Carbon Asset Risk

Shareholder proponents withdrew many of the resolutions they filed in 2018 about 2-degree scenario reports because companies agreed to the request. But proponents are persisting with more such requests this year, bolstered by the guidelines on voluntary climate reporting from the Task Force on Climate-Related Financial Disclosures (TCFD), which is backed by financial firms that together manage more than $81.7 trillion in assets. Reports in the last year have documented more reporting but find it remains inadequate to the scale of climate challenges.

Carbon Asset Risk.jpg


Jim Coburn

Senior Manager, Disclosure, Ceres

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) has raised awareness of climate risks and opportunities to new levels. As a global, industry-led initiative formed by G20 nations, it has support from over 500 corporations and has led many other companies to consider its recommendations.

As a result, the usual array of energy and utility companies, alongside a few other firms, are recipients of carbon asset risk proposals in 2019. Resolutions ask about the impact on companies of policies that would keep warming “no more than” or “well below” 2 degrees Celsius, and how they will handle the coming challenges that now are being realized. In addition to several more general proposals, the group of resolutions includes a handful of new ideas and specific resolutions. Proponents have filed 20 resolutions and 11 are still pending; eight have been withdrawn and one has been omitted so far; at least one more SEC challenge is pending.

2-degree scenario analysis: Eight resolutions seek analysis about the potential impacts on the company from a low-carbon economy.

NYSCRF has asked Concho Resources, Continental Resources, Diamondback Energy and Range Resources for “an assessment of the long-term impacts on the company of public policies and technological advances that are consistent with limiting global temperature rise to no more than 2 degrees Celsius over preindustrial levels.” None of the companies has received this proposal before, although a methane proposal at closely held Continental Resources earned 5.5 percent in 2016 and another on methane at Range Resources received 50.2 percent in 2018.

Another variant at Antero Resources and Marathon Oil asks each to “publish an assessment of the long-term impacts on the company of public policies and technological advances that are consistent with limiting global temperature rise to no more than 2 degrees Celsius over preindustrial levels.” Antero previously had a methane proposal, which was withdrawn after an agreement, in 2016, while Marathon Oil reached an agreement that led the Unitarian Universalists to withdraw a climate risk proposal in 2016, after a methane proposal received 36.3 percent in 2015.

Withdrawals—NYSCRF has withdrawn the proposal noted above after an agreement at Concho.
ICCR members also have withdrawn a proposal at two insurance companies—American International Group and Chubb—that said

Given the profound societal impacts of climate change and our company’s potentially critical role in mitigating harm to society, shareholders request that [the company] publish an assessment...of the plausible impacts of a climate change scenario consistent with a globally agreed upon target of limiting warming to well below 2 degrees Celsius, as well as additional scenarios reflecting higher global average temperatures.

The Presbyterian Church (USA) had filed a similar proposal last year at AIG and withdrew it then, too.

Climate transition plans: Four companies face similar questions about how they will adapt to the challenges of climate change. Proponents at Martin Marietta and MGE Energy want annual reports with “quantitative metrics” where possible or relevant “on the physical and transition risks to and opportunities for the Company associated with climate change,” which “focus on disclosures beyond existing disclosures and beyond those required by law.” NYSCRF says Martin Marietta’s disclosures fall short of TCFD recommendations; it withdrew a 2-degree scenario proposal in 2015 at the company after it reported changes in its cement making business that aim to cut emissions. MGE, a utility in the Upper Midwest, has seen eight proposals since 2015 from its shareholders about renewable energy issues, with the highest vote of 11.1 percent coming last year on a 2-degree scenario proposal.

A group of workers has a new resolution that lists a range of extreme weather events that have affected the company and requests a report “as soon as practicable describing how Amazon is planning for disruptions posed by climate change, and how Amazon is reducing its company-wide dependence on fossil fuels.” In a challenge to a different proposal, the company indicated it plans to include this resolution in its proxy statement. The proposal says the report could include time-bound, quantitative GHG targets. Previously, Amazon successfully challenged a 2018 resolution seeking a report on net-zero GHG goals; the SEC agreed it was too specific and therefore constituted ordinary business.

At Southern Copper, a publicly traded U.S. company with Latin American mining interests, which is a subsidiary of Mexico’s Grupo Mexico, the California Public Employees’ Retirement System (CalPERS) asked for

an annual assessment that is above and beyond existing disclosures and those required by law, which addresses how the Company is managing the physical and transition risks and opportunities associated with climate change. [The report] may cover topics such as governance, strategy, risk management, and metrics & targets.

