2008 Advocacy Review
For our 2008 advocacy efforts, we’re pleased to report a fair amount of progress — never as much as we’d like (we’d like superhero powers), but enough to confirm that shareholder activism remains a potent tool for change.
Climate change. Our shareholder resolution at ConocoPhillips requesting a report on the environmental and social impacts of tar sands drilling won almost 28% of the vote, an impressive vote in this arena. Our resolution at Bank of America addressing its financing of coal-fired power plants and mountaintop coal removal was deemed inadmissible by the Securities and Exchange Commission (SEC), but we eventually sat down with bank officials to express our displeasure in a more intimate setting. Our takeaway: don’t expect BAC to stop funding these projects any time soon, even while it invests more and more in less carbon-intensive projects. Alliant Energy agreed to our request to report publicly on its efforts to incent customers to reduce their energy use, leading us to withdraw a resolution.
Human Rights. We co-filed a resolution led by our friends at Domini Social Investments at Nucor after media reports linked the company’s supply chain to forced labor. Nucor agreed to implement a formal policy and code of conduct expressing opposition to forced labor, and to dialogue with us on how to best report to shareholders on this issue, leading us to withdraw. We also spent time in conversation with Talbots, Target, Liz Claiborne, Nike, Gap and Jones Apparel on how their purchasing practices put pressure on their suppliers that can lead to a higher risk of labor violations.
Experts on the genocide in Darfur have declared that if anyone has any influence over the Sudanese government that is perpetrating the atrocities, it would be China. China sells arms to the government, and two Chinese oil companies operating in Sudan provide major revenues. Since we don’t own shares in any of the Chinese or other foreign firms in Sudan (and US firms are prohibited by sanctions), we’re talking to their investment bankers and investors on Wall Street. This last year we filed resolutions with Morgan Stanley, Merrill Lynch, and JP Morgan Chase. We withdrew at Morgan Stanley and Merrill after constructive dialogues on diminishing the risks they incur from these relationships. Our resolution at JP Morgan received 7.7%, enough for us to proceed with a re-filing should it prove necessary.
Political contributions transparency. How much corporate trade association money is being diverted to ads and groups that are shaping the election this year? No one knows for sure, but it could run to the hundreds of millions, according to the Center for Political Accountability. In 2008, our resolution at Procter & Gamble prompted the company to commit to greater transparency, while Ford Motor and General Motors remained resistant despite resolutions.
Employment nondiscrimination. We withdrew a resolution at Pentair after the company agreed to add sexual orientation to its nondiscrimination policy. Our resolution at Expeditors International on the same drew 52% in support – and a strange silence from company management and the Board of Directors. Perhaps they’re waiting for a super-majority, or just like flouting the will of their shareholders. We’ll re-file and let you know.
Environmental Justice. Chevron‘s shareholders defeated our resolution addressing the strength of the company’s global environmental standards in light of its issues in Ecuador, Nigeria and elsewhere. The good news, however, is a major break in the multibillion-dollar lawsuit Chevron faces in Ecuador for Texaco’s widespread rainforest pollution. After more than a decade, the company has finally agreed to explore a settlement.
After persistent nudging, Toyota Motor Corporation is starting to take seriously the contradiction between its supposed boycott of Burma, and the Burmese involvement of the independent company Toyota Tsusho that has a distributorship in that country. As this progresses, as the saying goes, you’ll read it hear first.
Big Coal Losing Momentum in the U.S.
Poor coal. For so long, it has gotten away with being the largest contributor (41 percent) to global CO2 emissions from energy use, a widespread public health hazard by virtue of lead, mercury and other pollutants, the source of black lung disease, and now we can add deforestation to its achievements. “Coal will be coal,” they said. “Isn’t it great that it’s cheap and abundant?” Coal claims that it’s now clean and has offered to change its ways by burying its carbon instead of spewing it all over the atmosphere, but its persecutors have obtained restraining orders and are bent on keeping it out of the house.
According to Coal Moratorium Now! and the Rainforest Action Network (RAN), fifty-nine coal plants (of more than 150 proposed between 2000 and 2006) were cancelled or shelved in 2007. Carbon emissions played a role in at least 15 cancellations, and coal plants disappeared entirely from some utilities’ long-range plans due to increasing regulatory scrutiny of long-range integrated resource plans. In some states, regulators are starting to favor utility-scale renewables over coal. Interestingly, more plants have been abandoned by their sponsors than rejected outright by regulators, courts or local authorities. Rising construction costs, insufficient financing or lack of subsidies and even lower demand estimates were contributing factors along with climate change.
