Climate Change - Carbon Asset Risk

Proponents have gone back to fossil fuel producers and utilities, again seeking explanations for how these firms will do business in a world retooled for only a 2-degrees Celsius temperature increase as envisioned by the Paris Agreement, with variations about the physical and regulatory impacts, company strategy and assets potentially stranded by stricter regulation. Several challenge the producers to reveal more about their capital expenditure plans, positing as they did last year that substantial investment in expensive carbon-based fuel production does not make sense if public policies will cut demand and make it impossible to follow through on extraction. Some ask more generally about carbon asset risk, without too many details requested. A total of 23 resolutions are pending, investors have withdrawn just three so far and one has been omitted. Thirteen are resubmissions.

Oversight, Management, and Disclosure

2-degree scenario analysis:
Most of the resolutions seek analysis about the potential impacts on company portfolios of a low-carbon economy. At 13 companies where the resolution is pending, the resolved clause is concise and, with very slight variations, asks for “an assessment…of the long term impacts on the company’s portfolio, of public policies and technological advances that are consistent with limiting global warming to no more than two degrees Celsius over pre-industrial levels.” It is a resubmission at six companies where votes last year were above 40 percent—AES (40.1 percent in 2017), Ameren, (47.5 percent), Dominion Energy (47.8 percent), DTE Energy (44.9 percent), FirstEnergy (43.4 percent) and PNM Resources (49.9 percent); it is new at seven others—Chesapeake Energy, CMS Energy, Great Plains Energy, SCANA, Southwestern Energy, WEC Energy and one more undisclosed company.

The New York State Common Retirement Fund (NYSCRF) has withdrawn at ExxonMobil, where last year it earned unprecedented 62 percent support for a 2-degree scenario analysis proposal last. This year, the resolution reiterated the 2017 request, seeking:

beginning in 2019… an annual assessment of the long-term portfolio impacts of technological advances and global climate change policies… The assessment can be incorporated into existing reporting and should analyze the impacts on ExxonMobil’s oil and gas reserves and resources under a scenario in which reduction in demand results from carbon restrictions and related rules or commitments adopted by governments consistent with the globally agreed upon 2 degree target. This reporting should assess the resilience of the company’s full portfolio of reserves and resources through 2040 and beyond, and address the financial risks associated with such a scenario.

Exxon Mobil released a report on February 5, but as Inside Climate News observes, it reiterates its previous conclusions that it can keep producing from current and new fossil fuel reserves even if there is a clean energy revolution. A similar proposal is still pending at Devon Energy, however, with the same resolved clause. Last year, the resolution earned 41.4 percent support at Devon.

As You Sow wants Anadarko Petroleum to provide a similar assessment of impacts a 2-degree world will have on it; the proposal says the report “should outline the resilience of the company’s reserves and resource portfolio in response to multiple demand and price scenarios and explain how capital planning and business strategies incorporate the financial risks posed by such scenarios.” As You Sow had withdrawn a similar proposal last year after the company agreed to discuss the suggested analysis but was disappointed with the results and refiled.

At Kinder Morgan and Noble Energy, resubmitted requests look for similar reports by 2019 that “explain how capital planning and business strategies incorporate analyses of the financial risks of a low-carbon transition.” At Noble, the proposal specifies the report should discuss the impact of “multiple, fluctuating demand and price scenarios on the company’s existing reserves and resource portfolio.” It is pending at Noble for the third year in a row and earned about 25 percent in 2017 and2016, while at Kinder Morgan it received 38.2 percent in 2017.

The Presbyterian Church (USA) has withdrawn at the sole insurer to receive a 2-degree analysis resolution. The proposal, new at American International Group said:

Given the profound societal impacts of climate change and our company’s potentially critical role in mitigating harm to society, shareholders request that AIG, beginning in 2019, with board oversight, publish an assessment…of the plausible impacts of a climate change scenario consistent with a globally agreed upon target of limiting warming to 2 degrees Celsius, as well as additional scenarios reflecting higher global average temperatures.

The Presbyterians note that AIG has agreed to further dialogue about their concerns. It has not previously received any shareholder resolutions about climate change, although the insurance sector continues to grapple with the impacts of extreme weather in the last year such as the wildfires in California and hurricanes in the Caribbean and along the Gulf Coast.

