Investors Ask for Climate Factors

Climate Debate

Pressure from shareholders to make companies factor global warming into their long-range strategies "has the potential to change the entire economic landscape of exploration and production," according to an industry analyst.

"The structure of the industry increases its risk," said Andrew Logan, an analyst with CERES, a coalition of investors and environmental groups that promotes investor awareness of global warming risks.

"Companies are making investments today that will pay out over "0-40 years — they’re making a massive bet that climate change will have no effect on those investments," Logan said.

One form of pressure on companies is a record number of global warming shareholder resolutions in 2004, with an expansion of such proxy measures to smaller independents. State, city, religious and other institutional shareholders have filed 13 resolutions requesting risk disclosure and plans to reduce greenhouse gas emissions with 10 oil and gas companies, five of which are facing questions on the issue for the first time.

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Pressure from shareholders to make companies factor global warming into their long-range strategies "has the potential to change the entire economic landscape of exploration and production," according to an industry analyst.

"The structure of the industry increases its risk," said Andrew Logan, an analyst with CERES, a coalition of investors and environmental groups that promotes investor awareness of global warming risks.

"Companies are making investments today that will pay out over "0-40 years — they’re making a massive bet that climate change will have no effect on those investments," Logan said.

One form of pressure on companies is a record number of global warming shareholder resolutions in 2004, with an expansion of such proxy measures to smaller independents. State, city, religious and other institutional shareholders have filed 13 resolutions requesting risk disclosure and plans to reduce greenhouse gas emissions with 10 oil and gas companies, five of which are facing questions on the issue for the first time.

In addition to targeting household names such as ExxonMobil and ChevronTexaco, resolutions have been filed with smaller, independent exploration and production companies, such as Devon and Apache. These companies, the shareholders say, which only drill for and produce oil and gas and are not diversified with distribution or retail operations, are even more vulnerable to regulatory- or market-based limits on carbon dioxide emissions worldwide.

The shareholder filers, collectively representing over $250 billion in assets, include four state and city pension funds, a foundation, "socially responsible" investment firms and a number of religious pension funds associated with the Interfaith Center on Corporate Responsibility, a coalition of 275 religious institutional investors that helped coordinate the filings.

Most of the resolutions seek reports on how the companies are responding to and preparing for rising regulatory and competitive pressures to reduce greenhouse gas emissions. ExxonMobil and ChevronTexaco also received resolutions requesting reports on the companies’ efforts to invest in renewable energy (similar resolutions received votes of 21 percent and 32 percent, respectively, last year).

Shareholders also filed a resolution with ExxonMobil requesting full disclosure of the science supporting the company’s policies on climate change.

Logan said that in deciding whether to invest in a given field, companies make a conservative estimate of the price of oil. They should include a similar prediction about the price of carbon, he said.

"Carbon will have a cost … billions invested in new fields will not be profitable in a carbon-constrained world," Logan said.

Exploration companies may consider shifting their focus to less carbon-intensive targets, such as pure-play natural gas or light oil, he said.


Some companies have responded to resolutions in recent years. Last year’s resolution at ConocoPhillips spurred the company’s board to create a strong climate change policy, Logan said. ChevronTexaco established a policy that included assuming a price per ton of carbon when assessing new projects, a practice in place at foreign competitors BP and Shell Oil.

A February news briefing on the resolutions included representatives from the New York state and New York City comptrollers’ offices and the state treasurers of California and Maine.

A sampling of their comments:

  • Bill Thompson, New York City comptroller: "These oil and gas companies have not taken the issue of global warming seriously and have not planned alternative strategies. We have a fiduciary responsibility to ensure that long-term investors will not be harmed by these shortsighted business decisions."
  • Dale McCormick, Maine state treasurer: "Once companies and their investors are made aware of a risk or a trend that requires clear business strategy, it is a breach of our fiduciary responsibility to ignore it. The U.S. oil industry’s inattention to this issue borders on corporate scandal."
  • Alan Hevesi, New York state comptroller and sole trustee of New York State Common Retirement Fund: "As sole trustee of the nation’s second largest public pension fund, it is my fiduciary responsibility to consider all long-term investment risks, including those associated with the proliferation of greenhouse gases.

"The fact is, sound environmental policy translates directly into sustainable long-term profits. This is the first climate change related resolution we have filed, and I believe it1s going to become a major issue for institutional investors."

Resolutions for 2004 have been filed at ExxonMobil, ChevronTexaco, Marathon, Anadarko, Apache, Devon, Imperial, Petro Canada, Unocal and Valero.