Karen Frantz
GHG Monitor
1/24/14
The use of shareholder pressure as a tactic for pushing power companies to consider ways to reduce their greenhouse gas emissions has long been gaining traction among some groups concerned about the environment, and last week’s announcement that FirstEnergy had agreed to issue a report on policies it could adopt to curb emissions in the face of a shareholder resolution is again putting the issue in the spotlight as 2014 appears set to be a banner year for such resolutions and other means of persuasion by investors.
“We’ve been focused on issues of climate risk for quite a while now, many years,” said Dan Bakal, Director of Electric Power Programs for Ceres, a coalition of investors, environmental organizations and other public interest groups. Ceres has advised companies such as to As You Sow, a non-profit that promotes corporate responsibility through shareholder advocacy and other methods and which co-filed the shareholder resolution against FirstEnergy alongside New York State Comptroller Thomas P. DiNapoli and Connecticut Treasurer Denise Nappier. Ceres also advises other groups on similar actions, and Bakal said it started raising climate change as a material financial risk for companies in the early 2000s.
The group recently helped coordinate an effort in which 70 global investors representing more than $3 trillion in collective assets sent letters to 45 large oil and gas, coal and electric power companies—including FirstEnergy—asking them to look at the financial risks that climate change poses to their business plans. “That really is pointing out these issues around the amount of actual carbon reserves on the books of oil and gas and coal companies, and how inconsistent that is with our need to achieve a 2 degree climate change goal,” Bakal said, saying Ceres partnered with the group Carbon Tracker to start work with the investors in its network and engage with companies who are the most exposed on these issues.
Another coalition group that is also using shareholder pressure to call on a variety companies to accelerate efforts to reduce greenhouse gas emissions is the Interfaith Center on Corporate Responsibility, which first began looking at ways to press sectors to reduce their carbon footprints in 1989. ICCR members have recently ramped up such efforts, filing 44 climate change resolutions with 41 companies in 2014, a 42 percent increase from a year ago. Some of those resolutions have been filed against American Electric Power, Chevron, Conoco, Devon Energy and Exxon Mobil, asking them to conduct a comprehensive review of their positions, oversight and processes related to public policy advocacy on energy policy and climate change. “In light of the scientific consensus about the climate crisis, it is even more urgent that companies and investors alike ‘raise the bar’ by aggressively striving to reduce greenhouse gases,” said Tim Smith of Walden Asset Management, an associate member of the ICCR, in a draft article for ICCR’s Corporate Examiner magazine, a copy of which was provided to GHG Monitor. “But fossil fuel companies also need to change course to publicly support legislation that reduces GHG emissions and helps our country adapt to the impacts of changes in climate,” he said.
Means to an End
Several groups that spoke with GHG Monitor about their efforts said they would like to see fossil fuel companies align themselves with international or national climate goals—such as the goal set by the 2010 United Nations Framework Convention on Climate Change to limit global temperature increases to below 2 degrees Celsius or President Obama’s plan to reduce greenhouse gas emissions in the U.S. by 80 percent by 2050. But some of those same groups said they were not dogmatic about the means by which fossil fuel companies could support those goals—even though there seemed to be general support for the movement away from coal.
Amelia Timbers, Energy Program Manager at As You Sow, said the group was less interested in dictating to companies the best way for emissions reduction, and that a range of technologies, including renewables and distributed energy, would be needed to meet Obama’s climate goals. But she added: “This whole effort in the utility sector comes from a desire to get companies to move away from coal, which is of course the dirtiest fuel stock that they could choose.”
Bakal of Ceres said that his group was “fairly all-of-the-above or agnostic” when it comes to methods fossil fuel companies could take to reduce greenhouse gas emissions, although added that the company does have a preference for investment in energy efficiency and believes that renewables are going to have to continue to grow in scale. But he said that the group thinks all of the options need to be on the table. “This transition is going to be vast and wide-ranging and we cannot predict what it really is going to be the best combination,” he said.
He said that in the group’s effort with Carbon Tracker to prompt fossil fuel companies to consider the financial risks climate change poses to their business plans there was an interest in focusing on the electric power sector, in addition to oil and gas and coal companies, because it may be better positioned to move away from coal. “Since coal is such a big part of the problem and a majority of the coal produced is consumed by electric power companies that have coal-burning power plants, that seemed like a logical step,” he said. “And also that they actually have a lot more options than the oil and gas and coal companies. In an electric power company, it’s easier to diversify toward lower-carbon resources, especially as they are becoming more and more competitive and more and more commercially viable.” Ultimately letters were sent to power companies with the biggest coal fleets, including American Electric Power, Southern Company, Duke Energy and FirstEnergy in the U.S., and three other global companies.
But he also said that Ceres does think that carbon capture and storage can likely play a role as companies look to ways to align themselves with global climate goals. “Companies that are predominantly focused on coal should be trying to advance carbon capture and storage more aggressively and ambitiously than they have been,” he said, adding that although a carbon price would help send a good market signal, companies should not wait necessarily wait for that development. “We think companies should be assuming that there’s going to be a carbon price even before such time that we actually have one,” he said. “And many companies are doing that, but there’s still a lot that don’t or only do it as an academic exercise. And we don’t think that needs to be a prerequisite for making real financial decisions about how to accelerate development of carbon capture and storage.”
But James Leaton, Research Director with Climate Tracker, who partnered with Ceres on the push to ask fossil fuel companies to consider their business risks associated with climate change, said in an e-mail to GHG Monitor that “the lack of certainty on cost, liabilities and regulation makes CCS much less likely than the growth of proven technologies such as renewables. CCS would only be applied to large new point sources, which leaves the majority of emissions streams unabated: existing generation capacity that is not retrofitted, plus the transport use of oil that cannot have CCS applied to it. A carbon price is one tool to try and incentivise behaviour—different countries will pick appropriate tools depending on their circumstances—we are not being prescriptive about how they choose to do that.”
Mixed Success
Timbers said that As You Sow has seen varying success with shareholder resolutions in general. “Shareholders working through resolutions can be a process you really have to commit to for perhaps multiple years,” she said. “It’s been successful, I think, depending on what the resolution is and what the year has been,” adding that the group considers success to be either a good vote at the ballot or an agreement with the company such as the one forged with FirstEnergy. “I think we’re seeing more companies work with us on the issue of climate change, which is really heartening,” she said, saying that As You Sow is in dialogue with both Southern Company and Entergy and it is optimistic about those talks.
Bakal said that Ceres has heard back from a majority of the companies that received investor letters and the responses have varied. “Most of them that have responded have essentially said these are really important issues, we think about them a lot and we want to figure out how to provide … more public disclosure on these issues,” he said. “And many of them raise some concerns about commercial sensitivity or proprietary aspects to some of the data, so I think that will be a key point of how far can they go from a disclosure standpoint.” He added: “We think that most of the companies are actually thinking about and grappling with these issues. The question is what really are they’re doing and how much can they explain about what their real strategy is?”