Withdrawal—MGE produced more information and the proponents withdrew. Ceres reports that CalPERS also received a commitment from Southern Copper, persuading it to withdraw.

Extreme weather: A new resolution from As You Sow asks about potential petrochemical contamination. At DowDupont, the proposal asks for a “report on climate change-induced flooding and public health,” which will “assess the public health risks of petrochemical operations and investments in areas increasingly prone to climate change-induced storms, flooding, and sea level rise and the adequacy of measures the company is employing to prevent public health impacts from resultant chemical releases.” At ExxonMobil, it is nearly identical, seeking an assessment of “the public health risks of expanding petrochemical operations and investments in areas increasingly prone to climate change-induced storms, flooding, and sea level rise” (emphasis added). (See sidebar, p. 30.)

Stranded assets: Two proposals from individual investor Stewart Taggart will not go to votes. Taggart did not provide sufficient proof of stock ownership at Dominion Energy after he asked for a report on “the premature write down, or stranding, risk to the company’s Liquid Natural Gas assets across a range of rising carbon price scenarios,” including “the life-cycle emissions (production, transport and combustion) of the specific natural gas the company delivers as Liquid Natural Gas using various carbon price scenarios and administratively-mandated reductions to meet the 2c target.” He withdrew the same resolution at Sempra Energy after procedural problems with the filing that the company pointed out in an SEC challenge.

Coal: The perennial problem facing carbon-intensive utilities has come up again at two companies. Prompted by a 2014 coal ash spill on the Dan River and breaches of coal ash waste ponds following 2018’s Hurricane Florence in North Carolina, As You Sow wants Duke Energy to “report assessing how it will mitigate the public health risks associated with Duke’s coal operations in light of increasing vulnerability to climate change impacts such as flooding and severe storms. The report should provide a financial analysis of the cost to the Company of coal-related public health harms, including potential liability and reputational damage.” The resolution also suggests the report should discuss how its coal ash disposal affects poor and minority communities. Proponents withdrew a similar 2018 proposal after the company agreed to more disclosure, after a 2017 coal risk reporting resolution earned 27.1 percent.

The Edith P. Homans Trust wants PNM Resources to “identify and reduce environmental and health hazards associated with past, present and future handling of coal combustion residuals and how those efforts may reduce legal, reputational and financial risks to the company,” in a report by January 2020. Several climate change proposals have gone to votes previously at the company, with the highest vote of 49.9 percent coming in 2017 for a request to provide a 2-degree climate change scenario analysis. This is the first coal-specific proposal there.

Gas plant acquisition impact: At MGE Energy, shareholders are concerned about methane emissions from a planned natural gas plant acquisition. They are asking for “a public report within 6 months of the 2019 annual meeting disclosing its strategy regarding their option to acquire 50MW of the 700MW Riverside natural gas plant (Beloit, WI) as it relates to greenhouse gas emission reduction goals, overall environmental policy, and shareholder value.” The company challenged the proposal at the SEC, arguing it concerns ordinary business and the proponents have withdrawn but it is not clear they reached an accord.

Emerging markets investments: A new proposal at General Electric asked for a report on the “adequacy of the company’s climate change related criteria for ensuring that investments in fossil fuel projects in emerging markets are consistent with the Paris Agreement’s goal of limiting global temperature increase to ‘well below 2 degrees Celsius.’” It wanted information about risks associated with new GE investments in fossil fuel projects in Pakistan, Cambodia, Bangladesh, Vietnam, Kenya, and Mozambique. But As You Sow withdrew after a company challenge that contended the resolution concerned ordinary business. The withdrawal came before any SEC response and dialogue on the issues is expected to continue. The company already has provided details on its proposed coal plant in Lamu, Kenya already and set dates for future dialogues about its fossil-fuel related projects in developing countries.

Renewable and Efficient Energy

As in the past, most of the proposals that set out possible energy solutions to climate change challenges are about using more renewable energy, often coupled with questions about energy use and energy efficiency. Many of these resolutions have proven to be fertile ground for agreements before and four already have been withdrawn this year. In all, nine proposals have been filed to date; only one has been challenged.

Renewable & Efficient Energy.jpg

The proposals are quite similar. Investors want Archer Daniels Midland, Goodyear Tire & Rubber, Harley Davidson and Yum Brands to report

assessing the feasibility of adopting quantitative, company-wide goals for increasing the company’s use of renewable energy and any other measures deemed prudent by company management, to substantially reduce the company’s greenhouse gas emissions and climate change risks associated with the use of fossil fuel-based energy.

