Shareholder Resolutions: Another Tool for Fighting Climate Change
Those of us concerned about climate change in the United States have a right to be frustrated. The Trump Administration seems determined to undermine every hard-won diplomatic, legislative and policy success in the climate arena. Take, for example, withdrawing from the Paris Climate Accords, weakening targets for power plant emissions, and installing an implacable opponent of the agency to chair the EPA. The list goes on. While the federal government is in the grip of these science-deniers and climate change reactionaries, other governmental units and private citizens must find a way to make a difference. One tool available to many private citizens is to exercise their rights as shareholders of large corporations.
Over half the American population owns shares in public corporations, either directly or in their retirement savings plans. Public corporations are supposed to function as democracies of a sort in which each shareholder has influence in corporate governance according to the number of shares she owns. Each shareholder can vote on who will sit on the board of directors and, in some cases, on non-binding resolutions affecting corporate policy and direction. These shareholder resolutions usually can be adopted by the vote of a majority of all voting shares.
There is a long history of shareholder resistance on environmental and social grounds. Shareholders pushed Dow Chemical to cease producing napalm during the Viet Nam war. Shareholders forced corporations to cease doing business with South Africa, or to divest, during the apartheid years. And shareholders have recently forced McDonalds to stop using polystyrene foam packaging.
The number of shareholder resolutions of all sorts introduced each year has been growing until just recently. But the number of climate-related resolutions at energy companies has dropped over the last three years. Some see this as a good sign that corporations are willing to take the issues more seriously without the need for shareholder resolutions. All of the resolutions for the last decade are collected at the website of the organization As You Sow.
Shareholder resolutions often call for reports to shareholders on the corporation’s plans to cut emissions or its adherence to the guidelines in the Paris Climate Accord. Here is a recent shareholder resolution at Amazon.
BE IT RESOLVED: Shareholders request that Amazon.com Inc. adopt a policy with quantitative companywide goals for managing greenhouse gas GHG emissions considering the objectives and timelines of the Paris Climate Agreement and report at reasonable cost and omitting proprietary information on its plans to achieve these targets.
Frequently, a shareholder resolution fails to achieve a majority of the shares voting, at least in the first year it is introduced. But resolutions can be resubmitted and many in the climate arena pick up support from year to year. An environmental proposal must obtain 3% of the total vote its first year to be resubmitted, 6% the second year and 10% the third year. If it fails to meet these minimum vote totals, it may not be resubmitted for three years.
Even a failed resolution, or one unlikely to succeed, can have positive effect. Shareholders should think of resolutions as a portal to open dialogue with corporate management. In many cases, management will confer with the shareholder group advancing a proposal and come to some agreement that satisfies the group. This is then followed by a withdrawal of the resolution before it is voted on by all the shareholders. So far in 2019, climate-related shareholder resolutions at General Electric, Amazon, Emerson, Kroger and J.P. Morgan, among others, have followed this “agreement then withdrawal” pattern.
The Securities and Exchange Commission has developed rules for submitting shareholder resolutions and adjudicates any objection by the corporation to a particular resolution. Any shareholder who owns $2,000 worth of company stock and has held it for one year prior to the annual filing deadline may file a proposal. Unless the corporation agrees to the resolution, it is inserted in the proxy statement issued to shareholders in advance of the corporate annual meeting. Proponents of the resolution are allowed only 500 words in the proxy statement to present their case.
Several shareholder activist organizations have produced FAQ sheets and downloadable guides to filing shareholder resolutions. The process is relatively easy, but recent climate-related shareholder resolutions at large U.S. energy companies have hit a speed bump. Resolutions calling for the disclosure of specific targets for emission reduction and adherence to the Paris Climate Accords have been blocked by the SEC at Chevron, Devon Energy, ExxonMobil, and Hess Oil.
In the Obama era, similar shareholder resolutions were allowed to proceed despite opposition from the corporations. Now the Trump SEC has decided these resolutions are an attempt to micromanage the corporation, even though they are non-binding. Since Trump took office the SEC has consistently ruled in favor of corporations that oppose these resolutions. One U.S. Senator has written to the SEC Chairman complaining that the use of the “micromanagement” concept is an unwarranted effort to reduce shareholder efforts to protect their investment from the effects of climate change.
The approach of the Trump SEC should come as no surprise, given the overwhelming power and influence that energy companies have purchased with their huge Republican campaign contributions. One commentator has suggested that when it comes to big energy companies investors may now be left only with the ax – divestment. Writing in High Country News, Carl Segerstrom reports that the divestment movement claims to have pulled more than $8.5 trillion out of fossil fuel companies. Massive divestment will certainly get the attention of corporate executives.
I continue to believe, however, that the swiftest and most certain method of returning corporations to the path of moral capitalism is to rid ourselves of the political leaders whose policies have allowed these corporations to subordinate our environmental future to short term profit in the first place. A political change at the top will signal that it is time to get serious about climate change in corporate boardrooms.