Topic: Investing

New Study Finds Climate Change Shareholder Resolutions Have No Impact. David Blackmon, Forbes. June 24, 2018

A new study finds that the climate-based shareholder resolutions being so actively pushed by proxy advisory firms and their Environmental, Social and Governance (ESG)-based institutional investors have “no statistically significant impact” on a company’s bottom line, either positive or negative. The study, funded by the National Association of Manufacturers (NAM), was led by the highly-respected PHD economist Joseph Kalt, Senior Economist at Compass Lexecon and is the Ford Foundation Professor (Emeritus) of International Political Economy at the John F. Kennedy School of Government at Harvard University. 

This was an interesting finding given the elevation of the demands from this kind of investor activism in the past several years, especially against fossil fuel companies, and the recent decision by several big institutional investor firms to use their market position in an attempt to frighten major oil and gas companies away from attempting to explore for oil in the always-controversial Arctic National Wildlife Reserve (ANWR). The study’s lead finding will no doubt not sit well with the proxy advisory firms who place such high priority on having their clients push climate change-related shareholder resolutions, or with the companies for whom such resolutions can create onerous new administrative burdens. 

Kalt and his team state in the executive summary that claims by institutional investors that such resolutions actually benefit shareholders provided the main direction for their study: 

“We focus on climate change resolutions both because of the growing activism on the part of certain large institutional investors around climate change disclosure and because of the argument upon which that activism is predicated, i.e., that such additional disclosure provides meaningful information to the marketplace and therefore serves to benefit shareholders. Our analysis fails to find support for such assertions.” 

The report’s authors are unsurprised by their study’s findings. Noting the “stridency of arguments” that often accompany the debates over such proposals, the authors go on point out the reality that “The fundamental drivers of risk and the impact of an issue like climate change on the ability of management’s decisions to enhance or detract from shareholder value are political.” Which is, of course, absolutely correct. 

The ability – or even the necessity – of a company to respond to a constantly shifting and evolving issue such as “climate change” depends to a very high degree on the whims of voters and the politicians they elect. Nowhere has this fundamental reality played out with greater impact over the past decade than in the United States of America. 

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The proxy advisory firms and their institutional clients will no doubt continue to claim that their shareholder resolutions somehow enhance shareholder value. But this study indicates that what the proxy advisory firms are actually engaged in is a whole lot of sound and fury that at the end of the day signifies nothing.

Climate change and the years of investing dangerously. Michael Peltz, Institutional Investor. Apr 7, 2014.

GMO’s Jeremy Grantham has been warning about rising temperatures and resource scarcity for the better part of a decade. Investors can no longer ignore the risk – or the opportunities – that climate change creates for the companies in their portfolios.

Combating Climate Risk Calls for Strong Stewardship. Thomas Murtha and John Rogers, Institutional Investor. Mar 20, 2016.

Responsible investor stewardship requires investors to actively engage the companies they own to address the systemic risk of catastrophic climate change. Clearly, new technologies are needed and will be developed, but it is doubtful that these innovations can be realized fast enough to avoid the nonlinear, irreversible impacts that will occur if emissions are not also reduced dramatically and quickly. New energy technologies require research, discovery, development, demonstration and deployment of unknown duration. This process is unlikely to occur quickly enough to prevent runaway climate change.

Is Your Mutual Fund a Climate Change Denier or Climate Champion? Rob Berridge and Jackie Cook, ecowatch. Mar 15, 2016.

The resolutions filed by investors request that companies take such actions as: set greenhouse gas (GHG) reduction goals; disclose the risk of assets such as fossil fuel reserves and coal plants being unusable—“stranded” in Wall Street parlance—due to weakening global demand for fossil fuel products; disclose political lobbying expenditures related to climate change; and issue sustainability reports describing material business risks from climate change. 

These common sense requests are believed by investors to be financially material to many of the companies receiving the resolutions and to mutual fund companies who have a fiduciary duty to vote in the best interests of their clients....

Simply put, climate change is among the most critical ESG issues intended to be addressed by PRI signatories, and failing to support any climate resolutions brings into question whether some PRI members are adhering to the principles.

Can Apple's $1.5bn green bond inspire more environmental investments? Alison Moodie, The Guardian. Mar 20, 2016.

Apple’s willingness to borrow billions to address the economic impact of climate change could pave the way for other businesses to do the same

Apple’s $1.5bn green bond, announced last month, will fund several initiatives, including the company’s conversion to 100% renewable energy, installation of more energy efficient heating and cooling systems and an increase in the company’s use of biodegradable materials. A green bond, like a typical bond, is simply a way to borrow money, but it’s issued specifically to fund environmental projects.  

Apple’s green bond reflects a growing corporate concern about the economic impact of climate change. Businesses are responsible for the majority of manmade greenhouse gas emissions, which are driving up average temperatures worldwide and affecting many companies’ bottom lines. 

Bond Market Asking `What Is Green?' Curbs Climate-Friendly Debt. Bloomberg. Mar 5, 2016.

Climate Change: The Forceful Stewardship Program. Preventable Surprises.