The push for climate change controls is not being debated in Congress, but rather on Wall Street, with activist investor groups beginning to push hard for energy companies to prove they are doing something to curb greenhouse gases or else face the consequences. The trend is being led by faith-based groups and environmentally conscious investors, who have decided to deal directly with the energy companies instead of getting bogged down in Congress.
A growing number of electric utilities and oil and gas companies are being forced to answer to shareholder requests to disclose the financial risks associated with climate change, an explosive inquiry where answers tend to reflect badly on coal dependent utilities and oil giants with extensive refinery operations. Investors are warning of potentially serious financial implications for these companies and pressuring them for action to reduce exposure. Absent a federal mandate capping greenhouse gas emissions, specifically carbon, investor groups say passing shareholder resolutions is the best course of action.
“Most oil and gas companies are taking climate change much more seriously than they were just a year ago,” said Mindy Lubber, president of the Center for Environmentally Responsible Economies (CERES), one of the major investor organizations helping to coordinate these resolution filings. Lubber added in a recent written statement: “These disclosure commitments are only a beginning, but there’s a much broader recognition from companies that climate change is a serious issue with serious financial consequences for investors if it isn’t managed well.”
Ohio-based Cinergy Corp., one of the largest investor-owned coal power producers in the country, became a leading model for this new trend when late last year it disclosed actions the company is taking to curb emissions and what effects proposed laws and regulations would have on its bottom lines. This week (March 29), Cinergy released a “groundbreaking” annual report for 2004, which provided extensive information on the company’s efforts to combat climate change — a first in the industry. The new report also went a step further and engaged senators, regulators, investors, financial analysts and activists in a series of 23 separate interviews. The goal was trying to ascertain where common ground exists in the climate change debate.
There was little disagreement among these individuals — including Sens. Richard Lugar (R-IN), Joseph Lieberman (D-CT), two former EPA administrators, leaders of the evangelical community, financial market experts and key investors, among others — that climate change exists and that something must be done. They also all agree that politics are the reason for inaction. Most also agree, regardless of their political leanings, that implementing a cap-and-trade system for reducing carbon emissions is likely the best approach. Sen. Lugar maintained that the country must produce more renewable transportation fuel as the best solution.
Regardless of the preferred solution, those advocating action have successfully turned to CEOs to take a stand and to pressure those in Congress to do the same. In her interview, Denise Furey, a senior director at Fitch Ratings’ global power group, said global warming is now on the “radar screen” of major financial institutions, including insurance companies and institutional investors. She added that she does not anticipate any federal carbon reduction mandate in the next one to five years, which leaves a major disconnect between energy companies’ long-term planning horizon and the shorter term planning horizon for investors.
The vehicle for change has become shareholder resolutions. Cinergy, American Electric Power and TXU Energy have all issued financial reports on the impacts of global warming. Southern Company, FirstEnergy and Progress Energy have all committed to doing the same. And earlier this month, six oil and gas companies joined the ranks. After extensive negotiations with shareholders, Anadarko Petroleum, Apache, ChevronTexaco, Tesoro Corp., Marathon Oil and Unocal all agreed to disclose financial impacts of climate change as well as develop strategies to reduce greenhouse gases and promote renewable energy sources.
There are still two global warming resolutions pending with ExxonMobil Corp., Vintage Petroleum and XTO Energy Inc. that will be voted on at the companies’ annual meeting this spring.
Many of the shareholders pushing for discussion and action are members of the Interfaith Center on Corporate Responsibility. The faith-based community, specifically evangelicals, have entered the fray of those pushing for a strong climate change policy. One informed source says these groups are becoming a “force to be reckoned with” in this debate.
“In the last few years, a lot of socially responsible investors have gotten together so we could expand our advocacy on global warming. Proposing shareholder resolutions to combat global warming can be seen as adversarial, but it can also open doors,” said Rev. William Somplatsky-Jarman, an associate for Mission Responsibility Through Investment and Environment Justice of the Presbyterian Church. The reverend serves on the board of directors at CERES and the Interfaith Center on Corporate Responsibility, organizations that help shareholder file resolutions about climate change disclosures.
These groups approached Cinergy two years ago and have since worked closely with the company in developing its new strategies toward climate change. Mostly, they’ve targeted electric utilities where they are major investors, and now they’ve expanded their probe to the oil and gas industry.
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