Corporate Governance Webinar

At the heart of this webinar is the conviction, born of evidence, that transparent and accountable corporate practices correlates to higher shareholder value and lower volatility in share prices. A company run well will deliver superior financial returns, over the long term, than a company that does not adhere to principles of transparency and accountability,

On Thursday, August 29, we were joined in our quarterly webinar by two leaders within the Interfaith Center on Corporate Responsibility (ICCR): Tim Smith of Walden Asset Management and John Keenan of  American Federation of State, County and Municipal Employees (AFSCME).

We are very grateful for the presence of both our guests in this webinar, for their commitment to work on these issues, and their generosity in sharing their wisdom with us.

As always, we welcome your feedback via a confidential evaluation found here. Slides from the webinar are found here.

Climate Change is now a Climate Crisis

By Frank Sherman

Recently, we took time to reflect on another eventful engagement season and to chart the strategic direction for the coming year.

Looking back at the 2019 engagement season and more than one-hundred climate engagements by ICCR members, we observe:

  • In a notable exception, the electricity generation sector is at a decarbonization tipping point driven by cheaper renewable energy, growing industrial and public demand, and changing public opinion. Securitization laws, distributed energy resources (e.g. rooftop solar) and community solar projects are growing in popularity. The “electrification of everything” shows promise of demand growth, energy savings and environmental sustainability. A growing number of utility companies (nine, according to NRDC) have followed Xcel’s lead by committing to carbon-neutral electricity production by 2050 or sooner.
  • In the face of regulatory rollbacks, natural gas production and distribution companies are committing to voluntary methane leakage reduction targets to salvage the ‘bridge-fuel’ story. With 6000 mid- and small-scale producers, the majors are now advocating for a stronger regulatory regime! Investors have been successful in tying support for meaningful regulation to reputational risk.
  • As investors shifted from demanding scenario assessments to Paris-compliant business plans, U.S. oil & gas companies continued to defend their business-as-usual business model while their European counterparts broke rank. A BP supported climate resolution obtained a 99+% vote while Shell agreed to set GHG reduction targets for their products as well as their operations. In contrast, CA100+ investors at Exxon Mobil recommended voting against the Board after the company omitted their GHG reduction target proposal.
  • With noted exceptions (Wells Fargo and Goldman), large financial companies are starting to assess climate risk in their portfolios. Mid-cap companies were slower to respond to our letter campaign, largely it seems, due to limited capacity to conduct broad risk assessment. Investors will connect them with tools they can use to do a straightforward climate footprint analysis.
  • Political spending and lobbying resolution votes, several of which emphasized climate change, increased to 31%.
  • Engagements calling for science based (GHG reduction) targets made slow progress in contrast to the scientific community call for more urgent action.

Impacting the climate science and changing political landscape, 2018 was the wettest year on record while wildfires in California resulted in the first climate change bankruptcy of Pacific Gas and Electric. Global carbon emissions reached a record, and the U.S. power sector reversed its’ multi-year decline.  The IPCC special report warned that countries’ pledges to reduce their emissions are not in line with limiting global warming to 1.5°C. Some are responding to the crisis – 80 countries are planning to increase their climate pledges ahead of schedule. The UK is the first member of the G7 to legislate net zero emissions, joining Finland and Costa Rica.

The 4th U.S. National Climate Assessment Report starkly warns of risks to the U.S. economy while the Trump administration’s environmental rollbacks are poised to increase GHG emissions significantly. Public opinion is finally shifting with over 70% of Americans saying climate change is a reality, with most believing human activity is primarily responsible. Republican millennials support a carbon tax 7-to-1 with 85% stating that the Republican position on climate change is hurting the party. The Midterm elections flipped the House of Representatives and 7 state governorships to Democrats. Twenty-one states have now joined the U.S. Climate Alliance committed to the Paris Climate Agreement. Four states (CA, WA, HI, NM) and Puerto Rico have targeted 100% clean energy by 2050 or sooner, with nine additional states (IL, MA, MI, MN, MS, NC, NY, PA, WI) proposing similar legislation. The Green New Deal resolution changed the conversation on Capitol Hill and the Climate Action Now Act put the House on record as supporting the Paris Accord.    

Financial markets are not immune to this crisis. Munich Re predicts climate change will price regions out of insurance. The broad acceptance of the TCFD guidelines increases pressure on companies to improve disclosure.

Considering the broader investor landscape and NGO campaigns, the CA100+ global initiative focused on large emitters and led by large asset managers, pension funds, and sovereign funds. Some ICCR members participate in the CA100+ teams while others continue parallel engagements to reinforce the message. Still others are shifting focus to mid-cap companies. We believe that more coordination is needed to increase effectiveness.