Two final proposals are a bit different. An investor alliance called MGE Shareholders for Clean Energy wants MGE Energy, a utility in Iowa and Wisconsin, to disclose within a year of the annual meeting its “business operations strategy for aligning with the 2015 Paris Agreement’s goal of limiting global warming to a maximum of 2 degrees Celsius by reducing the use of fossil fuels, while maintaining the provision of safe, affordable, reliable energy.”

In a similar vein, Mercy Investment Services asked energy company Valero Energy to report by the end of the year about its “strategy for aligning its business plan with the well below 2-degree Celsius goal of the Paris Agreement, while continuing to provide safe, affordable and reliable energy.” The company agreed to issue the report, so Mercy withdrew. It had suggested the report should include plans about advanced biofuels, fuel cells and electric vehicle charging infrastructure. (Earlier resolutions from Mercy to the company asking it to adopt GHG emissions goals in 2014 and 2015 received just under 40 percent support.)

Advocacy Positon: Exxon Still in Climate Denial Despite Shareholder Calls for Strategy

Different business model options:
As You Sow and Arjuna Capital are co-leading and reprising a request made at Chevron and ExxonMobil. It asks each to report,

describing how the Company could adapt its business model to align with a decarbonizing economy by altering its energy mix to substantially reduce dependence on fossil fuels, including options such as buying, or merging with, companies with assets or technologies in renewable energy, and/or internally expanding its own renewable energy portfolio, as a means to reduce societal greenhouse gas emissions and protect shareholder value.

The proposal earned 26 percent last year at Chevron, which is challenging it this year, as discussed below.

Individual investor Stewart W. Taggart asked Hawaiian Holdings, a regional airline, to explain its plans for responding to climate change “to minimize reputational risk.” He said the company report “should include how future aircraft design, biofuel and market measures each will contribute to Hawaiian’s achievement of carbon neutral growth after 2020.”

Stranded assets:
The Sam and Wendy Hitt Family Trust wants PNM Resources to report, “identifying all generation assets that might become stranded due to global climate change within the next fifteen years, quantifying low, medium, and high financial risk associated with each asset.” As noted below, the company has challenged it at the SEC. (A resolution to link pay to reserves at Devon Energy)

SEC action:
Companies for the most part have not sought SEC approval for omitting the 2-degree scenario proposals, but they are fighting others:

Chevron contends the low-carbon transition proposal from Arjuna Capital relates to ordinary business, since it is being sued about alleged climate change harms and resolutions concerning litigation may be omitted, but the commission has yet to respond. If the SEC staff agrees, it could have wide-ranging implications for knocking out climate proposals at companies that are being sued about climate change impacts—such as the defendants in a suit filed by New York Attorney General Eric Schneiderman against Exxon and similar cases lodged more recently by New York City against other fossil fuel companies.
ExxonMobil also has challenged the asset mix proposal, arguing it is moot given current reporting and relates to ordinary business because of its focus on product mix.
Hawaiian Holdings successfully challenged its proposal at the SEC, which agreed the proponent failed to provide sufficient proof of stock ownership.
PNM Resources last year unsuccessfully challenged a 2-degree scenario proposal at the SEC, which rejected its assertion that it was moot given information included in its regulatory filings and sustainability reporting. The company is reiterating its arguments about mootness, however.

PNM also is challenging the stranded asset proposal, contending it is moot given current disclosures but also because it duplicates the other climate-related proposal. (Last year, another stranded asset resolution earned 40 percent after the company unsuccessfully argued at the SEC that it concerned ordinary business and was too vague.)

Coal

Two resolutions reprise previous concerns about coal. At Ameren, the Schools Sisters of Notre Dame, Central Pacific, want information on coal ash risks, and a

report on the company’s efforts, above and beyond current compliance, to identify and reduce environmental and health hazards associated with past, present and future handling of coal combustion residuals, and how those efforts may reduce legal, reputational and financial risks to the company. This report should be available to shareholders within 6 months of the 2018 annual meeting…

A similar resolution received 46.4 percent in 2017. Previously, a 2012 resolution earned 10.8 percent, down from 52.7 percent in 2011. The proponent said the discrepancy between the two years’ results arose from an Ameren-funded campaign for a “no” vote.
At Duke Energy, As You Sow has resubmitted a resolution about coal risks in general, which last year earned 27.1 percent support. It asks for

a report assessing the public health impacts of its coal use on rates of illness, mortality, and infant death, due to coal related air and water pollution in communities adjacent to Duke’s coal operations, and provide a financial analysis of the cost to the Company of coal-related public health harms, including potential liability and reputational damage. The report should be published by 2019…