FFI Perspectives

Shareholder Resolutions in The Carbon Underground 200 Companies, 2012-2016: A Complex Picture

Over the past five years, shareholder resolutions targeting The Carbon Underground 200TM (CU200) have increased meaningfully. Given investors’ growing interest in engaging fossil fuel companies as a way to mitigate climate risk, we recently undertook a review of climate- and carbon-risk-related shareholder resolutions in the oil and gas, energy, and mining[1] sectors between 2012 and 2016, including those targeting the public companies included in the CU200.[2] What we found is that even though shareholder resolutions for these companies are on the rise, their influence, based on coverage, intent, and overall shareholder support evident in voting outcomes, appears modest. The results of the review suggest progress and some limited success, but are a reminder that influencing the public policies, business strategies, governance, and transparency of the CU200 companies through shareholder engagement is a slow process, and is thus potentially limiting given the urgency of addressing accelerating climate risk.

Affected CU200 Companies: Coal vs. Oil and Gas

Despite increased activity, the 68 shareholder resolutions filed in 2016 recently voted on by shareholders include only 24 oil and gas companies and four coal companies among the CU200. Collectively, these firms hold an estimated 51.5 gigatons (Gt), or a modest 9% of the 556 Gt in potential CO2 emissions embedded in the CU200’s estimated reserves. Shareholder efforts to assert influence were higher in the oil and gas sector, where resolutions targeted companies holding 13.4% of potential CO2 emissions. In contrast, efforts in the coal sector have lagged well behind, with resolutions targeting CU200 firms that hold just 7.4% of the embedded CO2 emissions. Results reflect the generally higher percentage of CU200 oil and gas companies listed on US stock exchanges than CU200 coal companies. CERES’ reporting is limited to resolutions filed for companies listed on US stock exchanges and those subject to the US Securities and Exchange Commission regulations.

From 2012 to 2016, the share of total CU200 companies targeted by US-based shareholder resolutions has doubled, from 7% to 14%, and the share of the CU200’s total potential reserve-based CO2 emissions has likewise increased, from 4.8% in 2012 to 9% in 2016. In 2012, 14 of the 26 resolutions filed targeted companies among the CU200, including 13 oil and gas companies and one coal company. Collectively these firms held just 4.8% of potential reserve-based CO2 emissions of the full CU200, including a rather robust 13.2% of oil and gas potential reserve emissions, but a scant 1.6% of potential coal based CO2 emissions.

But over the last three years, despite a broadening of CU200 companies targeted, share of potential reserve-based CO2 emissions has barely budged. In 2014, 43 shareholder resolutions targeted 17 oil and gas companies and three coal companies among the CU200. Those companies held 8% of potential CO2 emissions, 13.6% of potential CO2 emissions from oil and gas reserves, and a modest 5.8% of potential emissions from coal reserves.

Investors deliberating between engagement and divestment can focus either on, among many other things, the partial success that the advancing coverage represents, or the small percentage of potential reserve based CO2 emissions targeted after five years of effort.

Resolution Intent and Reach

The CU200 coverage, while perhaps underreported given the limited availability of data on similar practices in non-US equity markets, is modest overall, suggesting that the reach of shareholder engagement is limited, even if improving. An overwhelming 91% of coal and oil- and gas-reserve-based CO2 emissions are not targeted by shareholder resolutions. We believe that comparable shareholder engagement activities in non-US markets are less likely to be robust, generally reflecting less developed market and regulatory infrastructures that are supportive of shareholder rights.

Not surprisingly, nearly a quarter of shareholder resolutions filed are directed at Chevron and Exxon Mobil. These two companies held 12.296 Gts of reserve-based CO2 emissions, based on our 2015 estimates, or 2.21% of the total potential reserve-based emissions of The Carbon Underground 200. While there are some encouraging signs for of shareholder support for the resolutions filed for these companies, there is also evidence that shareholder support ahs stalled at low levels for others. For example, resolutions seeking the addition of a board member with environmental expertise, the annual reporting on the impact of fracking, the setting of greenhouse gas reduction targets, and the return of capital to shareholders due to the strategic and financial implications of climate risk, received nearly identical levels of support, 18.8%, 30.7%, 7.9% and 3.5% (respectively) in 2016 as in 2015. The 2016 Chevron resolution results are also a reminder that policy change comes slowly. In 2015, the shareholder resolution seeking that Chevron revise its public policy advocacy on climate change was withdrawn based on management’s willingness to review the issue. The subject remains under discussion this year. One potential bright spot appears to be the 40.8% shareholder support for management to annually assess the risk of a 2° C scenario, although it would be surprising if Chevron’s management were not already engaged in this activity.

