CalPERS puts weight behind resolutions at ‘Systemically Important Carbon Emitters’

Giant investor supporting shareholder resolutions at ‘SICE’ corporations

The California Public Employees’ Retirement System is supporting the shareholder resolutions filed by some of its peers demanding from considerable CO2 polluters, so-called Systemically Important Carbon Emitters (SICEs), to assess their transition to 2-degrees Celsius investing scenarios.

SICEs, a term which echoes the SIFI (Systemically Important Financial Institution) terminology, are, according to CalPERS, companies responsible for over 50% of its total equity portfolio’s carbon emissions.

The proposals are led by a number of investors, ranging from the New York State’s Comptroller, to faith investors such as Mercy Investment Services, as well as Calvert Investment Management or Rockefeller & Co.

In its statements of support filed with the SEC (known as notices of exempt solicitation), CalPERS noted that such resolutions requesting from companies more information to understand how they are coping with climate risks are “consistent with CalPERS Investment Beliefs”.

Notably, CalPERS also mentions the Task Force on Climate-Related Financial Disclosures (TCFD), the high-level panel convened by the Financial Stability Board (FSB).

“The importance of the [proposals’ requests] is also underscored by the efforts of the FSB, an international body mandated by G-20 leaders to develop efficient climate-related financial risk disclosures.”

The targeted companies are seven energy and utilities companies, all of them have recommended shareholders to vote against the resolution.

One is Marathon Petroleum Corporation, from which Norwegian mutual insurer and pension fund manager KLP recently divested due to its involvement in the Dakota Access Pipeline (DAPL) joint venture.

Quoting the Sustainable Accounting Standards Board, Mercy Investment Services stated that climate change regulations provide not only challenges but also opportunities for growth and brand enhancement.

Mercy Investment added that Marathon has not disclosed how the 2-degree challenge is being accounted for in its short and long-term capital investment decisions, predictions of future demand, plans for growth, etc.

“Such information would allow investors to better assess the risks that climate change regulations may pose to the company and shareholder value,” Mercy Investment stated.

The same goes for Ameren Corporation, also excluded by KLP in 2014 due to its high coal exposure.In that year, Mercy Investment and Portico Benefit Services noted, coal continued to account for 76% of its total electricity generation.
Despite Ameren’s plans to reduce 30% its emissions by 2035 based on 2005 levels, “much more stringent reductions” will be required to achieved the 2-degree scenario, the investors said.

Another NYSE-listed utility company, AES Corporation, is the target of a resolution co-filed by Mercy Investment, as well Calvert, Connecticut Retirement Plans and Trust Funds, and the Presbyterian Church, among others.

They are concerned that one of the “most carbon-intensive utilities in the US […] is not properly accounting for the risks of its current investments in fossil fuel-based generation”.

CalPERS has engaged AES as well as Duke Energy, another NYSE-listed utility firm, in the context of the Carbon Asset Risk Initiative launched in September 2013 by advocacy group Ceres.

According to the resolution filed by the New York State Comptroller, Duke Energy is the second largest CO2 emitter in the US. However, Duke Energy hasn’t set “a science-based greenhouse gas reduction goal” nor provides information on its long-term strategy to achieve goal compliant with the Paris Agreement.

The New York Comptroller is also concerned about the lack of strategy regarding Dominion Resources Inc. and DTE Energy, respectively the sixteenth and seventeenth largest emitters in the US – the latter relying on coal for more than 70% of its power generation.

The remaining targeted company by CalPERS and its peers, oil firm Noble Energy, doesn’t fall under the SICE category.

Nonetheless, the resolution led by the Presbyterian Church and backed by Rockefeller & Co., raised concerned over the lack of information related to Noble’s potential stranded assets.

“The prolonged downturn in oil prices has underscored the risks associated with investing in complex, high cost projects like the deepwater projects Noble is counting on for growth.”

In addition, CalPERS and Scott Stringer, Comptroller of the City of New York, have also thrown their weight being shareholders resolutions requesting proxy access to nominate company directors. These companies are Charles Schwab Corp, Waters Corporation, International Business Machines Corporation, Humana Inc. and Paccar Inc.