Shareholders face hurdles on climate issues

Shareholder efforts to influence corporate approaches to climate change issues have faced blows from financial regulators and a federal judge in recent weeks.

On March 6, US SEC staff said that Dominion Energy Inc., Sempra Energy and PNM Resources Inc. could properly exclude from their proxy documents shareholder resolutions calling on the companies realize the risks that planned natural gas infrastructure could become economically locked out due to government climate policies. Commission staff also said there appeared to be a legal basis for Chevron Corp. and Exxon Mobil Corp. to block resolutions that would commit companies to supporting policies to reduce carbon dioxide emissions and, in the case of Exxon, to create a climate risk committee.

The findings followed a February ruling by a U.S. district court judge in Montana that NorthWestern Corp. could rule out a shareholder resolution calling on the company to publish a plan to shut down coal generation at the collar band power plant and replacing it with renewable energy and energy storage.

The shareholder resolutions were deemed to duplicate existing corporate disclosures or attempts to interfere with ordinary business operations and micromanage the companies.

Conflicts around shareholder activism arise companies face growing pressure from investors to address environmental, social and governance issues. At the same time, falling renewables and battery prices, along with decarbonization efforts in a growing number of states, are drawing more attention to the risk of new natural gas plants and pipelines becoming assets. blocked. At least 200 new gas-fired power plants were planned or under development in the United States as of December 2019, totaling almost 70,200 MW of additional capacity, almost equivalent to the total generation capacity in Texas.

“An excellent partner for renewable energies”

Dominion said in its latest annual report that new regulations limiting greenhouse gas emissions or requiring efficiency improvements could increase compliance costs and making some of the company’s power plants or natural gas facilities “uneconomic to maintain or operate”.

At the same time, Dominion executives argued that investing in natural gas makes sense “because it’s a great partner for renewables.”

Sempra Energy lawyers tell the SEC the company has told shareholders it is working to ensure natural gas assets are “necessary parts of the solution to” the global response to climate change. “”.

Lawyers for PNM Resources, meanwhile, pointed to publicly available documents indicating that the company expects to be able to recover costs from ratepayers associated with any natural gas plant. it may be necessary retire in order to comply with New Mexico’s clean energy law.

Lila Holzman, energy program manager at As You Sow, an activist shareholder group that filed the Dominion and Sempra resolutions, said the companies did not “go far enough”.

“In the face of the clean energy transition and the urgent need to meet the Paris Climate Agreement goal, the growing reliance on emissions-intensive natural gas is a risky bet,” Holzman said. in a press release on March 11. “Sempra and Dominion are both continuing to develop significant gas assets in states with aggressive climate change goals.”

A report released by As You Sow in early March found that businesses across the United States are ready to invest billions of dollars in new natural gas infrastructure. “This investment drive, which includes power plants and pipelines with decades-long lifespans, is incompatible with maintaining a safe climate and preventing disastrous and costly impacts on the entire world. economy,” the report said.

State mandates

The investments are taking place as states impose new emissions reduction mandates on electricity providers.

On March 6, the Virginia Senate sent the governor legislation that would require utilities operated by Dominion and American Electric Power Co. Inc. to decarbonize their electricity portfolios by mid-century. California has until 2045 to fully transition to carbon-free electricity sources.

In Montana, NorthWestern has until 2045 to reduce the carbon intensity of its energy portfolio by 90% from 2010 levels. However, the company opposed a shareholder resolution that tried to shape policy of the company in the meantime. Like Exxon and Chevron, which have resisted setting emissions reduction targets, NorthWestern complained that a shareholder was trying to encroach on the role of management. Federal Judge Dana Christensen agreed.

“The proposal would shut down a significant carbon generator two decades ahead of NorthWestern’s 90% carbon reduction date, and the steps required to accomplish the elimination are complex,” said Christensen, chief justice of the U.S. District Court. of the district. of Montana, wrote in a Feb. 25 order. “NorthWestern – having agreed to its essential policy – must conduct it safely using business and technical skills on a daily basis that are not intended for shareholder debate and participation.”

Teresa H. Sadler