Quantcast
Business

Is Your Mutual Fund a Climate Change Denier or Climate Champion?

By Rob Berridge and Jackie Cook

New proxy voting data showcasing how mutual fund companies voted on climate change resolutions in 2015 reveals a major divide in their thinking on this mega issue that will have wide-ranging ripples on investment portfolios.

Among 42 mutual fund companies whose voting we analyzed, nine companies, including the world's largest mutual fund company Vanguard, failed to support a single climate-related shareholder resolution in 2015. The other eight are American Funds, American Century, Blackrock, Fidelity, ING (Voya), Lord Abbett, Pioneer and Putnam.

In stark contrast, seven fund companies supported 70 percent or more of the 73 climate-related resolutions that were included in our analysis, including AllianceBernstein, Allianz, Deutsche (formerly DWS), GMO, Oppenheimer, Schroder and WellsFargo.

The resolutions filed by investors request that companies take such actions as: set greenhouse gas (GHG) reduction goals; disclose the risk of assets such as fossil fuel reserves and coal plants being unusable—“stranded" in Wall Street parlance—due to weakening global demand for fossil fuel products; disclose political lobbying expenditures related to climate change; and issue sustainability reports describing material business risks from climate change.

These common sense requests are believed by investors to be financially material to many of the companies receiving the resolutions and to mutual fund companies who have a fiduciary duty to vote in the best interests of their clients.

For example, an electric utility that is upgrading a coal-fired power plant that lasts 40 years (rather than, say, investing in solar projects or energy efficiency programs) is taking on significant risk considering that 196 countries worldwide recently approved an historic climate agreement in Paris aimed at dramatically reducing greenhouse gas emissions. The U.S. has specifically pledged to reduce its carbon emissions by 26 - 28 percent by 2025, with a key centerpiece being the U.S. Environmental Protection Agency's Clean Power Plan aimed at reducing power plant carbon emissions. Under these scenarios, a recently upgraded coal plant will probably have to be retired well before the end of its planned life, which risks financial losses for the utility and its shareholders. Shareholders need to know how power companies are planning to avoid such losses and to adapt their business models to the transition to a low carbon economy.

Further underscoring their responsibilities on these proxy votes, some of the mutual fund companies, such as Vanguard, are members of the UN's Principles for Responsible Investment (PRI), meaning that they have publicly committed to six principles, including: Principle 2 “active ownership," which entails actions such as supporting resolutions on environmental, social and governance (ESG) issues; and Principle 3 to “seek appropriate disclosure on issues by the entities in which we invest."

Simply put, climate change is among the most critical ESG issues intended to be addressed by PRI signatories, and failing to support any climate resolutions brings into question whether some PRI members are adhering to the principles.

Some mutual fund companies are themselves publicly traded, and investors have begun to file shareholder resolutions asking mutual fund companies to disclose why they fail to support financially material climate resolutions. For example, Zevin Asset Management filed shareholder resolutions with Franklin Resources and T. Rowe Price Group during the 2016 proxy season because it appears that both firms' proxy voting records are inconsistent with proactive approaches to climate change. Walden Asset Management co-filed the T. Rowe Price resolution, which will be voted on at the company's annual meeting in May.

Sonial Kowal, president of Zevin Asset Management, explained to us:

“Proxy voting is one of the principal ways in which investors can engage in active management of portfolio risks and opportunities related to climate change, so inconsistency on climate poses a reputational risk to Franklin and T. Rowe, especially given the proactive record of many of their competitors. Given the severe threats of climate change to human societies and economies, clients may start to wonder if their investments are in good hands. We also hope that other investment companies will now become more thorough and transparent in making decisions when voting on climate related resolutions."

Adding to such reputational risks are campaigns such as a petition, launched by U.S. PIRG, asking Vanguard to vote in favor of resolutions regarding political spending disclosure. More than 65,000 people have signed the petition so far. Walden Asset Management recently sent a letter to Vanguard zeroing in on climate-related voting (some of these resolutions ask companies to disclose lobbying expenditures) and received a response that includes this defense of Vanguard's approach:

“… while we believe that some of the issues animating these proposals are worthy of attention and may have long term implications for a company, we have not been convinced that the prescriptive framing of the proposals will address the risks in a way that drives long term value. Our aim is to influence change that is clearly linked to value creation, and in some cases a simple vote "for" or "against" a proxy proposal doesn't get to the heart of an issue."

Vanguard's explanation is inadequate. For climate change alone, resolutions filed in 2015 covered approximately 20 different types of requests, with many requesting disclosure of risks and others asking for comprehensive sustainability disclosure. Vanguard failed to support even a single one of this broad variety of resolutions. Vanguard's claim that they are all too “prescriptive" is disingenuous. The U.S. Securities and Exchange Commission (SEC) has rules against filing resolutions that are “ordinary business," or that seem to micromanage a company. A number of the resolutions Vanguard failed to support have survived SEC scrutiny on this very question.

As financial, environmental and societal risks from climate change escalate, it is important for shareholders to know if their mutual funds are taking one of the simplest steps to address the risks—voting for climate resolutions.

If your fund company is failing to do so, it is time to give them call, write them a letter or sign petitions such as the one sent to Vanguard. These flawed myopic approaches, such as Vanguard's, need to change.

Rob Berridge is director of shareholder engagement at the nonprofit sustainability group Ceres. Jackie Cook is founder and curator of the Fund Votes and Climate Risk Disclosure Projects.