NYSCRF proposals to Dollar General, Keurig Dr Pepper and Under Amour similarly ask for a study on company-wide goals to increase clean or renewable energy use “to substantially reduce the company’s greenhouse gas (GHG) emissions and climate change risks associated with the use of fossil-fuel-based energy,” with a report within one year.

MGE Energy shareholders have a more precise request, seeking a report by October 2020 “describing how they can provide a secure, low cost energy future for their customers and shareholders by eliminating coal and moving to 100% renewable energy by 2050 or sooner.” The proponents are concerned about two coal plants owned by the company and the financial risks they may pose to the company given cheaper renewable energy sources and customer preferences.

Finally, Green Century asked Verizon Communications to “report assessing the feasibility of increasing the scale, rigor, and pace of Verizon’s utilization of renewable energy and other measures deemed prudent by company management to substantially reduce the Company’s greenhouse gas emissions and climate change risks associated with the use of fossil fuel-based energy.”

Withdrawals—Company commitments for action or continued dialogue have produced withdrawals so far at Archer Daniels Midland, Dollar General, Goodyear and Verizon Communications.

SEC action: MGE Energy has lodged a challenge, contending the proposal is ordinary business.


As companies consider how to reduce their emissions to comply with the goals of the Paris Climate Treaty, they can look to electric vehicles as a feasible option. Carbon emissions from vehicles contribute significantly to global warming, and the transportation sector is one of the larger contributors to greenhouse gas emissions (GHG) in the U.S. As institutional investors seek to offset and mitigate the rising levels of carbon and other GHGs, electric vehicles (EVs) are an increasingly viable solution. With sales of EVs growing faster than predicted a few short years ago, the outlook for EV production and adoption is becoming increasingly robust.

Expert Insight.png

Mary Jane Mcquillen
Head of Environmental, Social and Governance Investment, ClearBridge Investments


Robert Buesing, JR.
Research Analyst for Consumer Staples, ClearBridge Investments


Pawel Wroblewski, CFA
Director, Portfolio Manager, ClearBridge Investments



Four proposals address deforestation and its connection to climate change. All are at food companies and seek information on commodities supply chains.

Green Century asked Aramark to report on “quantitative metrics on supply chain impacts on deforestation, including progress on any time-bound goals for reducing such impacts,” seeking metrics on sustainable sourcing of palm oil, soy, beef and pulp/paper—and an assessment of related risks. It withdrew after the company agreed to develop a new deforestation policy; to transition to 100 percent sustainably sourced palm and soy oils by June 2019; to require supplier reporting on sustainable sourcing for palm, soy, beef and timber; to report on time-bound goals and participate in the CDP Forestry survey; and to formalize its supplier engagement strategy with input from stakeholders. The company is to report by May 2019 and quarterly thereafter.

Advocacy Position.png


Leslie Samuelrich
President, Green Century Capital Management

As investors analyze the climate resiliency of their portfolios, they should consider risks associated with the agricultural sector and especially the conversion of forests and peatlands to crop and pasture land. The burning and razing of forests is one of the largest contributors to global greenhouse gas emissions. Deforestation contributes as much greenhouse gas emissions as the global transportation sector, with commodity-driven deforestation itself responsible for two-thirds of tropical forest loss.

The proposal is still pending at Kroger. It suggests the report could include commodity-specific goals for eliminating deforestation, the certification standards Kroger is using for major commodities, strengthened non-compliance protocols and reporting to the CDP Forests initiative. A similar proposal in 2017 earned 22.9 percent support. Earlier, proponents withdrew a 2013 resolution after Kroger agreed to source all its palm oil from sources certified by the Roundtable on Sustainable Palm Oil.

Also still pending are proposals to two more firms. SumOfUs wants Mondelez International to report by May 2020 and annually thereafter “on how the company is curtailing the impact on the Earth’s climate caused by deforestation in Mondele–z’ cocoa supply chain.” The resolution notes that subsidiary Cadbury is the world’s second biggest confectionery company and says “Cocoa is a driver of climate change caused by deforestation in Africa, Asia and South America”—a matter that has prompted substantial public notice that can damage the company’s reputation given connections to human rights abuses and biodiversity concerns. The proposal contends Mondele–z’s Cocoa Life program for sustainable cocoa lacks transparency, with no specific goals or key performance indicators, in contrast to peer firms. The resolution suggests reporting on how much cocoa is traceable, verified by third parties, certified by global entities and shade-grown.

