Activist investors are exerting more pressure than ever before on corporations to disclose their exposure to climate-change risks and what actions they plan to take. Large Investors such as BlackRock Inc. and Vanguard Group now support climate resolutions signaling the end of Wall Street’s skepticism of climate science. In Harvard Law School’s 2019 Institutional Investor Survey, 85% of respondents said that they view climate change as the most important sustainability topic.
Spring “Proxy season” is when most publicly traded companies hold annual meetings in which shareholders, via nonbinding resolutions, signal their approval or dislike of proposed company policies. This year initiatives on climate change are among the most popular ballot items. Of the more than 420 shareholder resolutions initially proposed, about 20 percent focused on climate, tied for the largest of any proposal category, according to a report by the group Proxy Impact.
Some resolutions ask companies to adopt greenhouse gas emission targets. Other investors asked DowDupont for more disclosures about risks from the expansion of chemical plant operations near the Gulf of Mexico for its 2019 ballot. In 2018, 29% of Starbucks shareholders voted for public disclosure of detailed plans for promotion of reusable packaging and cutting plastic use. The proposal warned that Starbucks’s reputation as an environmental leader could be hurt by its failure to meet its own sustainability goals. The proposal is on the company’s 2019 proxy ballots released in early February. Starbucks’s board of directors recommended against the proposal.
For years investors at these company meetings have offered proposals based on climate change but lacked the necessary votes. Last year, things began to change. Investors at Occidental Petroleum and ExxonMobil demanded the companies produce reports on the business impacts of climate change. This was the first time shareholders at major U.S. energy companies backed such proposals and it proved to be a game changer.
Investors BlackRock, Vanguard, State Street Global Advisors and others are backing the Sustainability Accounting Standards Board, a nonprofit organization that wants to standardize and increase corporate environmental disclosures. The group in November formally released a set of voluntary standards companies can follow.
“What we’re trying to do is maximize the value of the companies in the portfolio, protect the downside, and move the needle in a direction that we think reflects important material issues company by company,” said Barbara Novick, a BlackRock senior executive.
Last September, Senator Elizabeth Warren, along with seven co-sponsors, introduced the Climate Risk Disclosure Act of 2018. This bill would require public companies to disclose a substantial amount of new information about their exposure to climate-related financial risks to the U.S. Securities and Exchange Commission (SEC).
Under the Act, companies would have to disclose information about the financial risks they bear because of asset exposure to climate change and the costs of climate-change mitigation and adaptation, including efforts to reduce greenhouse gas emissions and strengthen climate resilience.
Warren’s climate-risk disclosure bill is not likely to pass in the near future and the last time the SEC issued a public comment letter on climate change was in 2016. However, the SEC may have to address such issues if public and investor calls for disclosure continue to grow louder, and Democrats regain control of the federal government.
- As climate change concerns mount, members of Congress, academics, and investors are calling for public companies to make increased disclosures about environmental, social and governance (ESG) matters, such as management of a company’s carbon footprint.
- Royal Dutch Shell PLC, Europe’s largest oil-and-gas company, bowed to shareholder demands in December to set emission-reduction targets from the use of its products.
- The Financial Stability Board, an international consortium of regulators, is separately tracking voluntary climate reporting and will issue a report this June.
Quests and Actions (Q&A):
- In its bankruptcy filing, Pacific Gas and Electric cited the “significant increase in wildfire risk resulting from climate change” as one of the reasons for its decision. Can we expect more companies to be directly affected by the rapidly changing environment?
- Consumer attitudes toward climate change are rapidly shifting. What are the risks to businesses that fail to anticipate and adjust for these market changes?
- Many of the disclosures by companies about climate risk are voluntary or at the request of shareholders. Should the SEC make these disclosures mandatory given the material risk to the companies and the U.S. economy?