On May 25th, shareholders will vote on several high-profile shareholder resolutions at Exxon Mobil Corporation, Chevron Corporation and Southern Company. The proposals request the companies disclose more information concerning exposure to climate change-related risks. Support for this type of proposal has been steadily inching up over the last several years. However, 2016 has, so far, been a landmark year for climate change-related proposals.
Since the beginning of the year, eight shareholder proposals have gone to a vote at oil and gas and utility companies requesting increased disclosure of their plans to mitigate the impact from climate change on their operations. Average support for the proposals was 31% but at Occidental Petroleum nearly a majority of shareholders voted in favor. In comparison, in 2015, climate change related proposals received an average of 17.5% support, with the highest support (36.3%) at Marathon Oil Corporation. Below are the vote results so far for 2016:
Climate Change Proposals*
- AES Corporation: 42.2%
- Noble Energy: 25.1%
- Occidental Petroleum: 49.0%
- Hess Corporation: 22.8%
- Anadarko Petroleum: 40.2%
- Kinder Morgan: 27.1%
- Dominion Resources (Climate Change Risks): 21.3%
- Dominion Resources (Financial Risks of Climate Change): 22.8%
*support levels exclude abstentions and broker non-votes
Increased support for these resolutions is due to a variety of factors, but the most significant is likely the recent Paris Agreement. Adopted by 195 nations, the Paris Agreement comprised binding and non-binding agreements with the aim of keeping “a global temperature rise this century well below 2 degrees Celsius and to drive efforts to limit the temperature increase even further to 1.5 degrees Celsius above pre-industrial levels.” A number of investors have recently expressed concerns that companies that are not adequately planning for the potential impacts of the Paris Agreement could face significant operational risks that could result in lowered shareholder value.
In an April 7, 2016 Glass Lewis Proxy Talk discussing climate change-related shareholder proposals, Anne Simpson, investment director, global governance of CalPERS stated that key outcomes from the Paris Agreement, including its global scope, strong support from the business and investor community, and recognition by central banks and the Financial Stability Board of the various risks climate change poses to financial markets, “said to us at CalPERS…that this has really moved from being an environmental issue into a mainstream investment issue.” Further, Michael Garland from the Office of the New York City Comptroller commented “we believe climate change creates risks across our portfolio,” but the risks “are not well understood and difficult to price…which is why we’re all focused on disclosure.” Helen Wildsmith of CCLA, stated that a low-carbon transition that is “well managed is going to be much better for all our portfolios.”
Other shareholders have also expressed support for the proposals at Exxon, Chevron and Southern Company. In a relatively rare move, a number of large investors, including Aviva Investors, BNP Paribas Investment Partners, Local Government Super, Schroders Investment Management Ltd. and HSBC Global Investment Management, among others, have publicly committed to supporting these resolutions.
This outpouring of support for these proposals clearly indicates significant shareholder concern regarding how companies are addressing issues relating to climate change and attendant regulation. Other companies, including BHP Billiton, BP, Royal Dutch Shell, Rio Tinto and Suncor, among others, have responded to similar shareholder concerns by either simply producing the requested disclosure or by recommending that shareholders vote in favor of similar proposals. However, American companies facing this proposal in the last year have not been as conciliatory as their non-U.S. peers and have all recommended that shareholders oppose these proposals. Given strong views from both the companies in question and a significant number of shareholders on the production of the requested disclosure, shareholders may want to closely monitor these May 25th meetings.