YOU MIGHT ALSO LIKE

Is Your Retirement Invested in Fossil Fuels?

182: Total Number of Climate Deniers in Congress

February Smashes Earth's All-Time Global Heat Record by a Jaw-Dropping Margin

Science and Politics Clash as Humanity Nears Climate Change Tipping Point

Show Comments ()

EcoWatch Daily Newsletter

Sponsored
Energy
Mackinac Bridge from Straits of Mackinac. Gregory Varnum / Wikimedia Commons

Michigan Gov. Signs Bill to Keep Line 5 Pipeline Flowing

Michigan's outgoing Gov. Rick Snyder signed legislation on Wednesday that creates a new government authority to oversee a proposed oil tunnel in the Straits of Mackinac to effectively allow Canadian oil to keep flowing through the Great Lakes.

The controversial tunnel will encase a replacement segment for Enbridge Energy's aging Line 5 pipelines that run along the bottom of the Straits, a narrow waterway that connects Lakes Huron and Michigan.

Keep reading... Show less
Popular
The illegal La Pampa gold mine, seen here in 2017, has devastated the Peruvian Amazon and spread poisonous mercury. Planet Labs

Unprecedented New Map Unveils Illegal Mining Destroying Amazon

A first-of-its-kind map has unveiled widespread environmental damage and contamination of the Amazon rainforest caused by the rise illegal mining.

The survey, released Monday by the Amazon Socio-Environmental Geo-Referenced Information Project (RAISG), identifies at least 2,312 sites and 245 areas of prospecting or extraction of minerals such as gold, diamonds and coltan in six Amazonian countries—Bolivia, Brazil, Colombia, Ecuador, Peru and Venezuela. It also identified 30 rivers affected by mining and related activities.

Keep reading... Show less
Animals
Mako sharks killed at the South Jersey Shark Tournament in June 2017. Lewis Pugh

Shark Fishing Tournaments Devalue Ocean Wildlife and Harm Marine Conservation Efforts

By Rick Stafford

Just over three years ago, I was clinging to a rock in 20 meters of water, trying to stop the current from pulling me out to sea. I peered out into the gloom of the Pacific. Suddenly, three big dark shapes came into view, moving in a jerky, yet somehow smooth and majestic manner. I looked directly into the left eyes of hammerhead sharks as they swam past, maybe 10 meters from me. I could see the gill slits, the brown skin. But most of all, what struck me was just how big these animals are—far from the biggest sharks in the seas, but incredibly powerfully built and solid. These are truly magnificent creatures.

Keep reading... Show less
Politics
Sen. Joe Manchin and United Mine Workers of America President Cecil Roberts held a press conference on Oct. 3, 2017. Bill Clark / CQ Roll Call

Coal-Friendly Manchin Named Top Dem on Senate Energy Panel

After weeks of discord over the potential appointment, Sen. Joe Manchin, the pro-coal Democrat of West Virginia, was named the ranking member of the Senate Committee on Energy and Natural Resources, Sen. Chuck Schumer announced Tuesday.

Many Democrats and environmental groups were adamantly opposed to Manchin serving as the top Democrat on the committee that oversees policies on climate change, public lands and fossil fuel production.

Keep reading... Show less
Sponsored
Insights/Opinion
Hikers on the Mt. Hollywood Trail in Griffin Park, Calif. while a brush fire burned in the Angeles National Forest on Aug. 26, 2009. Mel Melcon / Los Angeles Times via Getty Images

Major Health Study Shows Benefits of Combating Climate Change

During the holiday season, people often drink toasts to health. There's something more we can do to ensure that we and others will enjoy good health now and into the future: combat climate change.

Keep reading... Show less
Energy
Employees of Rural Renewable Energy Alliance working together with students and faculty of Leech Lake Tribal Collage to construct solar panels, 2017. Ryan James White

A Tribe in Northern Minnesota Shows the Country How to Do Community Solar

By Susan Cosier

Last summer on a reservation in northern Minnesota, students from Leech Lake Tribal College earned their solar installation licenses while they dug, drilled and connected five photovoltaic arrays. The panels shine blue on the plain, reflecting the sky as they generate roughly 235 megawatts of electricity a year, enough to help 100 families pay their energy bills. This is community solar in action.

Keep reading... Show less
Sponsored
Energy
Arches National Park. Chris Dodds / Flickr / CC BY-SA 2.0

Trump Auctions Off 150,000 Acres of Public Lands for Fracking Near Utah National Parks

On Tuesday the Trump administration offered more than 150,000 acres of public lands for fossil-fuel extraction near some of Utah's most iconic landscapes, including Arches and Canyonlands national parks.

Keep reading... Show less
Climate
The Vanderford glacier in East Antarctica is one of four that is beginning to melt, according to NASA. Angela Wylie / Fairfax Media / Fairfax Media via Getty Images

Melting Discovered in East Antarctic Region Holding Ice 'Equivalent to Four Greenlands'

Ice sheets in Greenland and West Antarctica have been melting at alarming rates in recent years, but at least the glaciers of East Antarctica were believed to be relatively stable. Until now. National Aeronautics and Space Administration (NASA) scientists have discovered that glaciers covering one-eighth of Antarctica's eastern coast have lost ice in the past 10 years. If the region keeps melting, it has enough ice in its drainage basins to add 28 meters (approximately 92 feet) to global sea level rise, BBC News reported.

Keep reading... Show less
Sponsored

mail-copy

The best of EcoWatch, right in your inbox. Sign up for our email newsletter!