Exxon Mobil’s result are similar. In 2016, support for adding a board member with environmental expertise (20.9%), and for reporting on the impact of fracking (24.5%) were flat when compared to last year. Support for adopting a proxy access bylaw soared to 61.9% from 49.4% last year, likely a backlash response to Exxon’s effort earlier this year to stifle shareholder activism on climate risks. Also similar to Chevron, Exxon’s review of its public policy advocacy on climate change, withdrawn last year based on management’s willingness to review, remains under discussion.

Table 1 Climate- and Carbon-Risk-Related
Shareholder Resolution Activity
in the Oil and Gas, Energy and Mining Sectors

2012 2013 2014 2015 2016
Resolutions 26 24 43 74 68
Companies 18 19 33 45 34
% of CU200
7% 10% 14%
% of Potential
CO2 Emissions
5% 8% 9%

There has been a consistency of focus and persistence in shareholder resolutions that are broadly supportive of climate risk and carbon asset risk transparency and mitigation. For example, 29 resolutions, or 42% of those filed in 2016, were the same as ones filed the previous year, demonstrating the same intent towards the same companies. While the dogged determination of engagement activist investors is encouraging, the need for repeat filing reveals both a lack of management responsiveness and a failure to win the necessary level of shareholder backing to force action.

Despite the consistency, the shareholder resolutions over the last five years have broadened in intent, seized on opportunities for influence, and increasingly incorporated demands for transparency and risk assessment regarding carbon asset risk. Resolutions have advanced well past their early 2012 focus on disclosing and mitigating the risks of fracking and of accidents, which together accounted for more than 60% of the resolutions filed that year. Not surprisingly, BP’s 2010 Deepwater Horizon spill in the Gulf of Mexico galvanized shareholders to focus on the risk of potential accidents, and this was reflected both in shareholder resolutions focused on risk management regarding accidents, and in BP shareholder support for greater disclosure of accident impact.

Persistent issues related either to fracking or to the reduction of methane emissions still represent a quarter of resolutions in recent years, after adjusting for the effort to force changes in proxy access bylaws. But the current and recent focus has been on management teams: urging them to reassess and change their firms’ public policy on climate risk; and to assess and disclose, either through an annual sustainability report or enhanced risk management practices, their exposure to carbon asset risk and the impact of anticipated low carbon scenarios. These broader requests have somewhat replaced, and to a large degree, incorporated, the earlier and more explicit focus on demand for lower greenhouse gas (GHG) emission targets.

Efforts to influence the governance of the oil and gas, energy, and mining sectors have focused largely on adding board expertise on the environment, on reassessing the incentive structures of executive compensation, and on greater disclosure of local and national lobby efforts, none of which has received much support. The lobbying disclosure effort increased significantly in 2016, representing nearly 15% of all resolutions. The extraordinary number of shareholder resolutions seeking changes in the bylaws allowing proxy access (32 in the last two years) and the strong support they received (the average vote was 46% in favor) are encouraging, and highly supportive of future engagement efforts.

Table 2 Resolutions Categorized By Intent

Resolution Intent

Perhaps most troubling about engagement efforts is the limited increase in shareholder voting support over the past five years, from 2012 to 2016, in which the voting records were reviewed. For example, shareholder support for the 25 resolutions requesting that management adopt GHG emission reduction targets scarcely changed over five years, averaging 27%, 28%, 28%, and 20.5% respectively from 2012 to 2015. In 2016 only three such resolutions were filed with voting support plummeting to 11.4% as attention to this area was subsumed by more encompassing efforts. However, it should be noted that the resolutions were withdrawn before voting in three cases, a usual outcome when the company’s management agrees either to address the issue or, at least, engage in a dialogue on it.

