Investors to Rebuke Duke Energy on Approach to Climate Change
On May 2, shareholders are poised to deliver a stunning rebuke to Duke Energy, the largest electricity company in the country, over its irresponsible approach to climate change. They are voting on resolutions demanding transparency and accountability for the company’s extensive lobbying and political spending to undermine responsible climate policy, and for the company to report and deal responsibly with the substantial public health risks of its coal operations. As my organization, Majority Action, brought to light, Duke is so off track on climate change that the company nominated an outright climate denier, Daniel DiMicco, to its board of directors, to a position where he is supposed to be providing oversight of the company’s lobbying and sustainability activities.
Electrification and decarbonization represent tremendous growth potential for the electric power industry, and investors with $1.8 trillion have demanded that Duke and other top utilities commit this year to completely clean power by 2050 at the latest. But Duke Energy has a history of using political donations and lobbying to thwart environmental policies that would help the company’s long-term viability and profitability, while failing to disclose those donations and lobbying efforts to shareholders.
Long-term investors will be well served by requiring such disclosures and holding Duke’s board of directors accountable. That’s why Majority Action, along with Pensions & Investment Research Consultants Ltd (PIRC), Europe’s largest independent corporate governance and shareholder advisory consultancy, is advising shareholders to support these critical shareholder resolutions and hold the board accountable on these issues by voting against DiMicco and others.
If shareholders succeed in winning majority votes on these resolutions, it would mean a turning point in our national debate on climate and corporate responsibility.
While disclosure may seem like a small step, disclosure equals accountability. With their lobbying activities disclosed, shareholders and activists would have the opportunity to hold Duke’s CEO and board of directors accountable for their lobbying activities that are counter to the future of the industry. It’s clear to many that Duke’s political and influence strategy does not serve the long-term interests of the company’s shareholders, along with other stakeholders. Now shareholders are rising up to make Duke and other utilities face the future.
If these resolutions fail, it will be because Duke’s largest investors — giant fund managers like BlackRock and Vanguard — decided to prioritize business-as-usual over both the climate and the interests of long-term investors. Together, these two fund managers own nearly 15% of Duke’s outstanding shares of common stock. Duke faced a lobbying disclosure proposal in 2018 as well, which received nearly 35% support, with both BlackRock and Vanguard voting against it.
Though BlackRock has called upon investors to wake up to the dangers of climate change to businesses, both BlackRock and Vanguard have abysmal track records of using their voting power responsibly. And neither BlackRock nor Vanguard can credibly claim that their “engagement” is yielding meaningful results on climate — if that was the case, major portfolio companies like Duke would not undermine responsible climate action.
Every year my organization publishes a scorecard on how fund managers vote on key climate shareholder resolutions, as well as director elections and CEO pay, in fossil fuel intensive industries. With such large stakes across so many publicly traded companies, BlackRock and Vanguard’s swing vote far too often dooms proposals calling for climate responsibility.
THE DINOSAURS DRIVING A CLIMATE CRISIS
Electric utilities are largely ignored in our politics and culture — an industry in the background that gets us what we need to live our lives and build our businesses. But electric utilities have a major role in our future, whether we can see it yet or not. As my organization’s report from February (“Net Zero by 2050”) shows, these companies are the lynchpin to building the fully decarbonized economy that we must achieve by 2050 in order to have at least a 50% chance of keeping global warming to 1.5˚C, as the UN warned in October 2018.
The electric power sector today is one of the largest sources of U.S. CO2 emissions, virtually tied with transportation. If we are to succeed at eliminating emissions economy-wide, it will come from both eliminating the power sector’s own emissions and converting as much of our economy as possible to run on 100% carbon-free power. Of course, this presents a once-in-a-generation growth opportunity for the electric power industry. If electric utilities became forceful advocates for decarbonization, they would be poised to grow tremendously from electrification — all of those electric cars have to run on clean power in order to fully benefit the climate — and steal energy market share from the oil and gas industry.
Unfortunately, far too many electric utilities are our economy’s dinosaurs, lost in time. Recalcitrant utilities choose to remain blind to the immense risks that climate change presents to the business, not to mention our environmental and economic well-being in general, while ignoring the massive economic potential that such a crisis presents if they are able to adapt in time.
As the Climate Majority Project report details:
Just twenty publicly traded utility companies are estimated to generate nearly 50% of the U.S. electric power sector’s CO2 emissions. Decarbonizing these companies would effectively wipe out nearly half of the power sector’s carbon emissions and put the country on track to building a sustainable power grid and a sustainable economy.
Yet of the twenty utility companies, only one (Xcel Energy) has committed to a net-zero by 2050 target. Duke, the largest of these companies, has set no long-term emissions reduction target at all.
Responsibility for this lies squarely with the boards of directors of these companies, which are elected by shareholders to serve their long-term interests. Utility boards urgently must become climate competent, ensuring that their business models, investment plans, executive incentives, and policy influence are aligned directly to the goal of full decarbonization.
DUKE’S CLIMATE DENYING LEADERSHIP IS SHOCKING, EVEN IN A CLASS OF BAD ACTORS
While a noteworthy few (Xcel, PNM, Avista) are claiming the mantle of climate leadership, too many of these utilities like Duke Energy are digging in — holding so firmly to the past that they are now a risk to their shareholders. As the largest US-based, investor-owned utility by generation, Duke emits more carbon than any other investor-owned utility, according to the Energy and Policy Institute. If any company has a lot to lose from business-as-usual, it’s Duke, as climate change attacks electric utility infrastructure and forces consumers to increasingly demand and find renewable energy sources on their own and obtain clean power directly.
Instead of preparing for the future of the business in service of its shareholders and employees, Duke’s corporate leadership is spending millions of dollars on lobbying to attack the perceived emerging threats to its existing model. They are one of the 35 most influential lobbyists against the Paris Climate Agreement; a member of the American Legislative Exchange Council that even ExxonMobil abandoned; the top-paying member of Utility Air Regulatory Group, a shadowy group used by utilities to undermine EPA public health protections rooted in the Clean Air Act; and Duke CEO Lynn Good is the Chairman of the Edison Electric Institute (“EEI”), a trade association for investor-owned utility companies that lobbied against solar incentives and the Clean Power Plan.
Meanwhile, Duke does not disclose any of its memberships in and payments to trade associations and tax-exempt organizations that write and endorse legislation, and the Corporate Governance Committee meant to oversee these activities includes former Nucor executive Daniel DiMicco, who has publicly ridiculed efforts to reduce carbon emissions, claiming in 2015 that they were not a serious problem but rather a “Gov’t $$$$ grab.” While DiMicco was Nucor’s CEO, the company funded the Heartland Institute, which describes its climate program as countering “UN climate nonsense” and “global warming alarmism and propaganda.” The committee is chaired by Lead Independent Director Michael Browning who should have retired but instead passed a waiver to allow himself to remain against Duke’s own company rules.
This Corporate Governance Committee is meant to provide oversight over Duke’s sustainability efforts and political activity in the interests of long-term investors. Instead any committee that includes such a blatant climate denier like DiMicco is really only providing cover for the company’s shadowy activities.
Majority Action, along with our partners, are calling on shareholders to hold Duke’s leadership accountable and vote for lobbying, political spending, and coal risk reporting resolutions, and against board members like DiMicco on May 2. It is clear Duke’s leadership will not change its behavior without feeling meaningful consequences. We’ll be watching the votes in Duke’s annual general meeting to see how shareholders and asset managers will force the board’s hand, and to ensure that BlackRock is finally walking the talk on climate risks.
