US Investors Enter Climate Change Fray

The focus of the climate change debate in the US, it seems, is shifting from Washington to the corporate world. While the Bush administration may be impervious to environmentalists' calls for stronger action on greenhouse gas (GHG) emissions, shareholders are increasingly using their voting rights to put pressure on US companies on climate change.

This year, US socially responsible investor (SRI) groups have tabled an unprecedented number of resolutions at annual general meetings calling on companies to report on GHG emissions and adopt more progressive policies on climate change. The SRIs have been joined in these calls by some of the country's most respected names in corporate activism, as well as by some of its largest public pension funds.

Meg Voorhes, director of the social issues service at Washington, DC-based Investor Responsibility Research Center (IRRC), which has been tracking these resolutions, says that 19 climate change resolutions were filed with US corporations in 2002. This compares to only six in 2001.

Of these 19, only seven have been, or are to be, voted on. The rest were withdrawn for a variety of reasons, mostly because the company concerned agreed to enter into dialogue with, or meet the demands of, the resolution's filers.

"But the story here," says Voorhes, "isn't just the number of resolutions that have been filed, but the level of support these resolutions have received when they have come to a vote." In 2001, she explains, the resolutions that were voted on received an average of 9.3% of the votes in favour. This year, many of the resolutions that have been voted on have received much broader support.

Voorhes attributes this partly to increasing press coverage of global warming. She also says that this year's resolutions tend to be much more acceptable to investors. Whereas earlier resolutions tended to ask companies to change their behaviors or to estimate the financial impact of climate change on the company, this year's resolutions mostly ask firms to report on their GHG emissions and to issue a report to investors explaining their plans for dealing with issues surrounding climate change.

Furthermore, this year both the New York-based Interfaith Center on Corporate Responsibility (ICCR), and the Boston-based Coalition for Environmentally Responsible Economies (CERES) are carrying out concerted campaigns aimed at corporate climate change policies.

Many of this year's resolutions are being co-filed by ICCR members. And this April, CERES published a report prepared by the New York-based investment research firm, Innovest, entitled Value at Risk: Climate Change and the Future of Governance. This report holds that climate change risk is embedded into every business and investment portfolio in the US. Furthermore, it argues that addressing issues of climate change risk is an essential part of good governance and fiduciary responsibility.

Partly in response to these arguments, some of the largest public pension funds in the US have this year come out in support of climate change resolutions. For example, the Connecticut State Treasurer's office, which manages some $20 billion in assets held by the Connecticut State Retirement Plans and Trust funds, was the first US public pension fund to put forward a climate change resolution.

It called on one of the country's largest energy utilities, American Electric Power (AEP), to document its emissions of GHGs and outline its strategies for addressing this problem. The resolution was withdrawn when AEP agreed to address the fund's main concerns.

Donald Kirshbaum, policy investment officer at the Connecticut State Treasurer's Office, says that his office believes there is a long-term link between environmental issues and financial performance. And, as such, he believes helping companies address environmental issues is part of an investor's fiduciary responsibility.

"I have no doubt that, in the long term, US corporations face a definite risk in climate change," he says. "We therefore feel that this is an issue that needs to be addressed by many, if not all, the companies we invest in."

At the Ohio headquarters of AEP, Dale Heydlauff, senior vice president for environmental affairs, says the company was surprised to see the resolution because "what they asked us for is what we have been doing for some time." He feels that had the resolution's filers done their "due diligence" and visited the company's website, they would have found everything they were after and it would have "obviated the need for any such resolution." He argues that AEP has been one of the industry leaders in finding innovative approaches to climate change, not only in terms of emissions reductions, but also in terms of carbon sequestration.

Heydlauff explains that, even though his company doesn't expect controls of GHG emissions (either federally or in the states where the company operates) in the short term, the company does see issues of climate change as important medium- to long-term risks to its core business. "After all," he adds, "companies like ours have pretty long planning horizons and, in 10 to 20 years, controls on GHG emissions in the US begin to look pretty realistic."

Given this risk (and the fact that AEP generates 66% of its energy from coal) the company has developed a "thick folder" of appropriate responses to a wide range of climate change issues. "When the day comes that our government puts in place controls on carbon emissions," Heydlauff says, "we are ready and we will survive."

According to activists, AEP's open and conciliatory approach to the issue of climate change is in stark contrast to that taken by ExxonMobil, a company which this year found itself facing no fewer than three shareholder resolutions related to climate change. The world's largest oil company has in the past cast doubt on the very existence of climate change and publicly opposes the Kyoto climate change treaty.

As a result, the company had been boycotted by activist groups in Europe and is increasingly being portrayed as one of the major hurdles towards a coherent climate change policy in the US. Cynthia Langlands, a spokeswoman for ExxonMobil, denies these allegations. She says the company takes the issues of climate change seriously and has been taking concrete steps to conserve energy and minimize emissions of GHGs.

Despite these claims, such has been the frustration with the company in some activist circles that in 2000 the ICCR set up Campaign ExxonMobil, a Texas-based organization that describes itself as "a national campaign initiated by religious shareholders dedicated to compelling ExxonMobil to take responsibility for its role in the problem of global warming and to make a serious commitment to the development of non-polluting energy sources."

Peter Altman, the national coordinator of Campaign ExxonMobil, says "the campaign was born of the realization that ExxonMobil has a unique and influential role in shaping US policy. We now understand that until we get ExxonMobil to credibly address climate change, we will not get the current US government to move on this issue."

Of the three shareholder resolutions dealing with climate change tabled with ExxonMobil, only two will be voted on at the upcoming shareholders' meeting on 29 May. The third called for the separation of the chairman and the CEO positions (both positions are held by Lee Raymond) citing the reputational risk to the firm of his views on environmental issues. This was left off the ballot by ExxonMobil with regulatory permission, because it was not seen as the right way to bring up issues of board composition. The two proposals that remain call on the company to tie executive compensation to environmental performance and to prepare a report on its plans to invest in renewable energy.

The latter resolution on renewable energy was co-filed by another large institutional investor: the New York City Comptroller's Office, which manages more than $80 billion dollars in assets held by the city's public pension funds. Ken Sylvester, its director of pension policy, says this resolution is consistent with his office's commitment to get companies to incorporate sustainability into all aspects of corporate governance.

"Our underlying philosophy," he says, "has always been that companies that are not socially responsible can, in the long-term, represent investment risks. And, since we are long-term investors, we see it as our fiduciary duty to