Shareholders Demand More Climate Disclosures As SEC Moves to Restrict Them

By Karen Savage

With annual meeting season just around the corner, investors are continuing to press fossil fuel companies to disclose their efforts to address climate change.

Shareholder resolutions have already been filed asking companies to disclose data on their climate change-related lobbying, to disclose risks to their bottom lines posed by climate change and to disclose risks posed to the climate by their business operations. Investors are also continuing to press companies to disclose how they plan to align their operations with the goals of the Paris Agreement.

Shareholder resolutions are non-binding recommendations presented to companies by investors at their annual meetings. Resolutions that are accepted are voted on by the shareholders that attend. They are most often related to environmental, social and governance issues.

But while shareholder proposals focus on increasing corporate accountability, the Securities and Exchange Commission (SEC) is working to toughen rules that govern their submission.

This Year’s Resolutions

Included in this season’s climate change-related resolutions is one that asks Chevron to disclose the amount it has spent on both direct lobbying and indirect lobbying through trade associations and other organizations. Its sponsors say although Chevron publicly supports the Paris Agreement, it has spent millions to undermine it. Those investors are asking the oil company to disclose the amount of money paid to organizations such as the National Association of Manufacturers (NAM) and the American Legislative Exchange Council (ALEC) for lobbying.

A similar resolution has been filed with Exxon and Chevron by BNP Paribas Asset Management and the Needmor Fund.

“Both Exxon and Chevron acknowledge climate change, they acknowledge that it is important, they acknowledge that human activity is causing it, they’re talking about what they have done later, some solutions that they’re involved in, but they are not willing to change their business model,” said Timothy Smith, a director of shareowner engagement for Boston Trust Walden, which filed the Chevron resolution along with the Philadelphia Public Employees Retirement System, the United Steelworkers and other investor groups.

Other investors are asking Exxon and Chevron to assess the public health risks of expanding petrochemical operations in areas prone to climate change-induced storm flooding and sea level rise. Exxon and Chevron have also been asked to align their business strategies with the Paris Agreement and to include emissions from the burning of their products, known as Scope 3 emissions, in their climate disclosures.

“Reducing greenhouse gas emissions at the margins, while continuing business as usual as Exxon and Chevron are doing, is not a successful long-term business plan, especially when competitor companies are implementing new paths to thrive in a low-carbon economy,” said Danielle Fugere, president of As You Sow, sponsor of resolutions demanding Chevron and Exxon align their business models with the goals of the Paris Agreement.

Concern about how companies are addressing climate change extends beyond fossil fuel companies. Hertz and other corporate investors have filed resolutions asking companies to disclose plans to reduce their carbon footprint.

“Investors recognize that the climate crisis is fundamentally reordering the business world,” Fugere said.

Companies—and Trade Associations—Push Back

Under current regulations, investors must hold $2,000 or 1 percent of a company’s stock, to submit a proposal. Once filed, companies can either allow shareholders to vote on resolutions at their annual general meeting or ask the SEC for permission to block the vote. After voting, resolutions that garner a certain amount of support but are not approved can be resubmitted in subsequent years.

Most climate-related shareholder proposals have failed, but there have been some victories: Shareholders have prompted Occidental Petroleum, BP and Shell to increase reporting on climate risks. A proposal directing BP to adopt a business strategy in line with the goals of the Paris Agreement passed last year with an overwhelming 99 percent of the shareholder vote.

It was pressure from shareholders in 2014 that forced Exxon to provide a report on its climate-risk calculations. That report, Energy and Carbon—Managing the Risks, was subsequently subpoenaed by the New York attorney general’s office and was key evidence in its climate fraud lawsuit against Exxon. The court ruled the AG did not prove that Exxon defrauded New York investors or misled them about climate risks to its business, but the oil giant is facing a similar suit filed by the Massachusetts AG in October.

The passage of a shareholder resolution in 2017 forced Exxon to acknowledge for the first time that its core oil and gas assets face some risk of becoming stranded—or unusable—due to government policies and international agreements that seek to limit climate change.

As the potential for more successful resolutions has risen in recent years, companies began calling for the SEC to change its rules for submitting them. Many, including Chevron and Exxon, turned to trade associations like NAM to ramp up opposition. 

In 2018, NAM launched the Main Street Investors Coalition (MSIC), a broad initiative to curb shareholder proposals involving climate change and other social justice issues, which it says are “politically motivated shareholder activism.” NAM and MSIC targeted proxy advisory firms, which are hired by institutional investors to analyze reports and recommend how shareholders should vote on certain issues, and supported legislation calling for tighter regulation of proxy firms by the SEC. They also funded a study claiming proxy firms’ advice is often politically motivated or influenced by conflicts of interest, painting investors as uninformed and unconcerned with corporate profits.

The SEC responded by holding discussions and calling for public comment. In November, it proposed amendments constricting the resolution process. 

Citing letters received from individual investors, SEC chairman Jay Clayton maintained that the proposed changes would benefit small investors, who were concerned that proxy firms were promoting resolutions based on their political agendas rather than investor profit. 

“Some of the letters that struck me the most came from long-term Main Street investors, including an Army veteran and a Marine veteran, a police officer, a retired teacher, a public servant, a single Mom, a couple of retirees who saved for retirement, all of whom expressed concerns about the current proxy process,” Clayton said at a hearing on the proposed changes. 

But a Bloomberg investigation found more than two dozen of the letters, including those specifically cited by Clayton and purported to have been written by individual investors, were tied to 60 Plus, a member of MSIC. When contacted, some had no knowledge that a letter had been submitted in their names.

60 Plus, a senior advocacy group that has called climate change “the latest science fiction adventure,” did not deny having a hand in the letter-writing, but said no letters were submitted without permission. “They are 80-some-years old,” a spokesperson told Bloomberg. “This happened months ago. I’m sure it’s not top of their minds.”

NAM did not respond to a request for comment and the MSIC’s website is no longer active. There’s no mention of the coalition on NAM’s website.

The SEC’s proposed changes would raise the amount of stock required to file resolutions to $25,000 if the investor has held stock for one year, which drops to $15,000 if the stock has been held for two years. Long-term investors who have held $2,000 worth of stock for three years would remain eligible to submit resolutions, but investors would no longer be allowed combine their holdings in order to meet the threshold. The threshold percentage of support allowing resolutions to be resubmitted in subsequent years would also rise.

Proposed changes could also require proxy advisory firms to share their recommendations with corporate management before shareholders could see them, and to allow companies time to review and comment on the firms’ advice. The SEC is accepting public comment on the proposed rule changes through Feb. 3 and will then take a final vote to finalize the new rules.

Lila Holzman, energy program manager for As You Sow said resolutions are an important part of shareholder engagement. Holzman said even unsuccessful proposals serve an important purpose.

“We really see filing resolutions and whatever the vote comes out to be to show that there is strong concern for certain areas that we’re raising,” she said. “Regardless of the outcome of the vote, it really is just about calling attention and making sure that management and the board is paying attention to these kinds of issues.”