Climate Change: FAQ #3

A shareholder resolution is a formal request to a company’s management on a particular issue that is subject to a vote of the shareholders as part of the company’s annual meeting process. Corporate actions related to climate change have in recent years increasingly become the subject of shareholder resolutions.

Many climate change-related shareholder resolutions are filed by institutional shareholders such as state and city pension funds, foundations, religious institutional investors and socially responsible investment firms. These resolutions are requesting information on companies’ consideration of risks and opportunities related to climate change such as climate change policy, GHG emissions reports, and mitigation plans.

Increasing shareholder support for these climate change resolutions demonstrates investor interest and concerns for these issues. In response to this interest, companies are engaging in stakeholder dialogues, developing corporate climate change policies, and improving transparency regarding emissions information.

We have included some of the more frequently asked questions on this topic below:

Climate Change Shareholder Resolutions

What is a shareholder resolution?
Why has climate change become a topic of shareholder resolutions?
What entities are proposing these shareholder resolutions on climate change?
What is the nature of the resolutions investors are demanding?
What resolutions are currently being proposed?
Which industries are highly targeted/most affected by this?
Have these strategies been successful in changing corporate actions? If so, how?
What is the significance of these climate change resolutions to publicly traded companies?
Where can I obtain copies of these resolutions?
Where can I find additional information on shareholder resolutions and climate change?

What is a shareholder resolution?

Owners of common stock in a corporation have the right to propose resolutions or formal requests that management address an issue of concern. These resolutions are subject to a vote of the shareholders as part of the company’s annual meeting process and included in the annual proxy ballot. A shareholder may bring a resolution on a wide variety of topics including but not limited to: community, environment, tobacco, diversity, overseas operations and labor. Shareholder resolutions provide an opportunity for shareholders to influence corporations on significant issues.

Mutual funds and large institutional investors in any publicly traded company also have the ability to request that management place any number of resolutions on the shareholder ballot.

Why has climate change become a topic of shareholder resolutions?

Shareholder resolutions generally address climate change on the basis of two larger issues: the desire to promote the core values of the shareholder, or to address the business risks and opportunities of global climate change.

Environmental organizations, managers of socially responsible mutual funds, and managers of pensions of socially minded organizations are proposing resolutions to encourage corporations to take a proactive action to address climate change.

Other shareholders are focusing on the potential financial risks or opportunities of climate change. Many of these resolutions focus on the financial risk associated with the cost of fossil fuels increases or the regulatory risk as greenhouse gas emission regulations develop in overseas markets or in particular states. Other resolutions are asking boards to investigate the costs and potential marketing benefits of producing certified sustainable products. Resolutions in the insurance sector are asking corporations to address the long-term financial risk of climate change as many insurers start to price the risk of climate change into their premiums.

What entities are proposing these shareholder resolutions on climate change?

Climate change related shareholder resolutions are filed primarily by institutional shareholders such as state and city pension funds, foundations, religious institutional investors, and socially responsible investment firms. The filings are often coordinated by public interest groups such as CERES (Coalition for Environmentally Responsible Economies) and coalitions of investors such as the ICCR (Interfaith Center on Corporate Responsibility). The ICCR, for example, consists of 275 religious institutional investors and often directs their shareholder activism efforts along with Amnesty International USA, New York City Pension Funds, and the Women's Equity Mutual Fund, thus covering a broad spectrum of investors involved in shareholder action.

What is the nature of the resolutions investors are demanding?

Though the requests of specific resolutions vary broadly, in general, climate risk resolutions ask companies to report to shareholders on operational, financial, and reputational risks to the company associated with climate change. The resolutions also ask the companies to disclose how they will mitigate this risk. In some instances, the shareholder resolutions ask companies for more disclosure and transparency in reporting on how they are responding to business risk or preparing for business opportunities associated with climate change. The investor resolutions also request information on the company’s efforts to inventory and reduce greenhouse gas emissions, as well as target setting for reductions and reporting against past targets.

What resolutions are currently being proposed?

There are several climate risk resolutions that were proposed this year. Commonly, identical resolutions are filed for multiple companies within the same sector.

In the auto industry for example, Ford Motor Company and General Motors are both considering a resolution to provide performance data from the past ten years, as well as to provide ten year projections of estimated annual GHG emissions from products and operations. These auto industry companies are also asked how they will ensure competitive positioning based on emerging regulatory scenarios. Finally, the companies are asked how they can significantly reduce GHG emissions from their fleets of vehicle products by 2013 and 2023.

