On the heels of a historic global climate agreement in Paris, investors have filed a record number of shareholder resolutions this year with major U.S. energy companies asking them to disclose their strategies for competing in a global economy that is shifting towards clean energy and away from fossil fuels.
The resolutions seek clarity on fossil fuel companies’ plans to evolve post-Paris, and include requests that companies like ExxonMobil, Chevron, AES Corp. and Southern Co. ‘stress test’ their business plans against the accord’s goal to reduce carbon pollution in order to limit global temperature rise to below 2 degrees Celsius.
“These resolutions are a powerful signal that the world is shifting to a clean energy, low-carbon global economy, and that fossil fuel companies need to be ready,” said Mindy Lubber, president of the nonprofit group Ceres, which helped coordinate the shareholder filings, many of which will be voted on at upcoming company annual meetings. “The Paris agreement has fundamentally altered the way businesses think about the financial risks of climate change, yet many U.S. energy firms are standing still as the world changes.”
“The worldwide commitment to limiting global warming means that our global economy is increasingly a lower carbon economy,” said New York State Comptroller Thomas P. DiNapoli, trustee of the state’s Common Retirement Fund, one of the nation’s largest public pension funds with about $180 billion in assets. “We need to know that companies like Exxon are prepared to meet this challenge and are taking steps to protect the long-term value of our investments.”
Other companies such as Marathon Oil and Anadarko are being asked by investors to disclose “stranded asset risks” – the potential of fossil fuel reserves being unusable, thus causing losses, due to declining fossil fuel demand. Lastly, businesses such as Devon Energy and Chesapeake Energy are being asked to decouple replacement of fossil fuel reserves from executive compensation packages.
All told, nearly two-dozen carbon asset risk-related resolutions have been filed with oil & gas, coal and electric power companies – a sign of changing times following the Paris climate accord forged by 195 countries in early December. For a more complete list of more than 160 climate-related resolutions filed this year – focused on issues such as methane emissions, renewable energy sourcing, greenhouse gas reduction targets and climate policy lobbying – visit http://www.ceres.org/investor-network/resolutions.
The carbon asset risk / stranded asset resolutions urge lagging companies to catch up with the 10 global oil & gas firms, including Shell, BP, Statoil and Total, that have already announced their support of the 2-degree target prior to Paris. The companies – mostly based in Europe – have all endorsed investor requests to test their business plans against the target. A recent analysis from Barclays showed that an estimated $34 trillion in fossil fuel revenues is at risk between now and 2040 under a two degree scenario. A Wood Mackenzie report last fall estimated that $1.5 trillion of potential investment in new oil projects isn’t financially viable at $50 per barrel (US crude oil is now selling at under $40 a barrel).
Investors, led by the New York State Common Retirement Fund, Church of England, Wespath Investment Management, Vermont State Pension Fund, University of California President’s Office, Tri-State Coalition for Responsible Investment, Presbyterian Church USA, Mercy Investment Services and Nathan Cummings Foundation, have filed two-degree stress test resolutions with AES Corp. (AES), ExxonMobil (XOM), Chevron (CVX), Occidental Petroleum (OXY), Devon Energy (DVN), Noble Energy (NBL) and theSouthern Co. (SO).
Stranded asset risk resolutions were filled with Anadarko Petroleum (APC), Hess Corp. (HES), Marathon Oil (MRO), First Energy (FE), American Electric Power (AEP) and Great Plains Energy (GXP). Investors filing the resolutions include As You Sow and the Unitarian Universalist Association.
Resolutions to end executive compensation linkages with fossil fuel reserve replacement were filed with Chesapeake Energy (CHK), ConocoPhillips (COP) and Devon Energy (DVN). They were filed by the Nathan Cummings Foundation, the Unitarian Universalist Association and the New York State Common Retirement Fund.
“CEOs need to have their incentives aligned with generating value for shareholders. When they are rewarded for finding reserves that may become stranded under certain future oil pricing scenarios, the system is broken and bad outcomes are more likely,” said Tim Brennan, chief financial officer and treasurer at the Unitarian Universalist Association, which filed resolutions with Marathon Oil and ConocoPhillips.
Press release by Justmeans on March 7, 2016