Support for resolutions on methane emission reductions and disclosure on the risks of fracking was also relatively flat, despite the simplicity of these compelling requests. Voting support for methane-related resolutions was relatively flat, comprising 31%, 30.5%, and 29.2% and 29.3% respectively from 2013 to 2016 (none were voted on in 2014). A half dozen of the 35 resolutions withdrawn having been based on some appeasing or anticipated management response, the targeting effort to focus on methane could be called a success. Fracking numbers suggest a similar pattern, even though the resolutions focused largely on a desire for managements to disclose the risks and environmental consequences of fracking, and not a discontinuation. Supportive voting averaged 30.9%, 34%, 34%, and 28.2%, and 20.2% respectively from 2012 to 2016 (none were voted on in 2014). And, with 10 resolutions over that five-year span, the oil and gas sector demonstrated management’s willingness to enhance the focus and disclosure on the consequences of these enhanced extractions techniques.

Proponents of resolutions on the greater risk assessment and related disclosure on carbon asset risk, issues that seem fundamental in the context of potential scenarios facing companies with significant reserve-based assets, are likely to be disappointed by the average resolution support levels of 19.7%, 19.2%, 20.6%, and 30.6% that these resolutions garnered respectively in 2013 through 2016. Moreover, none of these 10 resolutions were withdrawn, potentially indicating some reluctance on the part of management’s to expand disclosure in this area.

Finally, efforts by shareholders to encourage managements to publish an annual sustainability report have also received, surprisingly, somewhat limited support. These resolutions saw an average of 32.5% and 28.3% support respectively in 2014 and 2015 as interest among engagement leaders in this area expanded. Somewhat more encouragingly, five resolutions seeking that management conduct an annual risk assessment of the impact of a 2° C scenario received an average of 35% shareholder vote. Even more compelling, shareholder support for four resolutions seeking to have management discuss the firm’s strategic resiliency to 2035 and beyond received overwhelming support, averaging 98%. Like many resolutions, however, these shareholder requests seek limited to no specific action and instead create strategy and risk management review processes which, in turn, are expected to create increased accountability and disclosure.

Governance- and financial0policy-related resolutions continue to receive little support. Efforts to add environmental expertise to boards of directions plod along at about 20% support each year, while various efforts to realign executive pay to metrics of eco-responsibility, or the return of capital to shareholders in lieu of further exploration and reserve building receive a mere 5% of shareholder voting support.

Overall, shareholder-voting records seem somewhat at odds with both public awareness of the global threat of climate change, and of the acknowledgement of the role of human and corporate behavior in its cause. We would have hoped, and frankly expected, to see shareholder support increasing, rather than the flat levels seen over several years.

Table 3 Average Shareholder Voting Support
For Selected Shareholder Resolutions

Shareholder Voting Support


Management’s willingness to engage with shareholder resolutions has increased as the threat and implications of climate change have grown both in strategic importance and in the public consciousness. However, the results achieved from shareholder engagement are difficult to measure, especially in this limited review. The results demonstrate that as a tactic, shareholder resolutions have a limited reach within the context of the CU200, and thus within the context of the potential reserve-based CO2 emissions. Tactical engagement is persistent, and its focus appears to shift and broaden constructively as the risks and potential implications of the issues at hand are identified. However, overall voting support has been flat over the last several years. More study is required to review the track record of management teams on shareholder resolutions that have been withdrawn based on management’s commitments to review or address a proposal.

Future Work

As mentioned above, despite the complexity of this picture, shareholder activity is increasing. Therefore, we believe that this area continues to be worthy of research. We hope to build on the work presented here by expanding the scope to shareholder engagement activities outside the US, and by attempting to differentiate among management teams based on their willingness to engage with shareholder resolutions and their responsiveness to them.

[1] To execute our analysis, we have used the Ceres shareholder resolution database.“Oil,” “gas,” “energy,” and “mining” are the Ceres categories we researched. The analysis covers 2012 through to June 30, 2016.

[2] This analysis uses the 2015 edition of The Carbon Underground 200 annual report and list. To access our 2015 report, visit our Research area. Note that since the completion of this work, we have updated The Carbon Underground 200. If you are interested in an analysis of shareholder resolutions based on our 2016 data, contact us at info@fossilfreeindexes.com.

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