Prior to the financial reform package just signed by President Obama, the Securities and Exchange Commission (SEC) issued interpretive guidance on what companies should report related to climate change-related business issues. This is the first official SEC citation of climate change as a source of risk and/or opportunity, and the first mandate for companies to disclose climate change impacts to investors. This move by the SEC could have a dramatic impact on how companies manage their environmental impact, and what they tell investors about those efforts. Remember, what gets measured gets managed.
Breakout Issues
Two new issues attracted widespread attention and votes in 2010: hydraulic fracturing (hydro fracking) and coal ash disposal.
Hydro fracking (or "fracking") is a process that is used to extract reserves of natural gas from underground pockets. The process requires the injection of as much as 7.5 million gallons of water and toxic chemicals under extreme pressure per well to crack open rock and allow the gas to flow to the surface. While this process is one of the major developments behind the explosive growth of domestic shale gas production (capture of natural gas trapped in permeable shale formations), it is causing great concern because of the secrecy around the toxic chemicals used. In some areas of the country, ground and drinking water pollution has occurred. Shareowner proposals which called for reports summarizing efforts to mitigate environmental impacts of hydro fracking operations received an average of 32.1% support across five companies, including Williams Cos., where such a resolution received 41.8% of the vote.
Coal ash is a waste product of the coal burning process that contains arsenic, mecury, lead and other toxins. Coal ash is usually stored in landfills, impounding ponds or abandoned mines. A December 2008 breach at a Tennessee Valley Authority coal ash pond released 1.1 billion gallons of coal ash sludge over more than 300 acres in eastern Tennessee. Shareowner proposals asked coal-fired utilities to report on their efforts to mitigate the possible health and environmental hazards. Average support for three coal ash resolutions was a surprising 34.9%.
"We expected votes in the twenties, but the resolutions received shareholder votes in the forties," said Michael Passoff of As You Sow. "You figure that people who own coal companies are not going to be too concerned about that issue; it's part of the industry, and shareholders generally accept those risks. I don't think those companies ever received that kind of feedback."
What You Can Do
While most independent financial advisors have limited capacity to develop advocacy programs of their own, we can stay on top of the trends and become an information source and educator for our clients. While roughly 30% of shares are held by retail investors, fewer than half of those shares are voted.
First Affirmative Financial Network provides proxy voting for all clients who authorize us to vote on their behalf based on a set of criteria that reflects the social and environmental priorities of most of our clients. For investors wishing to vote their own proxies in line with ESG criteria, a number of tools exist for advisors to help. Moxy Vote is a new platform that offers free proxy research and allows registered users to actually vote their proxies and submit their votes online. Proxy Democracy also offers free research and will show you how various mutual funds are voting the shares held in their funds.
Collectively and individually, shareowners are finding ways to engage companies on the issues that are important to them. Advisors who serve social investors have an important duty to either climb the proxy voting learning curve or refer their clients to appropriate outside resources. One of the best ways to begin learning is to begin voting!
Steven J. Schueth is president of independent registered investment advisor First Affirmative Financial Network LLC. First Affirmative specializes in socially responsible, sustainable and transformative investing, and supports a nationwide network of investment professionals who work with socially conscious investors. First Affirmative also produces the annual SRI in the Rockies Conference. The 21st annual SRI in the Rockies Conference will be November 18-21, 2010. Schueth is a former director and spokesperson for the non-profit Social Investment Forum. He can be reached at [email protected].