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29 October 2007
Green proxies to be red hot this season
Source: www.financialweek.com
Green proxies to be red hot this season
By Nicholas Rummell
October 29, 2007
Move over, Al Gore. With a record-breaking number of environmental proxy proposals filed in 2007, shareholder groups are gearing up to blitz companies with even more green proposals in 2008. This year, more than 80 environmental proposals were filed with public companies, 43 of them specific to climate change compared with 31 in 2006. Environmental advocacy groups such as Ceres and the Social Investment Forum say they are now preparing for an even bigger season in 2008, feeling chuffed from what they see as an increase in shareholder support for such proposals and growing willingness by managers to negotiate changes before a proxy vote.
Activity will be focused on “large emitting” industries, such as oil and gas and timber companies, said Rob Berridge, program manager of investor programs at Ceres. Proposals targeting the home building and auto industries are also planned, and advocacy groups will be going after the banks that finance coal and other “dirty” industries, Mr. Berridge said.
Washington is also getting into the act. On Wednesday, the Senate Banking Committee has scheduled a hearing on climate change risk disclosure.
Green proxies should come as no surprise to corporations. “These things tend to come in trends,” said Tom Lehner, director of public policy at the Business Roundtable, “and the environmental issue is very hot right now.”
Unlike other non-binding proposals, such as shareholder say-on-pay, the Business Roundtable does not consider most green proxies to be a waste of time and resources. Proposals that seek reduced energy costs are “the right thing to do and save money,” Mr. Lehner said. However, the Business Roundtable opposes proxies that ask timber companies to stop chopping down trees, for example.
Despite the recent surge, it’s still rare for such proposals to pass, said Meg Vorhees, director of social issue services at RiskMetrics, formerly Institutional Shareholder Services. The average vote in 2007 for environmental and social issues was 15%, an all-time high for such proposals; climate change proposals won 20% support, on average, in 2007.
Still, support has been building in the last few years. One proposal on greenhouse gas emissions filed last season at Allegheny Energy by the New York City pension fund received almost 40% support, a new record for such a proposal. Green proxies “will become a mainstream movement” starting in 2008, Ms. Vorhees predicted.
The proposals are often viewed as an attention-grabbing tactic. Fifteen climate change proposals were withdrawn last year after companies agreed to reduce their impact on the environment, according to Ceres. And repeat proposals are common. Under Securities and Exchange Commission rules, a proxy proposal needs to get at least 3% support in the first year, 6% in the second and 10% in the third to be resubmitted.
Environmentally conscious groups aren’t the only ones filing. Climate change skeptics have also taken advantage of the proxy process, though their proposals are few and typically receive even less support. One of the most noticeable groups to file such proposals is Free Enterprise Action Fund, which is managed by Steve Milloy, a longtime critic of the climate change movement, and Tom Borelli, a former tobacco lobbyist.
The mutual fund has petitioned or filed proposals that request companies, most recently General Electric, to tell shareholders why they support “economy-harming global warming regulations.” Mr. Milloy said he plans to file additional proposals this season, but he could not elaborate yet on what they might entail.
Mr. Milloy and his partners earlier this year testified before Congress that Caterpillar and other companies misled investors on whether carbon-capping regulations supported by the companies in fact hurt earnings. Mr. Milloy has also criticized the Business Roundtable for its acceptance of many sustainability proxy proposals, saying they waste company resources. Calls to GE and Caterpillar were not returned.
SEC rules have tripped up some attempts at filing green proposals, though. The commission in 2005 took the position that most proxy proposals asking businesses to quantify financial risk based on climate change would fall under the “ordinary business” exception. The SEC has issued more than 63 no-action letters, allowing companies—mostly from the insurance and energy industries—to exclude social and environmental proposals from ballots because they are considered ordinary business matters of concern to management, not shareholders.
A petition last month signed by regulators in 11 states, as well as institutional investors and environmental advocacy groups, called for the SEC to allow financial-risk proxy proposals under Regulation S-K, which requires companies to spell out material losses from unquantifiable risks, such as from climate change. Specifically, the petition seeks information on physical risks associated with climate change that are considered “material” to a company’s financial operations, as well as on lawsuits related to climate change.
The business community generally opposes efforts to quantify financial risk from climate change. “One person’s risk is another’s investment,” Mr. Lehner said, adding that companies could be put at a competitive disadvantage if they disclose too much about their financial risk. Further, much of the information sought is already public, just not synthesized in one place, Mr. Lehner said. Environmental impact reports and other documents offer some insight into environmental financial risks, he added.
The SEC has not yet responded to the petitioners. But the Financial Accounting Standards Board, which sets accounting disclosure standards, is considering tightening its FAS 5 standard to prohibit companies from claiming competitive harm from such disclosures. While FAS 5 only requires disclosure of contingent liabilities from events that have already taken place, it could be applied to lawsuits in which climate change is a factor.
A January 2007 study by Ceres and money manager Calvert Group found that more than half of the companies in the S&P 500 are “doing a poor job” disclosing climate change risks to investors.
Shareholder groups anxiously await further SEC guidance, but in the meantime they plan to get around the issue by rewording their proposals. Instead of asking about financial risk from climate change, shareholders will request that companies discuss efforts to reduce their carbon footprint, said Doug Cogan, the lead climate change researcher at RiskMetrics. “It’s all a matter of semantics,” he said.
“It does seem backwards” that shareholders should ask about carbon footprints in their proxies rather than about financial risk, which directly impacts their stock, Mr. Berridge said. “But it works.”
Another tactic shareholders plan is to boost the number of sustainability proposals in 2008 rather than to take on climate change specifically. Sustainability proposals often involve a large number of issues, ranging from human rights and social impact to whether an energy company plans to build more coal-fired power plants. In 2007, there were 39 sustainability reporting proposals.
Said Mr. Cogan: “They are pretty well tested now.”
News
25 January 2012
SocialFunds: Corporate Knights Publishes Eighth Annual Ranking of Sustainable Companies
24 January 2012
SocialFunds: Ceres Aqua Gauge Helps Investors and Companies Manage Water Risk
20 January 2012
GreenerBuildings: How Companies Can Make Buildings Greener and Better
20 January 2012
Environmental-Finance: UNEP Finance Initiative chief steps down
20 January 2012
SocialFunds: On Second Anniversary of Citizens United, Coalition Calls on SEC to Mandate Disclosure
19 January 2012
Environmental-Finance:Climate talks ‘send important signals’ to investors – Deutsche Bank
19 January 2012
GreenerBuildings: Energy Efficiency Gains Star Power
19 January 2012
Environmental-Finance: Bank of England should monitor carbon risk
18 January 2012
SocialFunds: Shareowners to US Corporations: Say No to Political Expenditures
17 January 2012
Environmental-Finance: Leading Carbon Capture Storage project appoints BNP Paribas for £4bn funding effort
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