Seventh Generation Interfaith Coalition for Responsible Investment, an ICCR member, has a more general proposal at Yum Brands. It asks for annual reports “on how the company is curtailing the impact on the Earth’s climate caused by deforestation in YUM’s supply chain,” with “quantitative metrics on supply chain impacts on deforestation and progress on goals for reducing such impacts.” The proposal suggests the company could report on the track of and goals for sustainably sourcing palm oil, soy, beef and pulp/paper.

Sustainable energy access: In one more proposal about the impacts of climate change on the developing world, the Sisters of St. Dominic of Caldwell, N.J., are asking ExxonMobil to report “on how ExxonMobil’s business activities contribute to the provision of affordable, reliable, sustainable, and modern energy to alleviate energy poverty, in alignment with the Paris Climate Agreement goal to limit global average temperature increases to well below 2 Degrees C above pre-industrial levels.” The proposal is new in 2019 and notes the “dual challenge” of sustainable energy needs for the one billion people without access to energy. Supplying energy to developing markets to enable development is a theme ExxonMobil has stressed in its annual energy assessments for many years.

The company has challenged the resolution at the SEC, arguing it relates to ordinary business because it is micromanagement, is moot given current reporting and duplicates the resolution from NYSCRF asking for GHG goals reporting. ExxonMobil says it will include the NYSCRF proposal in its proxy statement.

Deforestation and Sustainable Energy Access.jpg

SECTION_TOC_Climate Change

As average global temperatures continue to rise and the disasterous effects threaten major population centers and significant geographical regions, investors are continuing their efforts to enlist companies in the fight to lessen the worst effects.  In the United States, political barriers to climate action continue to abound. President Trump not only denies climate science, but also has openly mocked those who take it seriously. Republicans controlled Congress for the first half of Trump’s administration and have largely conformed to Trump’s agenda, but the new Democratic majority in the House of Representatives plans to press for stronger climate action.  On the GOP side, a growing conservative coalition is promoting a carbon tax, opening the possibility that a bipartisan deal is possible. Recent “Green New Deal” proposals from Democratics seems likely to feature high in the 2020 presidential election, even though meaningful climate change legislation still seems uncertain and may arrive too late to force the emissions reductions we must achieve to avoid severe impacts on the economy and society at large.  This reality underscores investors’ urgency in pressing companies to act, and it explains why large, usually cautious mutual funds continue to press for disclosure and action to mitigate climate risks from companies they own.

Shareholder proposals remain evenly divided between those focused on carbon asset risk and those seeking information about greenhouse gas (GHG) emissions management, as in 2018.  Proponents remain keenly interested in how companies are assessing carbon asset risks and still want to see more oversight, management and disclosure of strategy—with 20 resolutions about this (down from 27 at this point last year).  Investors have seen significant progress in persuading companies to report—with tailwinds coming from majority votes during the last two proxy seasons at leading energy firms. But proponents also have filed 23 proposals about GHG management, seeking goals or reports on such goals.  Nine resolutions ask about renewable energy use and goals, down from 15 last year. After 11 proposals last year on unconventional fossil fuel energy production and its associated methane releases, there are just three this year. Four also address deforestation, with a final new proposal about access to sustainable energy.  (Pie chart.)  

The Ceres coalition coordinates nearly all these proposals, working with its Investor Network on Climate Risk (INCR) and a broad coalition of institutional investors, including many members of the Interfaith Center on Corporate Responsibility (ICCR) and some individuals.  Investors around the globe are focusing their efforts on key carbon emitters that account for two-thirds of global industrial emissions, through the new initiative Climate Action 100+, with backing from 310 institutions that have $32 trillion in assets under management.  Undergirding many of the resolutions, and the strategic concern of long-term investors, is the sense that regulatory regimes ultimately will favor lower-carbon fuel sources and leave stranded carbon assets that account for a large part of the market value claimed on the balance sheets of energy companies.  Proponents also contend that utilities dependent in large part on fossil-fuel powered electricity will be caught short if they do not aggressively manage a transition to lower carbon-intensive power generation. The January bankruptcy of Pacific Gas & Electric, on the hook for damages from the California wildfires, is being called one of the first climate-related casualties—underscoring these concerns and showing how much investors can lose when claimants line up in court.  The company faces $30 billion in liabilities, exceeding its assets.

(Sections below on Environmental Management, p. XX and Sustainable Governance, p. XX, cover environmental and social topics that also raise climate change issues.)