At Trillium Asset Management Corporation, it’s always been our policy not to invest in mining companies, and we try to avoid holding electric power companies that favor coal over cleaner sources of energy. But fortunately our hands are not tied when it comes to advocacy. As my colleague Lauren McLean writes about in this issue (see p. 10), we’ve used our voice at Alliant Energy to promote greater development of energy efficiency incentives. We’re also on Bank of America‘s case. The Ceres member has received a lot of praise for being the first bank to adopt an “intensity” (reduction per unit) GHG target for its energy and utility lending portfolio; its goal is to realize a 7 percent decrease by 2008 from a 2004 benchmark. It is on its way to meeting that goal. So what’s wrong with this picture? It’s simple. Reductions per unit are all well and good, unless overall (“absolute”) emissions are going up – as Bank of America’s did by 11 percent between 2005 and 2007.
The company has refused to answer shareholders’ questions as to why this is. Could it have something to do with RAN’s research identifying the Bank as one of the top financiers of coal power plants? We’re starting to wonder if the kudos Bank of America is getting for its intensity reduction goals isn’t a little like patting a dieter on the back for reducing calories per meal even as he eats so many meals that he’s put on 11 percent more pounds since 2005.
This metaphorical epiphany was one of the motives behind our shareholder resolution calling on the Bank to embrace a moratorium on financing coal-fired power plants and coal mining by means of mountain top removal (MTR). A moratorium on building new coal plants is a radical idea that’s increasingly supported by non-radicals, such as the U.S. public. Seventy-five percent of American adults would support a five-year moratorium on new coal plants if funding for renewable alternatives was increased and efficiency standards were tightened.1
Mountain top removal is a double whammy on the climate front. The method clear-cuts forests and blasts away mountain tops to extract coal. The rubble is dumped in the valleys below, filling streams and destroying water resources. Between 1992 and 2012, the US Environmental Protection Agency estimates that MTR will have destroyed approximately 7 percent of Appalachian forests in coal mining regions studied.
Over 110 coal-fired electrical generating plants and synfuels plants are currently under construction or in the planning process. In addition to bearing their share of ethical responsibility for the disaster that is coal, those that finance it assume additional financial risk due to rising construction costs for coal plants and the eventual attachment of a price tag for emitting carbon (which Bank of America recently estimated at $20-$40 a ton in the absence of federal regulation).
Coal enthusiasts insist that capturing and storing carbon underground will solve the GHG problem, but as a new report from the Interfaith Center on Corporate Responsibility observes, these technologies are untested at actual plant-scale sizes.2
Bank of America successfully petitioned the Securities and Exchange Commission to exclude our proposal from the proxy ballot. However, Citigroup’s shareholders will vote on a similar resolution filed by Boston Common Asset Management. Vote Yes on Proposal 9. Coal is a bad investment.
Notes
1. “A Post Fossi-Fuel America: Are Americans Ready to Make the Shift?” opinion survey conducted by Opinion Research Corporation, October 18, 2007.
2. ICCR and Synapse Energy Economics, Inc., The Risks Of Investing In New Coal-Fired Generating Facilities, p. 29.
Turn Down the Heat – It’s Getting Warmer
With all the talk out there about energy efficiency and reduced use, I can’t help but think of my mom, telling us kids to put on a sweater, the heat would not go up. I laugh at the person I’ve become, as I tell my own kids the same thing, adding the environmental commentary that it’s one little thing we can do and if we don’t, climate change will turn up the heat more than we’d like – before we know it.
So what’s a shareholder to do, in this day and age of climate change, when a company in your portfolio is arguing to a utilities commission that their predicted power demand requires them to build a coal-fired power plant to meet it? Since a request to turn down the heat in an Iowa winter probably wouldn’t go very far, we took a more productive approach: we filed a shareholder resolution asking Alliant Energy to report on their efforts to curb future demand through incentives to increase energy efficiency for their customers.
Last May, a Standard & Poors report indicated that energy efficiency is likely to emerge as a major part of the solution to climate change, and warned that “utilities may be affected, if revenues and profits decline with consumption,” unless policies are changed to provide incentives for utilities to reduce consumption of electricity. “Decoupling” revenues and profits from consumption (making a utility volume-insensitive) has emerged as one of the more effective ways to reduce carbon emissions, and as more states consider the option, we wanted to be sure that a company whose returns make a difference to our clients was working on the same issue where they do business.
