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Power of the Proxy: Shareholder Successes on Climate, Energy & Sustainability

Institutional investors are key drivers of the global economy. Their decisions about how and where to deploy capital can shift company behavior and the broader economy in profound ways towards a more sustainable future. Since 2001, Ceres has worked with dozens of leading institutional investors to press companies on the risks and opportunities from climate change and broader sustainability issues.

“Sister Pat has been a catalyst in Ford’s own sustainability journey. My company owes her a great debt of thanks and so do I.”  – Ford Motor Company Executive Chairman, Bill Ford, commends Sister Patricia Daly for receiving the Joan Bavaria Award for Building Sustainability into the Capital Markets for her 35 years as a shareholder advocate

Institutional investors are key drivers of the global economy. Their decisions about how and where to deploy capital can shift company behavior and the broader economy in profound ways towards a more sustainable future.

Since 2001, Ceres has worked with dozens of leading institutional investors to engage companies on the financial risks and opportunities from climate change and broader sustainability issues. Through shareholder engagement, these investors – many of them members of Ceres’ Investor Network on Climate Risk (INCR) – have persuaded hundreds of companies to make significant climate and energy related commitments, such as disclosing and reducing greenhouse gas emissions, investing in renewable energy, mothballing coal-fired power plants and stopping unsustainable sourcing of palm oil.

Ceres helped bring many of the largest U.S. pension funds to this effort after decades of being guided primarily by religious and socially responsible investors. As a result, the network has grown in size and strength, securing climate-related commitments from more than 350 companies since 2001. Among the many successes, investors have:

  • Raised issues of climate risks with electric utilities that contributed to the cancellation of dozens of coal plant proposals – proposals that were found to be a poor economic proposition given regulatory pressures.
  • Persuaded two of the largest U.S. homebuilders, KB Home and Pulte, to build homes that are up to 30 percent more energy efficient than standard homes. KB Home alone has built 80,000 Energy Star-certified homes since 2000, saving homeowners about $36 million on their energy bills last year.
  • Secured a commitment last year from North Dakota’s largest shale oil producer, Continental Resources, to reduce its flaring, or burning, of natural gas at its well sites “to as close to zero percent” as possible.
  • Obtained commitments from dozens of companies agreeing to set greenhouse gas reduction goals, among the most recent examples being Colgate-Palmolive’s commitment to reduce carbon emissions on an absolute basis by 25 percent by 2020 from 2002 and 50 percent by 2050.
  • Secured agreements from more than a dozen companies, including Kellogg, General Mills and most recently food giant ConAgra, to purchase 100 percent certified sustainable palm oil. These commitments helped lead palm oil producers and traders in the $44 billion industry to set policies to produce or buy only sustainably sourced palm oil by 2015. Palm oil production is a leading driver of global deforestation, and generates roughly 4 percent of global greenhouse gas emissions. In the last year alone, suppliers of more than 55 percent of the world’s palm oil committed to produce or trade only 100 percent deforestation-free palm oil. As the world’s largest palm oil supplier, Wilmar’s commitment alone is expected to prevent the release of 1.5 billion tons of carbon dioxide.
Rob Berridge
Director, Investor Engagement, Ceres

Rob Berridge, director of investor engagement at Ceres, has led Ceres’ shareholder work with companies for the past eight years and offers his perspective on the initiative in the following interview.

Q: What top trends in shareholder engagement have you noted in recent years?

A: When both carbon cap and trade legislation in the U.S. and international treaty efforts failed in 2009, investor focus on climate risk waned. Investors shifted their sights elsewhere by filing resolutions asking companies to address comprehensive ESG (environmental, social and governance) issues through sustainability reports. Then, devastating Hurricane Sandy hit, which re-focused their attention on the financial impacts of climate change. And with the birth of the “carbon bubble” and the fossil fuel divestment movement, investor motivation to address climate change reached new levels, beginning in summer 2013. The “carbon bubble” issue stems from new research data showing that most of the world’s fossil fuel resources cannot be extracted or burned if we want to limit global temperature increases to below 2 degrees Celsius, the goal agreed upon by scientists and international governments.

For all these reasons, we’ve seen a spike in activity in 2014; for example, resolutions seeking GHG reduction goals ballooned from four in 2013 to 21 in 2014. Overall, we’re tracking 148 resolutions filed in 2014, up from 110 last year.

Q: What’s the effect of that spike? Are we seeing any greater movement on the part of companies?

A: This past year investors secured commitments from 64 companies to address climate change, including a dozen related to company-wide goals for reducing GHG pollution. On average, we secure about 40 to 50 commitments for every 100 resolutions filed each year. To verify that these commitments have legs, we did a study several years ago and found that about 75 percent of the companies—the vast majority—were indeed following through on their promised actions.

