RI interview: first head of investor group lobbying corporate boards on climate response talks strategy

The 50/50 Climate Project in the US aims to increase the climate competency of large companies – notably oil, gas and utilities – via carrot and stick approach.

The 50/50 Climate Project, the not-for-profit centre for institutional investors focused on increasing the climate competency of corporate boards at large publicly traded corporations, yesterday (Dec 1) appointed its first executive director, Edward Kamonjoh, formerly head of ESG research at ISS and most recently its head of US Strategic Research and Analysis.
Kamonjoh spoke with RI about his priorities for the Project: “We will be monitoring how companies respond to engagement on climate risks and to climate change shareholder resolutions. We have a focus list – available at info@5050climate.org – of mainly oil, gas and utilities companies such as ExxonMobil, Chevron and Occidental. If companies are not responsive, or dragging their feet with respect to mitigating climate risks, including at the board level, then some may become targets for a proxy access director nomination in 2018 and beyond.”
RI asked whether there would be any nominations in 2017. Kamonjoh was doubtful, noting that many submission deadlines had lapsed and, although there may be a company with a later annual meeting date where the window was still open, investors would still have to assess how companies react to shareholder engagements around combating climate change risks: “Invoking proxy access will likely be a measure of last resort if engagement has failed because the board proves to be unresponsive,” he said. The focus list, he added, would be a starting point and used to help prioritise investor engagement activities: “We’ll be closely tracking the progress of vote outcomes on climate change shareholder proposals as our research on the proposals this past year shows investor support for them was significant, and if this momentum carries over into 2017 we could see a number of majority votes in support of the climate change proposals – in particular those calling for a two-degree scenario stress test – that received an unprecedented 40-plus per cent average support in 2016.”
Kamonjoh noted that the current number of climate change proposal filings for 2017 is already over 200, almost the same as the number of proxy access proposals filed this year. “Climate risk, from a proposal filing volume point of view is now slotted to be the top shareholder proposal topic for the upcoming year,” he noted.RI asked Kamonjoh what the Project’s priorities were for increasing board climate competence.

“Climate risk, from a proposal filing volume point of view is now slotted to be the top shareholder proposal topic for the upcoming year.”

He said: “The issue here is not only that climate competent directors should be present on boards but that investors are also looking to boards to manage climate risk more effectively. Shareholders may not necessarily be keen on the appointment of what could be termed ‘single issue’ directors but, rather, investors are more likely to place greater emphasis on the overall strength of a board’s climate management and ecosystem – the elements of which should evidence a well-integrated board infrastructure for managing climate change risks, as well as opportunities, across the corporate enterprise. Such elements include corporate strategy, the board and board committee oversight structure, mechanisms and processes, existing risk management programmes, and the alignment of management incentives with business objectives and firm strategy. In other words, the embedment of climate risk considerations in board structures and processes and their pervasiveness throughout the business enterprise may be a far more effective approach at overseeing climate risks than simply electing a single board member with climate expertise. If a board feels that it does not necessarily require a new climate aware member and would rather engage outside counsel to inform its thinking and strategy on climate risk mitigation, then that falls squarely within the rubric of its prerogative.”
RI also asked if the Project was working on a database of potential director candidates. Kamonjoh said: “Yes, while a deeper integration of climate considerations in board structures, processes and incentive mechanisms is needed, a pipeline of potential climate-competent directors is still necessary and investors will certainly be working to identify climate competent board candidates.”
The topic of the blocking of the GAMCO director nomination at National Fuel Gas (NFG), the first director to be nominated using proxy access, came up, and Kamonjoh said that it looked like proxy access, as
formulated at NFG, had worked as designed: “The proxy access right as articulated in the firm’s bylaws,” he said, “provided sufficient protective cover from activist investors seeking control and it’s likely that other activists looking to use proxy access in a similar manner will run into the same brick wall. Most activist investors hunting for change are likely to run traditional proxy contests, which, despite being costlier, allow them to exert more control over contest outcomes. More traditionalinvestors are the most likely to invoke a proxy access nomination in the wake of failed engagement efforts.”
RI asked about the looming problem of President-elect Donald Trump’s opposition to the Paris Accord on climate change: “There was a pretty gloomy outlook on the first news of the electoral outcome, but if we look at combating climate change as a three-legged stool, if you saw off the governmental policy and regulation leg you are still left with investors and corporations to balance thestool,” Kamonjoh said. “Much like what we witnessed when the SEC’s proxy access rule was invalidated in the courts in mid-2011, investors, led by the New York City Comptroller’s Office, subsequently stepped in with private ordering and, as a result, we now have 40 per cent of S&P 500 firms with proxy access
provisions in place compared to less than one per cent of firms just two years ago. Little or no governmental leadership on climate change will likely serve to galvanise investors to rally around this issue. Climate risk will not simply vanish because Trump is skeptical. Companies will continue to identify and work to harness opportunities in a low-carbon future. Even ExxonMobil has acknowledged that the Paris Accord is an important mechanism for addressing serious climate risks. While the absence of government action on climate change may temper certain investors’ appetite to proactively engage portfolio firms on related risks and opportunities, for other investors, however, the imperative to aggressively manage climate risks becomes even more pronounced.”