Sustainable Shareholder Resolutions Gain Record Levels of Support in 2010

While the outcome of the recent climate change treaty negotiations in Copenhagen may have been disappointing, the future is looking bright. If one were to stop and evaluate the results of 2010 proxy voting, it is clear that many corporations are slowly understanding the importance of a triple bottom line approach to sustainability. While not universal, the practice of incorporating environmental and social liabilities into the financial statements of corporations, particularly after the Gulf oil spill, garnered a record level of support in the spring of 2010. In fact, for first-time ever, five of the top ten shareholder resolutions made in the United States were environmental and socially motivated. For example, resolutions addressing coal combustion waste at CMS Energy and MDU Resources received more than 40% of shareholder votes. Similarly, a resolution addressing the environmental impact of hydraulic fracturing filed at Williams by Green Century Capital Management received a close review. While not all resolutions were ultimately accepted, it is important to step back and review the progress that was made. Did the recent round of proxy voting enable society to move one step closer to a sustainable world? Where should future work be focused? And finally, what can we, as citizens, do, to more effectively influence the activities of shareholders, investors, and managers globally?

In the spring of 2010, businesses witnessed an evolution in shareholder activism. Shareholder activists in many public corporations demonstrated their ability to make effective financial arguments about risks from environmental and social liabilities, while having those arguments accepted at many annual general meetings. Citizens in all countries have started to show a higher level of awareness for social and environmental issues, and while this has not translated materially into a global behavioral shift, it appears that may investors have started to recognize the financial risks that environmental and social liabilities carry. In 2010, major proxy advisory services as RiskMetrics, Glass Lewis, and Proxy Governance supported many of this years environmental and social resolutions. It is important to note that they did so, despite a weak historical record of support. A number of major proxy governance advisers supported motions that influenced business operations relating to coal ash as well as hydraulic fracturing. This is a huge shift for the proxy services in the US, as many have automatically advised against voting in favor of social resolutions at previous meetings.

Despite the united front put up by many oil and gas companies against environmental and social motions, many motions received substantial support. For example, a resolution filed at Cabot Oil & Gas received a 35.9% vote, and at EOG Resources one major environmental resolution gained 30.9% support. Even at ExxonMobil, where ownership is widely dispersed and a low vote total would not be unexpected, new environmental and social resolution won 26.3% of shareowner support. While support does not necessarily translate into results, it is important to recognize that initial support is a key factor driving long term momentum and change. The first year of a resolution is often about educating the company, establishing credibility, and finding common ground. In one case, Range Resources has agreed to be much more transparent on risk management by increasing disclosure on fracking fluids and other steps. At ExxonMobil, while the company did come out and publicly support disclosure of fracking fluids (and continues to actively lobbying against disclosure of these facts), the public support of these motions will help build industry and political support for disclosure. Furthermore, such public support gives politicians the ability to question the activities of corporations like ExxonMobil without risking their entire political future.

In surveying the results of the spring 2010 campaign, one surprising result was the strong shareholder vote in favor of resolutions addressing coal ash waste. Coal ash, a waste product of the coal burning process that contains arsenic, mercury, lead, and other toxins, is usually stored in landfills, impoundment ponds, or abandoned mines. A December 2008 dam breach at a Tennessee Valley Authority (TVA) coal ash pond released 1.1 billion gallons of coal ash sludge over more than 300 acres in eastern Tennessee. In many corporations, motions addressing disclosure and operations received nearly 40% approval. Usually, investors, shareholders, and management within these industries accept the environmental risks that stem from their normal operation. The high level of support for environmental motions suggests a potential change in the spirit and approach. In addition to coal ash, one other surprise was a strong showing for resolutions relating to food additives. A first-time vote on Bisphenol A (BPA) at Coca-Cola won 21.9% of shareholder votes. Other resolutions, including those aimed at addressing the environmental impact of oil sands development, received substantial support. Throughout the spring, pension funds were more active than before, investing in the usual economic drivers with a question sustainability record, but taking a more consistent position on social and environmental issues. While success was not achieved in all activities, no one can doubt that it has been an extraordinary year for shareholder activism. Have we finally reached the tipping point that will see the integration of measurements including the Triple Bottom Line, and the incorporating of ESG risk into their concerns for shareholder value? I hope so. As with anything, time will ultimately reveal whether this momentum will be sustained.