Efforts to make methane emissions reduction targets the norm have been limited to the oil & gas majors and larger natural gas producers. The EPA’s proposed rollback of the New Source Performance Standards regulating oil and gas emissions will further erode the regulatory floor, especially as the EPA now proposes to deregulate methane. We look forward to publication of an EDF study on methane measurement and mitigation and Union of Concerned Scientists has formed a working group to study CCS.  

Efforts towards a Just Transition have born fruit as investors and companies have a growing awareness of the unintended, negative consequences that decarbonization has on people. We made a good start with last October’s investor statement, representing $3.7 trillion in assets, and the CA100+ framework, which includes just transition questions; however, most companies lack the policies and practices to address these issues. Addressing the needs of employees, customers and local communities will accelerate transition rather than deter it.

Recalling Fr. Mike Crosby’s prophetic statement, “We are at a Kairos moment,” we look forward to developing with our allies a new strategy statement regarding future engagement of the oil & gas sector to help investors differentiate between fossil fuel companies making progress and those protecting business-as-usual models. Rollout will be stepwise with more guidance forthcoming. Finally, alongside our allies, we have reviewed a draft climate change principles which reflect an increased urgency and stepped up action.

Finally, let us turn to our 2020 engagement strategy. Given our progress in recent years within the electric utility sector, we expect to expand engagements further into mid-cap companies and push for net-zero carbon targets. We will collaborate with NGO’s and other partners to engage the state utility commissions and give input on the Green New Deal. ICCR is planning a multi-stakeholder Roundtable in December to discuss the challenges of decarbonization and promote a just transition.

Investors engaging the financial sector are promoting a shift from simply assessing climate change risk to their own operations to assessing the climate-related risk they facilitate through their lending and underwriting. Coordinating with the Climate Safe Lending Initiative, they plan to engage the top five U.S. banks and some regional banks in 2020 on climate risk. Investors will ask banks to follow the TCFD recommendations, complete a climate impact assessment, pledge no new fossil fuel investments, and ultimately, decarbonize their portfolio (Banking on Climate Change: Fossil Fuel Finance Report Card 2019). Planned for early September, an investor brief and webinar will educate interested investors. As well, we will ask smaller banks to join the Platform Carbon Accounting Framework to calculate their carbon footprint.

Our methane work will continue to promote best practices in measurement and management to minimize methane leakage. We plan to engage companies on including their “non-operated assets” (i.e. joint ventures) in their methane targets, and step up engagement of distributors and retailers to source “sustainably produced” natural gas. At the same time, we recognize that natural gas can no longer be viewed as a “bridge fuel” to clean energy and agree that no new gas power plants can be justified given the climate crisis. On the other hand, replacing industrial and residential uses of natural gas remains a challenge.

It is clear that we recognize the increased urgency and need to step-up our demands. Within ICCR, we reflect this by the change to our Program name from Climate Change to Climate Crisis. This can no longer be considered a gradual change. We are in crisis mode so we need to respond differently!

SGI, Institutional Investors Continue to Press Companies for Disclosure of Lobbying

Among issues of corporate governance, lobbying disclosure remains an urgent topic for shareholder proposals in 2019. Five SGI members are a part of a coalition of at least 70 investors who have filed proposals at 33 companies asking for disclosure reports that include federal and state lobbying payments, payments to trade associations and social welfare groups used for lobbying and payments to any tax-exempt organization that writes and endorses model legislation. That last sentence was detailed precisely because “following the money” is so complicated when it comes to lobbying expenditures. This year’s campaign highlights the theme of corporate political responsibility, with a focus on climate change lobbying.

Corporate lobbying impacts all aspects of the economy. Companies fund lobbying efforts on issues ranging from climate change and drug prices to financial regulation, immigration and workers’ rights. While lobbying can provide decision-makers with valuable insights and data, it can also lead to undue influence, unfair competition, and regulatory capture. In addition, lobbying may channel companies’ funds and influence into highly controversial topics with the potential to cause reputational harm.

In 2018, more than $3.4 billion in total was spent on federal lobbying. Additionally, companies spend more than $1 billion yearly on lobbying at the state level, where disclosure is far less transparent than federal lobbying. Beyond that, trade associations spend in excess of $100 million each year, lobbying indirectly on behalf of companies. For example, the U.S. Chamber of Commerce spent $95 million on federal lobbying in 2018 and has spent over $1.5 billion on lobbying since 1998.

To address potential reputational and financial risk associated with lobbying, investors are encouraging companies to disclose all their lobbying payments as well as board oversight processes. We believe that this risk is particularly acute when a company’s lobbying, done directly or through a third party, contradicts its publicly stated positions and core values. Disclosure allows shareholders to verify whether a company’s lobbying aligns with its expressed values and corporate goals.