In the forest products sector, Weyerhaeuser and Louisiana Pacific have been asked to provide annual report to shareholders, which describes for the previous calendar year:

All fines and penalties assessed against and/or paid by the company, under state or federal environmental laws or regulations
A list disclosing the amount of greenhouse gases (including, but not limited to, carbon dioxide, methane, nitrous oxide, ozone, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride(SF6) emitted by the company
The feasibility of having the company's timber operations and products certified as meeting the standards of the Forest Stewardship Council, on or before January 1, 2005.

In the electric utilities sector, power companies (AEP, Cinergy, Reliant Resources, Southern Company, TXU, Xcel Energy) were asked to assess how they are “responding to rising regulatory, competitive, and public pressure to significantly reduce carbon dioxide and other emissions and report to shareholders by September 1, 2004.

In the oil and gas industry, thirteen resolutions seeking risk disclosure and plans to reduce greenhouse gas emissions were filed with ten companies, including ChevronTexaco, ExxonMobil, Petro Canada, Unocal, and Valero.

Which industries are highly targeted/most affected by this?

While a wide range of industries generate greenhouse gas emissions, of the twenty-eight resolutions filed in 2004, more than three quarters are targeted at companies in the following industries:

Automotive
Electric Utilities
Forest Products
Insurance
Oil & Gas

These industries are targeted, in large part, because of the significance of their operations in terms of producing GHG emissions. The industry that received most of the interest was Oil & Gas, whose members have received 10 climate change resolutions.

Have these strategies been successful in changing corporate actions? If so, how?

Shareholder resolutions have in the past been an effective tool to compel corporate boards to initiate change even without majority approval of the resolution. Past resolutions have resulted in changes in corporate governance, accounting practices, and now to a growing extent, climate change policies and reporting. Some examples of where corporate resolutions (or the potential for one) have had an impact on corporate commitments:

In response to a 2003 resolution, Ford Motor Company began an open dialogue with the resolution’s proponents on greenhouse gas reporting and future emissions reductions.
Walden Asset Management withdrew its Occidental Petroleum shareholder resolution after the corporation agreed to more fully disclose its carbon emissions and climate change impacts in its annual health, environment, and safety report.
A 2003 shareholder resolution at ConocoPhillips prompted the company to adopt a strong climate change policy.
ChevronTexaco initiated a new corporate policy after a shareholder resolution that included assuming a price per ton of carbon when assessing new projects.
More recently, increased climate change resolution activity led to an agreement by American Electric Power and Cinergy to review the impacts and potential responses to various legislative proposals seeking to limit GHG emissions.

While these companies represent only small segment of the companies that generate greenhouse gas emissions, these examples reflect the significant increase in the number of companies that are including some form of climate change issue reporting in their communication with shareholders.

What is the significance of these climate change resolutions to publicly traded companies?

Increasing support for these climate change resolutions demonstrates investor interest and concern for these issues. More important, the types of shareholders proposing the resolutions have shifted from individuals and environmental organizations to pension funds and socially responsible mutual funds with much larger holdings and greater influence. Companies that do not address climate change may lose favor with these significant investors, who may in turn choose to sell their shares and invest in other companies. Depending on the degree of ‘shareholder revolt’, this could lead to lower stock prices and associated financial impacts.

Climate change issues may not currently receive regulatory scrutiny in the United States, but publicly traded companies are feeling the pressure from increasing numbers of shareholders responding to a global issue. Ignoring or passing on these resolutions may have negative impacts for any company.

Where can I obtain copies of these resolutions?

If you are a shareholder of record (shares are registered in your own name) or if you hold your shares in street name (you hold your shares through a broker or bank) you will receive the text of the resolution along with your proxy information, as long as the resolution met the filing deadline of the corporation. Many corporations also display resolutions on the company website. The text of the resolution may also be available on the website of the proposing shareholder, which in many cases is an institutional investor. Proxy filings are also available from the Securities and Exchange Commission website (SEC) at www.sec.gov. Resolutions applying to climate change and environmental liability issues will generally be found on SEC Form DEF 14A. Some organizations also track these resolutions, such as the Interfaith Center on Corporate Responsibility (http://www.iccr.org) or the Investor Network on Climate Change (http://incr.com/).

Where can I find additional information on shareholder resolutions and climate change?

Further information on shareholder resolutions and climate change can be obtained from the following source:

Jay Wintergreen

jtw@firstenvironment.com

First Environment Inc.

770 L Street, Suite 950

Sacramento, CA 95814

Tel: 916-492-6080

Fax: 916-492-6089

Ceres is currently addressing the issue of climate change, investor interest and corporate response through its Sustainable Governance Project. The following reports and other information are available at http://www.ceres.org/