Mutual funds take their stand on climate change

By Kristin Gribben
Published: May 31 2009 15:43

Climate change is moving up the agenda of mutual funds, with an increasing number voting in favour of resolutions that ask companies to assess the impact climate change is having on their business.
“The business case for these resolutions is becoming undeniable,” says Robert Berridge, manager of investor programmes at the environmental group Ceres and author of a new report on the subject. “Climate change is now in a financial box, not just a social, environmental box.”
The business case for climate change preparation is being strengthened by what is seen as imminent regulation of greenhouse gases under the Obama administration. The US Environmental Protection Agency put a proposal up for public comment in April that considers carbon dioxide dangerous to public health and would regulate it under the Clean Air Act. The move was in stark contrast to the agency’s inaction on this specific issue under President George W. Bush.
A total of 61 mainstream mutual funds voted for climate change-related shareholder proposals an average of 23.6 per cent of the time during the 2008 proxy season – up from 13.6 per cent the previous year, according to the Ceres study. That does not include socially responsible investing funds, which voted for these types of resolutions 100 per cent of the time.
RiskMetrics Group, the largest and most influential proxy advisory firm, has issued more recommendations to its investor clients advising them to vote for climate-related resolutions in 2008 and 2009 than in years past, according to Mr Berridge. He cites that fact as another reason funds are beginning to shift their support.
The Wells Fargo Advantage Funds amended its proxy voting guidelines on social and environmental resolutions last year. The new policy has the fund voting more in step with RiskMetrics. The amendments “reflect both our ongoing commitment to social and environmental issues and our confidence in the capabilities of our proxy voting administrator, [RiskMetrics Group]”, a company spokesman says. Of the 11 environmental and social proposals Wells Fargo Advantage Equity Index voted for since 2004, nine of the votes were in 2008, according to ProxyDemocracy.org.
As more funds vote in support of climate resolutions, the proponents of these proposals see mutual funds as the key to getting majority support for their cause.
At Ultra Petroleum Corporation, The Nathan Cummings Foundation has filed a resolution calling for the independent directors of the board to prepare a report on the company’s plans to address climate change for the past four years.
In 2006, 2007 and 2008, the proposal received 22 per cent, 31 per cent and 37 per cent support respectively. A big part of the rise in support has been because of mutual funds.
Last year, Wells Fargo, Van Kampen, Schwab, Parnassus, Morgan Stanley and Fifth Third all voted for the proposal at Ultra Petroleum, according to ProxyDemocracy.org. The year before, Morgan Stanley voted against the proposal. The company did not return calls for comment.
“It would make sense that mutual fund companies have changed their support,” says Laura Shaffer, director of shareholder activities at Nathan Cummings. Ultra Petroleum, she says, is a laggard in environmental disclosure compared with other companies in oil and gas industry.
As shareholder activists see funds’ attitude begin to shift, they are experimenting with ways to get backing from funds. Ms Shaffer says Nathan Cummings tried dialogue with one of its managers to get them to vote for their climate proposals. The dialogue has been unsuccessful so far, but she says they plan to reach out to other funds in the hope that they can persuade them.
Meanwhile, proponents of four shareholder proposals up for a vote at ExxonMobil’s annual meeting on May 27 launched a website (www.ExxonMutualFundShares.org) that allows mutual fund shareholders to send messages to their fund representatives asking them to vote for the resolutions.
Three of the resolutions were climate change-related and one was a binding proposal asking Exxon to separate the roles of chairman and chief executive, partly because of the company’s lack of leadership on preparing for a low-carbon world, according to the filer of the resolution, Robert Monks.
About a week before the annual meeting nearly 500 messages had been sent to mutual funds from their shareholders urging them to support the resolutions at Exxon.
Mr Monks says the group of shareholders that launched the website will see how its success bears out and determine whether it is an effective means of engaging mutual funds in the future.
Kristin Gribben is associate editor of Agenda, a Financial Times service
Copyright The Financial Times Limited 2009