The Coming Green Shareholder Revolt
Corporate Social Responsibility in the age of climate change
In April 2017, a gas line that had been accidentally cut seeped into a nearby house in Firestone, Colorado. It wasn’t a line that fed the home, it was just one that was nearby because the well that was its source was less than 200 feet from the house. The ground became saturated with the “prerefined gas” (that means it was odorless), then it began to penetrate the basement of the home. Naturally, no one in the house knew anything was happening until something sparked, and the house exploded. The homeowner and his brother-in-law were killed, and the homeowner’s wife was critically injured. The well that had produced the gas was owned by a company called Anadarko Petroleum.
This year’s Colorado ballot contains a measure called Proposition 112. This will establish a 2,500 foot buffer zone between any fracking operations and homes, schools, waterways, and other vulnerable areas. The estimated impact of Prop 112 could be powerful, economically: it’s estimated that if passed, the measure would cut off approximately 95% of the state’s non-federal land from further exploration, leaving many families that depend on those jobs in the lurch. (Proponents of the measure disagree over how many workers would be affected.) But those same families often live close to existing wells, and are already suffering the health consequences.
One of the chief opponents of Prop 112 is Anadarko Petroleum, owner of the cut pipeline that blew up that home in Firestone. In 2014, the company paid the largest environmental settlement in U.S. history, over $5 billion, after a subsidiary was sued for generations of toxic-waste dumping across dozens of states. So far, Anadarko and other opponents of Prop 112 have spent more than $30 million; supporters have been able to raise only $800,000. Yet the latest polling shows Prop 112 to be slightly ahead, 43% for versus 41% against.
This is an expected story. We’ve heard variations of it a thousand times: vast ugly corporations poisoning the land and making residents sick (or in this case, blown-up); when the residents start to fight back, big money gets spent and everyone is told their jobs will be threatened. There are lawsuits, ballot measures, etc. On and on round the wheel it goes, but more often than not it seems like the big money gets what it wants.
But there is a slowly-growing unexpected story. And it involves a lot of big corporations that are starting to realize they owe a duty to their shareholders, and that their shareholders are increasingly growing concerned about environmental impacts on their bottom line.
It’s not the sexiest way to save the world, but it might have a huge impact.
The idea, in short, is that big corporations have a duty to their shareholders to take climate change into consideration when they prepare their annual reports. And since the worst global polluters are just 100 big corporations (around two-thirds of emissions worldwide), that really matters. Because when those big polluters (most of course are the major petrochemical and energy-production companies) begin to acknowledge to their shareholders that the changing climate is likely to affect their bottom line, that’s when shareholders get persnickety. That’s when they start to demand changes from corporate boards that lead to other changes. Big, big changes.
The Climate Disclosure Standards Board was set up about a decade ago to help corporations create broadly-accepted accounting standards for reporting to their shareholders. At the moment those standards are voluntary, but what lies at the heart of the effort is an awareness that at some point, such standards are likely to become mandatory, and that it’s better to have a system in place before that happens. There’s also the Fiduciary Duty Program, established by former Vice President Al Gore and his investment fund, which seeks to redefine companies’ approach to shareholder reporting. This approach, together with other considerations like respect for privacy rights and philanthropic efforts, is called Corporate Social Responsibility (CSR), or corporate citizenship.
CSR stands in stark contrast to the actions of companies like Anadarko, as it continues to pour money into the effort to destroy Prop 112. In Washington State, a measure to tax carbon emissions has also generated fierce opposition from the usual suspects, including BP America and Phillips 76. And just last week, the U.S. Supreme Court ordered a stay in the remarkable case of Juliana v. U.S., the so-called kids’ lawsuit in which young people are suing the U.S. government to try to force it to adopt climate-friendly policies across the board.
So there appears to be something of a race going on. One side has money: Anadarko, BP America, and the other big oil polluters. The other side has numbers and passion, and includes the nations that have signed onto the Paris Accord; the European Commission, which in May announced its new Action Plan on Sustainable Finance that will set low-carbon benchmarks and clarify how companies can sustainably comply with those benchmarks; and companies like Apple, Inc., which is making continual strides in environmental responsibility (even if there is still much to do). And just a few weeks ago, the 2018 Nobel Prize for Economics was split with an American researcher whose work focuses on the intersection of economic growth and climate change.
A smart energy company would begin to get ahead of these efforts. Would pour its money into research into sustainable energy rather than fighting ballot initiatives where they might win today, but are increasingly likely to lose tomorrow. Because whether it’s kids filing lawsuits, or citizens launching ballot measures, or coalitions of governments setting new standards, or shareholders demanding that a company behave or else, there is a new reality approaching. And companies like Anadarko run the very real risk of being left in the polluted dust they helped make.
Here’s the big secret: you’re probably one of the investors who can make a difference. It may not seem like it, but if you have any money in a 401(k) or any other type of investment fund, you definitely have a voice. Send a message to your contact at Vanguard, or Fidelity, or wherever. Let them know you’d like the companies in your fund to start observing better CSR models, including good environmental stewardship. There are also existing funds you can buy into right now that already model such corporate behaviors (here’s just one, from Vanguard) (no, I’m not invested in that one and have no stake in it). There’s no louder voice in business than money, and if enough people vote with their money for environmentally-responsible companies, then the fund managers — who most definitely have the ear of the boards of companies like Anadarko — will start spreading the word.
That’s when the green shareholder revolt will begin. Smart companies will start getting on the good side of it now.