add an environmental expert to the boards of oil and gas companies, mining companies and electric utilities. Among the top 25 investor-owned utilities in the U.S. by revenue, only three have a board member with discernible climate change expertise, based on an April analysis of board biographies by the Sustainable Investments Institute. Additional research is planned for release in January.

‘Climate Competency.’

“Board accountability is the key to corporate transformation and proxy access is expected to help lessen the inertia by firms, especially in the energy sector, to account for climate change,” said Kamonjoh. He was recently named executive director of a resource and action center called the 50/50 Climate Project that is working with 50 large investors that collectively manage $13 trillion in assets to improve the “climate competency” of boards at 50 carbon-intensive companies.

Getting the right to nominate their own directors on the corporate ballot was one of the 50/50 Climate Project’s first priorities when it formed in the fall of 2014. New York City’s pension funds led the push, filing 75 shareholder resolutions for proxy access at once. Among the companies targeted were those considered by the city’s comptroller to be vulnerable to long-term business risks from climate change, including Chevron and Exxon Mobil.

The 50/50 project is now readying a bench of potential board candidates who are independent and understand climate science.

Proxy access “puts owners into a much more powerful position,” said Anne Simpson, investment director of sustainability at the $300-billion California Public Employees’ Retirement System. CalPERS, another one of the investors involved in the project, recently updated its governance principles to include an expectation for climate expertise on the boards of companies in its stock portfolio.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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