Jun 26, 2017

Wall Street is starting to care about climate change

Amy Harder, author of Generate

Rebecca Zisser / Axios

A record number of investors are pressuring fossil-fuel companies to reveal how climate change could hit their bottom lines.

Efforts by shareholders to push resolutions on the risk related to carbon regulations are reaching a tipping point, with almost half of investors in fossil-fuel and utility companies backing resolutions, according to a new analysis by nonprofit group Ceres not yet published publicly. Activist shareholders of publicly traded companies have been pushing resolutions on climate change for years and now the effort is going mainstream with new support from institutional investors.

Why it matters: With the U.S. government retreating on climate policy under the leadership of President Trump, corporate America is emerging as the central battleground. The increased support for climate-related resolutions show that mainstream investors are taking the issue more seriously than ever despite Trump.

"Investment risk is increasing, and investors care – not because they believe or don't believe in climate change – but because they care about the value of their investments," said Kevin Book, managing director of the independent research firm ClearView Energy Partners. "The issue doesn't go away just because Trump came to Washington."

Shareholders of publicly traded companies cast votes every spring on resolutions of all kinds, including on climate change. The resolutions Ceres analyzed, which saw an average of 45% support this year, asked companies to report regularly on what kind of impact regulations cutting carbon emissions would have on their operations. The percentage in favor is up from just 21% in 2014 and 34% last year.

Notable votes

Resolutions by shareholders of ExxonMobil, Occidental Petroleum and utility PPL Corporation saw the most striking increase in support, passing the 50% threshold for the first time.

BlackRock, the largest investment firm in the world, said it backed the climate resolutions at Exxon and Occidental — a first for the investor — because the companies weren't addressing the issue enough. "Our patience is not infinite," the firm wrote in a note outlining its engagement strategies with companies for this year and next, which includes climate change.

Out of 16 votes cast by shareholders of utility and fossil-fuel companies this year on carbon risk resolutions, just two decreased (slightly) from last year: Noble Energy, from 25% to 24%, and power company AES Corporation, where the vote dropped from 42% to 40%, according to data tracked by Ceres. Here are highlights of support for carbon-related shareholder resolutions:

Expand chart

Data: Ceres. Figures rounded to nearest whole percentage; Chart: Lazaro Gamio / Axios

Symbolism matters: The resolutions aren't binding and have no legal force, but that doesn't make them empty proposals. Occidental said it would provide more disclosure about how it manages climate risk, and while Exxon hasn't said so as explicitly, there's an expectation it will, according to interviews with industry officials familiar with the process.

"Sometimes it takes these symbolic kind of gestures to prompt actual change," said Michael Ferguson, director of U.S. energy infrastructure at S&P Global Ratings, one of the world's biggest credit rating agencies. "I don't think shareholders see climate as a fleeting issue, so even if these resolutions aren't binding for the moment, policies are going to shift."

The concern for climate change is spreading to ratings agencies, which influence how investors assess companies. Moody's Investors Service announced in June 2016 it would consider the carbon-reduction pledges in the Paris climate deal when it rates fossil-fuel companies, and it has been issuing reports on the risk since the climate deal was struck in November 2015. An executive at another major credit agency, Fitch Ratings, said that firm is now discussing to what extent to consider carbon risk more explicitly in its processes.

To be sure, by repealing Obama-era regulations on climate change and withdrawing from the Paris deal, Trump is taking away explicit policies for credit agencies to use in their ratings.

"To the extent that climate change policies become a reality and something that's deeply entrenched, it's something we have to consider more explicitly," Ferguson said.

What's next? Investors, including BlackRock and Vanguard Group, two of the world's biggest investment firms, are set to issue reports by the end of August explaining how and why they voted on proposals.

Andrew Logan, director of oil and gas at Ceres, said the ultimate goal of these symbolic resolutions is to show fossil-fuel based companies their current investments won't work in a carbon-constrained world.

"The end game is to make the changes they need in their business plans so when a low-carbon future arrives, they'll be ready for it," Logan said.

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Scheduling note: Harder Line is taking a break next Monday during the week of July 4.

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