“The faith community has been an active investor voice for around a decade pressing companies to expand disclosure on political spending (related to elections) and also lobbying disclosure. This is more important than ever as we look at issues of concern to ICCR members. For example it is a crucial time to hold companies accountable on their lobbying related to climate change and to urge them to lobby only for legislation consistent with the Paris Accord. Or monitor how drug companies lobby on opioids or drug pricing. Lobbying is not a remote governance issue but it intimately linked to a whole range of corporate responsibility issues we are all working on.”


Tim Smith of Walden Asset Management

Companies Receiving Lobbying Disclosure Resolutions for 2019 are:

  • AbbVie (ABBV)
  • Altria Group (MO)
  • American Water Works (AWK)
  • AT&T (T)
  • Bank of America (BAC)
  • BlackRock (BLK)
  • Boeing (BA)
  • CenturyLink (CTL)
  • Chevron (CVX)
  • Comcast (CMCSA)
  • Duke Energy (DUK)
  • Emerson Electric (EMR)
  • Equifax (EFX)
  • Exxon Mobil (XOM)
  • FedEx (FDX)
  • Ford Motor (F)
  • General Motors (GM)
  • Honeywell (HON)
  • IBM (IBM)
  • JPMorgan Chase (JPM)
  • Mallinckrodt (MNK)
  • MasterCard (MA)
  • McKesson (MCK)
  • Morgan Stanley (MS)
  • Motorola Solutions (MSI)
  • Nucor Corporation (NUE)
  • Pfizer (PFE)
  • Tyson Foods (TSN)
  • United Continental Holdings (UAL)
  • United Parcel Service (UPS)
  • Verizon (VZ)
  • Vertex Pharmaceuticals (VRTX)
  • Walt Disney Company (DIS)

The Decade We Stopped Climate Change

By Aaron Ziulkowski, Walden Asset Management

A New York Times Magazine published in August included one single article: “Losing Earth: The Decade We Almost Stopped Climate Change.” The title contains the spoiler that we all already knew: We are not stopping climate change. But the focus of the article by Nathaniel Rich—a whopping 30,000 words—is a historical recounting of how close the U.S. and global community came to establishing a binding framework that would have set us on a path to limit warming to what scientists consider manageable. Several decades later, we have still not accomplished this feat.

While some readers likely found the article depressing, it gave me a bit of hope. Rich chronicled a time when the risks of climate change were appreciated and regulations to limit emissions were recognized as the prudent action to take. This knowledge was accepted and embraced by conservatives and liberals as well as leaders of business and advocacy groups. While this promising response eventually derailed, investors may be able to help return the U.S. to a 1980s context—poised to act to mitigate the worst impacts of climate change.

Here’s what we can do.      

Ask companies to set emissions reduction goals that align with climate science. While this may sound outlandish, it is not. Many companies recognize that climate change presents both risks and opportunities and are committed to doing something about it. Forty-eight percent of Fortune 500 companies have set public targets to reduce greenhouse gas emissions, improve energy efficiency, source more renewable energy, or some combination of the three. While some of these targets are not science-based (i.e., aggressive enough to reach carbon neutrality by the second half of the century), nearly five hundred companies from around the globe have publicly committed to set science-based targets, and over one hundred have already done so.

Ask companies to be more transparent about their political spending and lobbying, as well as lobbying done on their behalf by trade associations such as the U.S. Chamber of Commerce. The business community wields significant influence over public policy, for better and for worse. Transparency breeds accountability. As investors, we need to know how a company is lobbying, both because the reputational risk it might entail for the companies we invest in, as well as the risks that lobbying may create for the broader economy. According to AFSCME, more than 40 companies engaged by investors have strengthened their corporate lobbying policies, practices (e.g. a decision to end ties with a third party involved in controversial lobbying activities), and transparency.

Ask companies to proactively advocate for comprehensive climate legislation. While at the federal level it is unlikely there will be an opportunity in the near-term to pass comprehensive climate legislation, there is important groundwork that needs to be done to prepare for when the political moment is right. There are also numerous opportunities to influence state- and local-level policies related to climate change. We should ask companies, especially those that are setting their own goals and targets to reduce emissions, to support legislative and regulatory efforts that are consistent and indeed facilitate achieving their goals. For example, recently, in my home state of Massachusetts, the business community successfully mobilized to support strengthening climate legislation, including the sourcing of renewable energy. Groups like the Business for Innovative Climate and Energy Policy (BICEP), organized by Ceres, can help companies identify and participate in such efforts.

What we did not achieve in the past provides us our current goal and focus. The business community can be a supportive partner in fighting climate change, and investors have an important role in catalyzing that action.