The Hidden Story of Climate Proposals in the 2018 Proxy Season
The 2017 proxy season offered some indelible headlines on climate-related shareholder action: majority votes at ExxonMobil, Occidental Petroleum and PPL Corporation; the first-ever votes in favor of climate shareholder proposals by major investors BlackRock and Vanguard; and the much-anticipated release of initial 2-degree scenario analyses from North American oil and gas and electric power companies.
This year’s narrative is more subtle, but potentially more powerful. In fact, the biggest story of the 2018 proxy season is just how few shareholder proposals are going to a vote. Of the twenty 2-degree scenario analysis proposals that were filed, 12 have been withdrawn as companies, including DTE Energy, Dominion Energy, and Southwestern Energy have committed to conduct the analysis. This underscores that investors are operating from a position of strength.
After last year’s majority votes, companies now know that they will face a public rebuke from shareholders if they don’t embrace 2-degree scenario analysis and articulate a strategy to manage the coming low-carbon transition. In fact, this season we have already seen majority votes on 2-degree scenario analysis at Kinder Morgan and Anadarko, and a doubling of support on a 2-degree proposal at Noble Energy. It is no longer necessary for investors to rely principally on shareholder proposals to move companies forward. Their deepened engagement efforts have brought companies to recognize the imperative to plan for change.
The successes of 2017 have signaled to investors the need to push the envelope further, moving past solely calling for 2-degree scenario analysis and disclosure, and instead demanding real evidence that the companies they own are realigning themselves for resilience in a decarbonizing world.
Investors in Chevron, for example, have called for a transition plan asking the U.S. major to adapt its business model to reduce its dependence on fossil fuels. The shareholders are calling on Chevron to consider innovative, forward-thinking options such as mergers, acquisitions, and portfolio expansions tied to promising renewable energy investments. Regardless of the voting outcome, the proposal represents a key next step for investors to press companies to take as they plan for profitability in the low-carbon economy of the future.
Further, as corporate climate risk disclosure goes mainstream, companies in the electric power sector are moving toward concrete – and in some cases, aggressive – action. AEP, Duke Energy, and Southern Company all have set long-term greenhouse gas reduction goals that, while falling short of what investors are calling for, begin to align those companies’ strategies with the low-carbon transition. In the oil and gas sector, some Europe-based companies, including Shell, Statoil, Repsol and Total, are actively taking steps to realign their long-term strategies with the goals of the Paris Agreement, although they too fall short of committing to the sort of transformational change that will be needed to ensure future growth. There are signs that even the industry’s own executives are pushing for a more aggressive decarbonization approach.
In many respects, this is the year in which oil and gas and electric power companies have begun to sort themselves–between enterprises that are truly serious about adapting to and surviving a rapid clean energy transition–and those that are merely paying the issue lip service. Laggard companies will have to respond to mounting investor concerns soon.
Whereas once companies seemed emboldened to ignore shareholder concerns about climate change, engagements over the past year have taught them to reconsider that approach. In December 2017, investors from around the globe launched Climate Action 100+, which aims to engage with 100 of the world’s largest greenhouse gas emitters to improve governance on climate change, reduce emissions, and strengthen climate-related financial disclosures. Support for the initiative continues to grow, with more than 280 investors with nearly $30 trillion in assets under management signed on.
When the largest and most influential institutional investors are voting against management’s approach to climate risk, and tens of trillions of dollars in invested assets are demanding to know how companies will adapt their business strategies to prosper in a low-carbon world, the time has come for all companies to face a new reality.
Andrew Logan is director of oil and gas at Ceres. Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy.