By Stuart Auchincloss
At the same time that the Governor and State Department of Environmental Conservation (DEC) are wondering what to do about fracking for natural gas, independently elected State Comptroller Thomas DiNapoli is taking action.
DiNapoli is the sole trustee of the New York State Common Retirement Fund. The Fund has investments of around $150 billion, putting it among the biggest pension funds in the country. When DiNapoli speaks, Wall Street listens. Over the past three years DiNapoli has filed several shareholder resolutions with oil and natural gas companies in which the Fund owns stock, demanding disclosure of legal and regulatory risk, the chemicals used in the hydraulic fracturing process and the identification and reduction of potential hazards associated with hydraulic fracturing.
Every year publicly traded companies must conduct an annual meeting of the shareholders. At this annual meeting shareholders may propose resolutions for all the shareholders to vote on. The conventional wisdom on Wall Street says that investors should simply vote in support of company management or sell their stock in the company. However, for progressive investors like DiNapoli, the annual meeting is an opportunity to change their companies for the better. Although shareholder resolutions are seldom binding on the board of directors, when more than 10% of a company’s shareholders agree that changes need to be made, most boards of directors take note.
Pension fund trustees are especially aware of the impact their investments have on society since they are managing people’s retirement funds. When people retire they want enough money to live on comfortably. Yet it takes more than money to live well in retirement; it takes a good place to live. Among other things, that means a healthy environment. So pension trustees have a duty to get a good return on the money while seeing to the other effects of their investments.
In February, EcoWatch published a press release describing the efforts of a group of investors concerned about the risks of fracking. On the theory that what gets reported gets managed, the investors have demanded that nine leading oil and gas companies annually disclose critical information about the ways they are managing and measuring the risks of fracking and shale gas transmission.
On February 5, DiNapoli’s office announced that it had reached an agreement with Cabot Oil and Gas that the company will publicly disclose its policy and procedures for eliminating or minimizing its use of toxics in its fracking fluid. As a result of this agreement, DiNapoli announced that he had withdrawn the shareholder resolution he had filed for the 2013 annual shareholder meeting demanding such disclosure.
Of course this disclosure will not eliminate the problem of fracking by Cabot Oil and Gas. But using the company’s own disclosures can be like the mulch that a skilled gardener uses to kill weeds. This information can inform and support the decisions of towns to prevent fracking through land-use controls. Local governments can weigh the environmental harm of the process and use its police power to protect the health, safety and environment of its citizens.
This is one reason that shareholder resolutions are useful for the anti-fracking campaign even though they are not the simple answer.
Almost 25 years ago the Sierra Club joined a coalition of environmental organizations and socially concerned investors to create the Ceres Coalition (www.ceres.org). Back in 1989 it was radical and shocking to Wall Street that a group of investors would seek to use investor influence and shareholder resolutions to try to change corporate behavior. Even then, the environmentalists could see that shareholder action was not going to be the final answer to corporate pollution, but that it could become part of the solution.
Now the Ceres coalition mobilizes a powerful coalition of investors, public interest groups (including the Club) and companies to build a healthy global economy. In addition, Ceres, from its headquarters in Boston, directs the Investor Network on Climate Risk (INCR,www.incr.com) which is a network of about 100 institutional investors with collective assets totaling more than $10 trillion. Both Comptroller DiNapoli and New York City Comptroller John Liu are active members of both Ceres and INCR.
The Investor Environmental Health Network (IEHN, www.iehn.org) is a collaboration between investment managers who are advised by campaigning organizations that are concerned about corporate toxic chemical policies.
The IEHN website provides a list of shareholder resolutions that have been filed in recent years. It is a convenient place to read the language of the resolutions themselves and to find out their fate at the annual meeting. The direct link to the list of shareholder resolutions in 2013 may be found at http://iehn.org/resolutions.shareholder.php. You can use the selection fields across the top of the list to narrow your search to resolutions directly concerned with hydraulic fracturing.
Stuart Auchincloss, a member of the Mid-Hudson Group, serves on several key Chapter executive committees, including Financial Affairs.