Surge in Investor Resolutions Targeting Energy Sector Sustainability

Surge in Investor Resolutions Targeting Energy Sector Sustainability

Image CC licensed by Flickr user eschipul

Shareholders filed nearly 100 resolutions this year to nudge companies in their portfolios toward more sustainability-driven business practices.

Investors filed 96 energy and climate-related resolutions during the 2011 proxy season, slightly down from 101 submitted in 2010. The number filed for oil, coal and electric power companies, however, soared 50 percent as shareholders focused on an energy sector faced with growing regulatory action.

"Investors are motivated by wanting to see their companies prepare for the future," said Rob Berridge, senior manager of investor programs at Ceres, which coordinated the filings with the Interfaith Center on Corporate Responsibility (ICCR). "If you're a company that is wasting energy and money and resources, you're going to get beat by a company that is not wasting energy and money and resources."

The uptick in energy and climate-related resolutions takes place as the U.S. Environmental Protection Agency and several regional programs move forward with greenhouse gas regulations. At the same time, a few high-profile disasters have cast a spotlight on the way companies are governed and manage business risks, including the BP oil spill and the Upper Big Branch Mine explosion that killed 29 coal miners. Mercer predicted this week that climate change could drive up portfolio risks 10 percent over the next two decades.

The resolutions revolve around issues that may carry significant business implications now and in the future, such as setting a corporate greenhouse gas reduction target, adopting sustainable palm oil sourcing policies, producing a sustainability report, or evaluating the financial risks of water scarcity or oil sands development.

"We've seen a history of investors acting as the canary in coal mine," Berridge said. "We had predatory lending resolutions in the early 2000s, long before the financial meltdown. They are often years ahead of emerging risks."

Resolutions are typically filed in the fall and early winter time period, with voting often taking place in the spring and early summer. The number of resolutions will likely climb this year due to later filings, Berridge said. He added that there are about 10 additional resolutions that haven't yet been publicized because investors are engaged with the companies on the requests.

Of the 96 resolutions filed, Ceres expects at least 60 to go to a vote. The average vote on resolutions tracked by the group reached 24 percent on average last year, compared to votes in the single digits a decade ago. The first resolution to come to a vote this proxy season received 34 percent shareholder approval for Emerson Electric to produce a sustainability report that includes greenhouse gas reduction goals. Twelve resolutions were withdrawn after the companies agreed to address investors' concerns.

There is also a growing number of resolutions aimed at getting companies to link environmental performance with executive pay, largely driven by the Laborers' International Union of North America and Amalgamated Bank.

"Amalgamated Bank is engaging a number of companies with significant deepwater drilling operations and asking them to integrate environmental performance and other appropriate metrics into the compensation of their senior executives," said Scott Zdrazil, Amalgamated Bank's director of corporate governance.

He noted that Royal Dutch Shell awards a portion of its bonuses based on sustainable development, including health, safety and performance on a sustainability index (Shell is reportedly evaluating whether to continue using this method to calculate bonuses after being deleted from the Dow Jones Sustainability Index in late 2010). Others companies that tie environmental performance to executive pay include Intel and Xcel. 

Though they started with the oil and gas sector, investors are also looking at other sectors to file resolutions aimed at linking sustainability metrics to compensation, Zdrazil said. Berridge believes this could be the beginning of a a new trend where corporate governance aligns with environmental and social risk management.

"In order to make the alignment happen," Berridge said, "companies have to be governed in a way that recognizes societal and environmental risks and opportunities, which can also hurt them financially."

Image CC licensed by Flickr user eschipul.