Climate change influences shareholders concerns

Methane emissions, lobbying subjects of resolutions filed ahead of annual meetings




It’s not the most efficient way to get your news, but if you want to know what’s been scarring the oil and gas industry in the past year, you can browse through shareholder resolutions.

Let’s go back to the years 2011, 2012, and 2013.

Shale gas development was in full swing. The U.S. Environmental Protection Agency had begun a study of hydraulic fracturing. And the single most popular shareholder issue in those years was the environmental impact of fracking.

In 2014, attention turned to greenhouse gas emissions, with more shareholders asking oil and gas firms to account for their carbon footprint and set goals to reduce it.

Last year, a corporate governance issue — the ability of shareholders to nominate candidates for the board of directors —  took top billing. With natural gas prices settling in for a “lower for longer” scenario, there were also a number of resolutions aimed at getting companies to think about how their assets could become stranded if either an economic or regulatory environment prohibits their development.

For this year’s slate of resolutions, look no further than the massive gas leak in California that has displaced thousands of Los Angeles residents and allegations of a decades-long campaign by Exxon Mobil Corp. to undermine the climate change movement.

It’s still early in this year’s proxy season — most companies hold annual meetings between April and June — but there are two clear issue leaders emerging in the resolutions filed to date: concerns about methane emissions and political activity.

“This is a critical moment for investors to press oil and gas companies to be transparent about their lobbying expenditures and assess whether their lobbying dollars are spent to maintain the status quo on climate change policy,” said Timothy Smith of Walden Asset Management, which has joined with other shareholders in filing resolutions with 11 oil and gas firms.

Walden and like-minded shareholders want fossil fuel firms to tell investors what public policies they’re trying to advance, which ones they’re hoping to squash and who they’re paying to advance their causes. That includes memberships in trade associations that often engage in lobbying and litigation on their members’ behalf.

Oklahoma City-based Chesapeake Energy Corp. and Cecil-based Consol Energy Inc. are facing such resolutions this year.

Shareholder resolutions are typically non-binding and frequently don’t garner majority support during votes at company meetings. Still, they serve as a barometer of sentiment and are often intended as a consciousness-raising exercise for shareholders and companies alike.

Lobbying and political activity disclosures have been the most popular cause of shareholder resolutions across all industries, according to the Manhattan Institute for Policy Research, which publishes the Proxy Monitor each year. No such proposal has ever gotten more than 50 percent of the vote, the institute notes, and so some activist investors who continue to be concerned about political spending have given up trying to force disclosure through resolutions.

Not in the energy industry, though, where proposals to account for political activity are growing, just as the policies and environmental regulations impacting the industry increase in number and burden.

It’s not just a moral imperative to support climate change action, Walden states. It’s about the bottom line, the argument goes.

Last year, the New York state attorney general concluded a two-year investigation into coal producer Peabody Energy that found the company didn’t disclose to investors the financial risks stemming from climate change regulations. That followed the launch of a separate investigation into whether Exxon Mobil had kept from the public what it knew about man-made climate change.

“The attorney general’s actions really show that this is a financial risk; it is a litigation risk for the companies; and it’s also a survival risk for the companies after Paris,” said Shanna Cleveland, a senior manager at Ceres, a Boston nonprofit that tracks and advances environmentally-minded shareholder resolutions.

She was referring to the Paris climate conference which, in December, secured commitments from developed and developing countries to keep temperature rise below 2 degrees Celsius.

Building on that momentum, at least half a dozen resolutions filed so far are asking oil and gas companies such as Chevron, Noble Corp. and Exxon Mobil to stress-test their business plans against a world where temperature growth is held below 2 degrees. 

The second most popular topic of shareholder resolutions this year is methane emission disclosures.

A leak in California's largest gas storage field, still uncontrolled since it was first reported in October, has added fuel to the notion that methane emissions will become an increasing liability for oil and gas companies.

The Environmental Protection Agency has proposed rules aimed at curbing methane leaks from wells and pipelines, as have several states with shale gas development.

A new entrant into the environmental proxy arsenal is a proposal to sever a link between how much executives get paid and how much the company adds to its reserves. Often, executive bonuses are tied to a company’s rate of replacing the oil and gas it produces during a year, but Ms. Cleveland said investors are looking for new metrics that don’t incentivize accumulating assets that may become stranded down the road.

Hopefully, she said, such proposals also will change the way analysts and rating agencies value oil and gas firms.

Anya Litvak: alitvak@post-gazette.com or 412-263-1455.

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