Our concern included the impact upon shareholder value that could be brought about from the reputation risks associated with their proposal to build a 630 megawatt coal-fired power plant in Iowa that would emit several million tons of carbon dioxide a year. No one across the political spectrum doubts that carbon trading and other kinds of carbon constraints are increasingly imminent, meaning that cost estimates for a plant like this can easily rise as carbon starts to trade. We hoped to see a serious commitment to efficiency as a solution to reducing demand, and thereby reducing carbon linked risks, be taken by the company. Through our negotiations around our resolutions, we think we’ve gotten closer.
Working with Ceres, we were pleased to agree to withdraw our shareholder resolution when Alliant agreed to publish a report on their energy efficiency efforts. They were willing to talk with us at some length, and made available many of their experts on policy, efficiency and demand projections to answer our questions. Alliant management was clear that they’d rather work with us than against our resolution, and agreed to honor our request to publish a report to shed some light on their plans to mitigate demand as a method to build shareholder value.
Of course, it’s too soon to conclude, “problem solved.” Citizens in Iowa dispute Alliant’s demand projections, which the company has agreed to explain in this report. We’re starting to see coal-fired plants cancelled in places like Kansas, Nevada and even the fossil-fuel loving Idaho because of the mounting carbon costs and concerted citizen efforts to stop them. We’d like to see Alliant and other utilities take more proactive steps to curb their demand in the near term, and to propose more renewable energy projects for the demand that just won’t go away. Because let’s face it – not every mom wants to wear hats and sweaters at home in the winter just to keep the thermostat hovering at 60 degrees.
Alliant Energy – Greenhouse Gas Emissions Reduction
WHEREAS
In 2007, the Intergovernmental Panel on Climate Change found that that “warming of the climate system is unequivocal” and that man-made greenhouse gas emissions are now believed, with greater than 90 percent certainty, to be the cause.
In October 2007, a group representing the world’s 150 scientific and engineering academies including the U.S. National Academy of Sciences issued a report urging governments to lower greenhouse gas emissions by establishing a firm and rising price for such emissions and by doubling energy research budgets to accelerate deployment of cleaner and more efficient technologies.
In October 2006, a report authored by former chief economist of The World Bank, Sir Nicolas Stern, estimated that climate change will cost between 5% and 20% of global domestic product if emissions are not reduced, and that greenhouse gases can be reduced at a cost of approximately 1% of global economic growth. The report also warned that “the investment that takes place in the next 10-20 years will have a profound effect on the climate in the second half of this century and in the next.”
U.S. power plants are responsible for nearly 40 percent of the country’s carbon dioxide emissions, and 10 percent of global carbon dioxide emissions.
Seventeen U.S. states have established statewide emissions reduction goals and a majority of U.S. states have entered into regional initiatives to reduce emissions. As of September 2007, the U.S. Senate is considering at least seven proposals calling for a national cap-and-trade system to regulate and reduce greenhouse gas emissions.
In May 2007, Standard and Poors indicated that energy efficiency is likely to emerge as a major part of the solution to climate change and warned that, “utility margins may be affected, if revenues and profits decline along with consumption,” unless policies are changed to provide incentives for utilities to reduce consumption of electricity.
In June 2007, Fitch Ratings stated, “until carbon capture becomes economic, [demand-side-management] may be one of the more effective ways to reduce CO2 emissions, particularly if the utility has decoupling mechanisms in its rate design to make it volume-insensitive.”
In a July 2007 speech to the National Association of Regulatory Utility Commissioners, Department of Energy Secretary stated that, “There is no doubt that new energy sources must be developed. But there is also a clear and growing recognition of the role that prioritizing energy efficiency must play”. He also urged regulators to realign incentives so that utilities are financially rewarded for efforts to reduce electricity consumption.
Alliant Energy is proposing to build a 630 megawatt coal-fired power plant in Marshalltown, Iowa, which will emit several million tons of carbon dioxide per year.
RESOLVED
Shareholders request a report [reviewed by a board committee of independent directors] on actions the company is taking to design new incentives that will provide financial returns for the company to reduce greenhouse gas emissions by improving its customers’ energy efficiency. The report should be provided by September 1, 2008 at a reasonable cost and omit proprietary information.