In some cases, such as with palm oil, positive actions by one or two individual companies can catalyze changes across an entire industry. These efforts can also create an atmosphere of feasibility that then makes it easier for policymakers to support stronger climate policies.

Admittedly, shareholder engagement has not been able to catalyze clean-energy investments at the scale that’s required, but we now have stronger regulatory support (through EPA’s Clean Power Plan for U.S. power plants) and technology support (cheaper renewable energy) to help drive solutions at the speed and scale that is needed. I believe that momentum is building and that we will accomplish much in the coming decade given growing price competitiveness of renewable energy.

Q: How do you see shareholder engagement fitting in with other investor tactics, such as corporate dialogue on one end and divestment on the other end?

A: Investors have a range of strategies for moving companies, from initiating a private dialogue with company executives and board members, to sending a group sign-on letter, to filing a resolution. Private dialogue is an important way for investors and companies to interact on key controversial and economic issues. Black Rock and Parnassus, for example, call on companies they own and suggest that they do certain things. Shareholder resolutions fit into that process by allowing groups of investors to engage with companies and industry sectors on specific topics and, in many cases, to do so more publicly.

Shareholder resolutions are about shareholder democracy and the opportunity to raise financial issues that a company may be missing. They give the investor community leverage to get companies to the table.  You can imagine that if you didn’t have this tool and an investor called and said, “Could you please stop cutting down the rainforest and start sourcing sustainable palm oil,” the company might not bother to return the call.

As far as divestment goes, filing a resolution allows investors to keep a seat at the table. When you divest, you lose that opportunity.

Q: What are the hottest areas of concern today among the investors that Ceres works with?

A: The issue of stranded assets, or carbon asset risk, was a hot area this past proxy season, with 11 resolutions filed with major oil and coal companies on the potential of their fossil fuel reserves becoming ‘stranded’ as the low-carbon economy takes hold and demand for fossil fuels declines. The economic implications of stranded assets are a major concern to investors who are now analyzing this risk and acting on it. This will continue to be a key area of concern next year as investors further hone the resolution language to focus on the highest cost, riskiest reserves in the oil sector, such as challenging deep water and oil sands plays.

Investors are also concerned that the U.S. insurance industry has generally failed to acknowledge and address the profound risks and opportunities for the industry on climate change. Some insurers and other financial institutions are showing increased interest in low-carbon investment opportunities such as Green Bonds, a fast-growing but still largely untapped market that is hugely important for scaling clean energy investment globally. More and more investors are earning safe, risk-adjusted returns from these types of bonds, but there’s vast potential to do more.

Another hot area is engaging with electric utilities on how they are addressing the business model threat posed by renewable energy and distributed generation.

SolarCity and similar companies that lease rooftop solar panels directly to customers reduce utility revenues, a significant threat to traditional electric utilities. Now, with the EPA’s newly released carbon standard for existing power plants, we’re seeing serious regulatory risk for utilities that they can address by implementing lower carbon strategies.

Finally, we’re also seeing increased interest around resolutions that seek stronger alignment between a company’s stated policies and objectives on climate change and their lobbying actions — as we outline in the Ceres Roadmap for Sustainability. Investors are saying in essence, “Don’t tell us that you are installing solar panels while you’re donating to industry-backed groups that are actively seeking to derail climate and energy policies that will make it much more difficult to install panels in the future.”

Q: As this proxy season winds down, what do you see shaping up for the next season?

A: Renewable energy and public policy are two key drivers needed to address climate change and I think investors are going to focus efforts there.  The insurance industry is likely to get more attention. Also, investors want companies to address climate and related risks in their supply chains, especially agricultural supply chains.  For example, palm oil is getting a lot of attention by investors out of a desire to protect forests, reduce greenhouse gas (GHG) emissions and protect human rights-- all of which reduces reputational risk for companies.

Q: What for you is most fulfilling about this work?

A: Three things. First, I believe I'm working to solve the greatest problem humanity has ever faced, our warming planet, and that actions companies can take will create tremendous benefits for humans and the planet – more jobs, stronger communities, fewer human rights abuses, healthier ecosystems, and more.

Second, it is an honor to work closely with the founders and leaders of the shareholder advocacy movement in the U.S. that began with work to defeat apartheid in South Africa in the late 1970s. To help them get the job done, to learn from them and to stand on their shoulders has been gratifying. The strategy is good and the people are extraordinary at getting things done that are good for society.

Third, shareholder engagement generates many wins while helping industrial sectors and society reach the tipping points needed for tremendous societal benefits. Each time an investor succeeds at getting a company to use more solar energy, it boosts solar panel production, which pushes production costs down to the point where it is now cheaper than fossil fuels in many parts of the U.S.