Pension Voting on Climate Change Proposals
With the new administration rolling back efforts to reduce climate change, it is more important than ever that shareholders hold companies accountable. One way to do that is by supporting shareholder resolutions.
As part of its annual report on CEO pay, As You Sow collects pension fund proxy voting records, either through websites or from public information requests. Given the importance of climate change, we decided to review fund voting on climate proposals. We reviewed 44 proposals (falling under four categories discussed below), comparing the voting records of 17 funds for which we had data. This represented a total of 628 votes captured, as not every fund owned each company.
In general, we found that that pension funds are ahead of the curve, and far ahead of mutual funds, on climate change issues. Five funds — CalPERS, University of California Pension, New York City, and Dutch fund PGGM — approved all proposals we examined. While many mutual funds vote with management against shareholder proposals urging more reporting and disclosure on climate, pension funds are generally supportive of climate transparency proposals. Even the pension fund with the lowest level of support for climate would make it into the lower midfield of mutual funds as listed in Ceres’ annual ranking of mutual fund votes on climate proposals. Ohio PERS, the pension fund with the third lowest level of support, would have ranked in the Top 10 of Ceres’ mutual fund ranking.
Of the proposals we considered, ten were supported by all the pension funds that held the stock. At Continental Resources, two shareholder proposals received the support of all pension funds. One proposal requested that the Board of Directors issue a report describing how the company is monitoring and managing the level of methane emissions from its operations. The second called for a report to shareholders that included a company-wide review of the policies, practices, and metrics related to Continental Resources’ methane emissions risk management strategy.
One example was a resolution filed at Clarcor that requested the company issue a report describing its present policies, performance, and improvement targets related to key environmental, social, and governance (ESG) risks and opportunities, including greenhouse gas (GHG) emissions reduction goals. This resolution received support from all the pension funds we looked at that held the stock.
An additional 14 proposals were supported by all but one fund. These included proposals similar to those above, many seeking reports on climate change. In 12 of these 14 cases the only fund that voted against the proposal was the New Jersey pension fund. One example was As You Sow’s proposal at Emerson Electric calling on the company to issue a sustainability report describing its present policies, performance, and improvement targets related to key environmental, social, and governance (ESG) risks and opportunities. The New Jersey fund was the laggard among all the funds, supporting only 5% of the proposals we looked at.
Each year more pension funds disclose their votes, but only a few publicly release information providing their rationale for these votes. Of the funds we examined, Alberta IMCO, SWIB Wisconsin, and British Columbia IMC publicly explain the basis for their votes. These comments reveal that these pension funds generally support disclosure because, in the words of SWIB, they “believe additional disclosure would allow shareholders to better assess how the company is managing potential risks and liabilities.” As long-term holders, they understand the risks involved.
In our review, the first category of proposals we looked at were those focusing on carbon asset risk, which typically called for a report. Specifically, these proposals sought reports on company response to climate change scenarios. Various proposals under this category included proposals on the 2 degree policy and the issue of stranded fossil fuel resources. A version of this reporting proposal was filed at 16 companies, including Chevron, ExxonMobil, and Southern Company. Twelve of the funds we looked at supported all of these proposals. The Wisconsin fund noted, “SWIB will vote FOR this proposal, as shareholders would benefit from additional information about the impact that climate change-related regulations, including those aimed at limiting global temperature increases to 2 degrees Celsius, might have on the company and its operations.” The British Columbia fund noted that, “Additional disclosure helps investors better assess how environmental risks can affect a company’s activities and longer-term financial results.”
Alberto IMCO generally supported these proposals but voted against a risk report at Dominion that sought, “a study of potential future threats and opportunities presented by climate change . . . by September 1, 2016.” AIMCO noted that the proposal had merit but that the “timeline is overly aggressive.”
Both CalSTRS and Ohio PERS voted against four carbon risk proposals: those at Dominion Resources, and proposals at Hess Corp and Kinder Morgan. The Hess and Kinder Morgan proposals also asked the companies to prepare and publish a report by specific dates “disclosing the financial risks to the Company of stranded assets related to climate change and associated demand reductions.” In these cases, the report asked for an evaluation of a range of stranded asset scenarios, such as scenarios in which 10, 20, 30, and 40 percent of the Company’s oil reserves cannot be monetized. New York State Teachers voted against these four, and additionally against the version of the proposal filed at Anadarko Petroleum that sought a report on the 2 degree scenario.
The second category of proposals concern the disclosure of methane emissions. Specifically, the proposals typically sought “a report describing how the company is monitoring and managing the level of methane emissions from its operations.” These proposals have also been received favorably by the pension funds. Five of the eight proposals on methane emissions received the full support of the pension funds. The proposals at Antero Resources, Occidental Petroleum, and National Fuel Gas faced opposition from North Carolina, NY State Teachers and Ohio PERS. Ohio Voted against all three of the proposals while the other three funds each voted against one of these. On the Occidental Petroleum proposal, Alberta argued that Occidental already had sufficient levels of disclosure, while Wisconsin and British Columbia supported the resolution stating that the proposal had merit and further disclosure would be beneficial to shareholders.
The third category of proposals went beyond merely seeking disclosure of emissions and called for adoption of long-term, quantitative, company-wide targets for reducing greenhouse gas emissions in products and operations. As a framework for the reductions, proponents generally referred to the IPCC guidelines or to the 2 degree Celsius goal.
As these proposals were more proactive, they were also slightly more controversial and polarizing, especially in the United States. While CalPERS, NY City Fund, NY State Fund, and Minnesota voted for all seven of these proposals, NY State Teachers, New Jersey, and Ohio PERS voted against all of them. Texas TRS, SWIB Wisconsin, Florida, and Norges each voted for all except two proposals: one at Marathon Petroleum that called for the adoption of quantitative greenhouse gas emission reduction goals, and one at Chevron that called on the board to adopt long-term, quantitative, company-wide targets for reducing greenhouse gas emissions in products and operations. Of the funds opposing the proposal, the only one to include explanations of the votes was SWIB. The fund opposed the Marathon Petroleum on the grounds that “the company provides sufficient information regarding its greenhouse gas emissions metrics and reduction initiatives.” Similarly, it opposed the proposal at Chevron contending that, “The company provides sufficient information regarding its greenhouse gas emissions metrics and reduction initiatives to allow shareholders to assess the company’s management of these emissions and related performance.” Interestingly, North Carolina only voted for these two proposals, opposing all others. CalSTRS voted for only two out of the seven proposals, supporting proposals only at HD Supply Holding and PNM Resources.
The final category of proposals sought out sustainability reports. These proposals generally called for a simple sustainability report. A number of them were filed at non-energy companies whose businesses will still be affected by climate change. CALSTRS, New York State Teachers and OHIO PERS were the only funds that voted against any of the proposals in this category.
The importance of active ownership has never been clearer. The votes of major shareholders on these issues can help move companies to take action to increase their sustainability and build their value over the long term. Providing the rationale for supporting or not supporting such proposals can help guide companies and investor proponents. Those represented by these funds may wish to reach out to the funds for more information.