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February 29, 2012
As You Sow Publishes Proxy Preview
    by Robert Kropp

The report notes an exponential increase in resolutions addressing the various forms of corporate political spending, while the community impacts of hydraulic fracturing and financial risks associated with coal lead environmental resolutions.

Political spending, hydraulic fracturing, and coal: of the 349 environmental and social shareowner resolutions tracked by As You Sow in its 2012 Proxy Preview, these three issue have risen to the top of investors' concerns.

"Basically, it's all energy and politics," Heidi Welsh, co-author of the report and Executive Director of the Sustainable Investments Institute (Si2), said during a webinar yesterday.

As the US prepares for its first Presidential election since the Supreme Court's Citizens United decision, the increase in the number of shareowner resolutions addressing political spending and lobbying "have proliferated almost exponentially since the January 2010 Citizens United US Supreme Court decision that opened up new ways for companies and unions to spend money in elections," the report notes. This year, the Center for Political Accountability (CPA) and its shareowner allies have filed 47 resolutions requesting that companies disclose their political expenditures as well as payments to trade associations, and provide board oversight of political spending activities.

An important new wrinkle in political spending disclosure developed this year, as the AFSCME Employees Pension Plan and Walden Asset Management led a coalition of 40 institutional investors requesting that 40 companies disclose their lobbying expenditures as well.

A recent report by Si2 and the IRRC Institute found that of the more than $1 billion spent by corporations in 2010 on efforts to influence the political process, $979 million, or 87%, went to lobbying.

Also, Trillium Asset Management filed resolutions at 3M, Bank of America, and Target, requesting that the companies refrain from political spending altogether. And NorthStar Asset Management filed six proposals requesting that shareowners vote on corporate political expenditures.

At the webinar, Tim Smith, Senior Vice President and Director of ESG Shareowner Engagement of Walden, said, "There's a huge open door for companies to put money into the political process, but in fact there are many companies that are not doing that." One reason may be the potential for regulatory action. Last August, a group of securities law professors petitioned the Securities and Exchange Commission (SEC), arguing that the Commission should require disclosure of corporate political spending. The SEC has received upwards of 30,000 comment letters on the issue.

And last week, SEC Commissioner Luis Aguilar said in a speech, "Requiring transparency for corporate political expenditures cannot wait a decade. It is the Commission’s responsibility to rectify this gap and ensure that investors are not left in the dark while their money is used without their knowledge or consent. The Commission should provide for disclosure of corporate political expenditures that results in uniform and consistent disclosure."

Regulatory concerns are a major incentive for proposals addressing hydraulic fracturing as well. Moratoriums on the controversial practice of natural gas extraction now exist in many states, and in a period of just two years shareowner resolutions addressing the practice have received widespread support.

Michael Passoff, co-author of the report and CEO of Proxy Impact, said at the webinar, "Fracking is an issue that raises all the red flags for investors: regulatory, legal, and reputational risks."

"There's been a change in the dialogue," Passoff continued. "For the first year it concentrated on fracking fluid and trying to get full disclosure on that." In response, many companies signed onto FracFocus, a chemical registry website for the fracking industry.

As a result, "There's a lot more information on drill sites and depth," Passoff said. "But there's still no more information on the chemicals involved."

This year's fracking resolutions concentrate on community impacts. "Fracking is heavy industry, and now you have it in people's backyards," Passoff said. Members of the Interfaith Center on Corporate Responsibility (ICCR) have filed ten resolutions on the practice, most of which call for "improved measurement and reporting of the community impacts of hydraulic fracturing," according to Laura Berry, ICCR's Executive Director.

"Investors with holdings in coal-fired electric utilities face significant financial risks related to coal," the report states. These risks include regulatory compliance, which "will impose significant, unpredictable, individual, and cumulative capital and operating costs" on coal plants; the rising price of coal while the price of natural gas declines; and exponential increases in the cost of constructing new plants.

"These two issues, coal and fracking, have really touched something with large institutional investors," Passoff said.

Investors have grown increasingly successful in arguing a business case for environmental and social resolutions. "In 2011, for the first time, average support for proposals rose above 20%," Welsh said. "The average overall support has more than doubled since 2002. Even more importantly, the number of proposals that get more than 20% has grown fivefold."

And while the number of resolutions filed in 2012 leveled off—the report notes that 360 were filed by this time last year—an emphasis on corporate engagement through dialogue has emerged, as evidenced by the approach of ICCR. "ICCR, in fact, is in the middle of an important strategic shift away from the more adversarial practice of filing shareholder resolutions towards the more collaborative engagement model offered by dialogues," Berry observed. "The number of resolutions filed by ICCR members, which totaled 345 as recently as 2010, has decreased to 185 so far in 2012. Meanwhile, members are engaged in over 170 ongoing dialogues with corporations."


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