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June 28, 2011
Shareowner Support for Environmental Resolutions Continues to Grow
    by Robert Kropp

Tracking by Ceres of this year's environmental resolutions reveals that the average support for hydraulic fracturing proposals increased to 40% in 2011, up from 30% in 2010.

After many of the environmental resolutions submitted by shareowners during last year's proxy season received record-breaking support, Michael Passoff of As You Sow told, "The concerns of investors reflect those of the people of the country as a whole who are starting to recognize the financial risks of environmental and social liabilities."

The 2011 proxy season appears to have solidified the gains in support of 2010, as the 2011 Resolution Tracker published by Ceres indicates. Resolutions received majority and near-majority votes at Layne Christensen, Energen, Ameren, and Tesoro.

"The momentum from last year has been maintained," Rob Berridge, Senior Manager of Investor Programs at Ceres, told "This season provides more evidence that ESG (environmental, social, and corporate governance) considerations are going mainstream, and investors are considering them more and more as a mainstream issue."

Another indicator of the growing concern of mainstream investors is found in the support for environmental resolutions by ISS, the leading proxy advisory service. In 2011, ISS supported 70% of environmental resolutions. Yet as recently as last year, Passoff described the support of proxy advisory services as "a huge shift. They used to automatically advise against voting in favor of social resolutions."

Referring to "the BP blowout in the Gulf, the Massey coal mine explosion, and recent examples of extreme weather," Berridge described a number of the resolutions as "disaster-led." One such resolution addressed coal ash at Ameren. Even after a dam breach at a Tennessee Valley Authority (TVA) coal ash pond released 1.1 billion gallons of coal ash sludge over more than 300 acres in eastern Tennessee, Ameren proposed to build a new coal ash pond in a Missouri floodplain.

The resolution, filed by the Midwest Coalition for Responsible Investment, stated, "Ameren fails to sufficiently disclose efforts to reduce risks related to coal ash," and requested that the company report on its efforts to "identify and reduce environmental and health hazards associated with past and present handling of coal combustion waste."

Resolutions addressing hydraulic fracturing, or fracking, also received significant shareowner support, receiving an average vote of 40%, up from 30% in 2010. The resolutions were coordinated by Green Century Capital Management and the Investor Environmental Health Network (IEHN).

Referring to a fracking resolution that gained 42% of shareowners' votes at Ultra Petroleum, Larisa Ruoff, Green Century's Director of Shareholder Advocacy, said, "This extraordinary result is even more remarkable because it represents twice as much support as the same proposal received last year."

"The focus of the fracking resolutions submitted this year was, Can you get it out of the ground without damaging water supplies?" Berridge said. However, he continued, citing a recent study from Cornell University, future resolutions may address greenhouse gases (GHG) emitted by the natural gas drilling practice.

According to the Cornell study, "Compared to coal, the footprint of shale gas is at least 20% greater and perhaps more than twice as great on the 20-year horizon and is comparable when compared over 100 years," because methane emissions "are at least 30% more than and perhaps more than twice as great as those from conventional gas."

"Investors we work with are generally supportive of the idea of fracking, but it has to be done in a way that the harm does not outweigh the benefits," Berridge said.

"Investors are trying to help their companies," he continued, "And the goal is not to get a high vote but to get the companies to do what the investors are asking them to do, to mitigate risk and disclose information."

Additional noteworthy accomplishments cited by Berridge include Avon agreeing to develop a policy for sourcing 100% certified sustainable palm oil by 2015, and Southern Company agreeing to report on its plans to mitigate water risks.

Twenty-three resolutions addressed improved disclosure by requesting that companies issue annual sustainability reports, ten of which were withdrawn after successful engagement. Most of the resolutions included requests that companies report on their emissions reduction strategies.

"Sustainability reports are not just about disclosure," Berridge said. "When a company does a sustainability report using the Global Reporting Initiative (GRI) guidelines, it frequently has a transformative affect on the company," citing savings through energy efficiency and emissions reduction as examples.

"Another benefit of sustainability reporting is employee retention, because employees are often the most enthusiastic readers of them," Berridge added.

Following the 2010 proxy season, Passoff of As You Sow told, "We'll have to see if this year is the tipping point for mainstream investors now incorporating ESG risk into their concerns for shareholder value." As Berridge observed, 2011 appears to support the idea that last year did indeed represent a tipping point for environmental resolutions.


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