March 11, 2013
First-Time Shareowner Resolutions Address Stranded Fossil Fuel Assets
by Robert Kropp
As You Sow and the Unitarian Universalist Association have filed shareowner resolutions with two
large coal companies, requesting that they report on material impact of reserves that must remain
in the ground if climate change is to be addressed.
The term stranded assets refers to the fossil fuel reserves that will have to stay in the ground if
global temperature increases are to be limited to two degree Celsius. If the human race is not in
fact hell-bent on self-destruction and acts to address climate change in a meaningful way on the
short time it has left to do so, then—as the investment firm Generation Investment Management described in a 2012
paper—such "negative externalities" will have to be internalized "through appropriate pricing."
According to last year's World Energy Outlook by the International Energy Agency (IEA), two-thirds of the known fossil
fuel reserves will have to stay in the ground if climate change is to be addressed in a meaningful
way. Therefore, companies in the fossil fuel industries can no longer project future earnings based
on booked reserves, which if externalities are priced will never be used.
rationale forms the basis of the growing divestment movement on college campuses, where students,
spurred in part by an article published in Rolling Stone last summer, and looking to the
anti-apartheid divestment campaign as an example, are pressuring their colleges and universities to
divest their holdings in fossil fuel companies.
The Rolling Stone article, entitled Global Warming's Terrifying New Math, was authored by Bill McKibben of 350.org. "We know how much we can burn, and we know who's planning to
burn more," McKibben wrote. "Climate change operates on a geological scale and time frame, but it's
not an impersonal force of nature; the more carefully you do the math, the more thoroughly you
realize that this is, at bottom, a moral issue."
The math of which McKibben wrote can also
be applied to fiduciary duty, whether it be divestment or engagement through which fossil fuel
companies accurately account for the pricing of externalities. To that end, two sustainable
investment organizations have filed two shareowner resolutions this year, calling on large coal
companies to report on "stranded assets that pose significant long-term risks to shareholder value
for the company's investors."
Sow has filed a resolution with CONSOL Energy, requesting that the company report on its "goals
and plans to address global concerns regarding fossil fuels and their contribution to climate
change," according to the organization's recently published Proxy Preview 2013. CONSOL's 4.5 billion tons of coal reserves
are the largest in the US, As You Sow states.
The Unitarian Universalist Association (UUA) has filed a similar resolution with Alpha Natural
Resources, the nation's third largest producer of coal with 2.3 billion tons of proven coal
"It is of concern to investors that a portion of Alpha's coal reserves and/or
related infrastructure may become unusable, unmarketable, or otherwise not economically viable as a
result of greenhouse gas restrictions," the resolution states. "Given the increasing likelihood of
material impact, shareholders need additional disclosure of the company's action plans, and risk
scenarios, associated with likely greenhouse gas regulation."
According to As You Sow,
Alpha has contested the resolution at the Securities and Exchange Commission (SEC), arguing that it
has already implemented the resolution.
Significant in their own right, the two first-time
resolutions also embody the spirit of sustainable capitalism espoused by Generation Investment
Management. "The barriers to mainstreaming Sustainable Capitalism are formidable but not
insurmountable," the firm stated in its report.
"Asset owners and fund managers with US$30
trillion in assets under management, which is approximately 20% of the world's capital are
signatories to the UN Principles for Responsible
Investment (UN PRI). If the majority of those assets were actually shifted into truly
sustainable investment models, the effect would be dramatic and would signal that Sustainable
Capitalism is entering the mainstream."