2011: A banner year for shareholder activism

By Blaine Townsend CIMA© CIMC©
December 16th, 2011

Nelson CapitalSince the late 1970s, shareholder activism and corporate engagement have been a core component of socially responsible investing strategies; a blend of the “values-based” concept and the concept of “shareholder value.” The latter has definitely come into the forefront over the past decade as bad corporate behavior has cost shareholders billions (think Enron and World Com).

Historically, corporate governance issues like board composition and compensation were the focus of large institutional investors like CalPERS, while supply-chain, human rights and environmental issues were the focus of smaller mission-based groups or individuals. The landscape has shifted a bit recently with the rapid adoption of corporate engagement strategies by asset managers of all stripes. Poor environmental performance and corporate governance is now much more widely accepted as a risk factor in investment, not just a reflection of values.

Proxy vote highlights

  • Environmental-focused resolutions received on average 26.3% support led by resolutions dealing with Hydraulic Fracturing (“Fracking“) which received on average 40.6%.
  • Social-focused resolution received on average 17% support led by resolutions dealing with human rights issues which received on average 15.2%.
  • Corporate Governance-focused resolutions received on average 38.3% shareholder support led by resolutions dealing with board declassification and annual election of directors which received 70% support.

As a result, the infrastructure for corporate engagement is growing. The United Nations Principles for Responsible Investing (UNPRI) for example, focuses on corporate engagement strategies. It was launched in 2006 and in just 5 years, has signed on asset owners that represent 20 percent of the world’s capital ($30 trillion dollars). It should be noted that it would be a mere $29 trillion, 999 billion had Nelson Capital not signed on.

Resolutions filed at companies can loosely fall into the framework of Environmental, Social and Governance (ESG). Even investors with as little as a $2000 stake in a company have the right to file a shareholder resolution (SEC rules determine whether it qualifies for the actual proxy ballot). The majority of resolutions focus on transparency. The more information investors have, the better decisions they can make. This is an argument that transcends just ESG issues. It is one of the underpinnings of a healthy market.

On the right are some highlights from the 2011 proxy season (tabulations from Moxy Vote). They represent the percentage of shareholders that voted in support of a resolution.

Now for the rest of Nelson Capital Management’s ESG Notes, compiled each week by Adam Berkowitz. For questions or comments about Nelson’s ESG notes, please contact Adam or visit our website.

San Francisco and New York get props for building “green”

San Francisco and New York took home awards from the 17th Conference of the Parties (COP17), where the World Green Building Council honored the two cities for advancing “green” building. The honors conferred by the World Green Building Council inaugurated the group’s Government Leadership Awards for Excellence in City Policy for Green Building. San Francisco received the council’s Best Green Building Policy award. The city has a range of measures that are designed to make the built environment more sustainable. They span the San Francisco’s 2008 Green Building Ordinance, which requires new structures to meet “green” building standards, to an ordinance adopted in February that requires energy performance benchmarking and auditing for existing commercial buildings. Other cities recognized were Mexico City, Tokyo, Birmingham in the United Kingdom and the Republic of Singapore for their work supporting sustainable building.

Poor Corporate Governance takes a deathly toll

In April 2010, a coal dust explosion killed 29 miners and injured two in the worst U.S. coal mining disaster in 40 years at the Upper Big Branch mine in West Virginia. The mine was owned by Massey Energy and operated by Performance Coal, a subsidiary.

In a report issued recently about the incident, the Mine Safety and Health Administration (MSHA) placed the blame on Massey Energy for their poor corporate governance practices. The report states, “The evidence accumulated during the investigation demonstrates that PCC/Massey promoted and enforced a workplace culture that valued production over safety, including practices calculated to allow it to conduct mining operations in violation of the law.”

MSHA issued 369 citations and orders, and included an “unprecedented” 21 citations for flagrant violations. The violations include intimidation of workers to prevent them from reporting safety concerns; using staff to relay advance notice of health and safety inspections to mine personnel; and keeping two sets of books on safety and health hazards at the mine, one of which was not shared with regulators or the public. In the largest settlement ever for a mine disaster, Alpha Natural Resources, the parent company of Massey Energy, agreed to pay $209 million in restitution, including $46.5 million for the families of the miners who were killed or injured.

IKEA expands its solar program

IKEA has decided to bring solar power to 33 of its 44 stores, distribution centers and office buildings in the U.S. in its latest expansion of their renewable energy initiative. IKEA plans to add 10 installations in the South and Southwest to the 10 that are already in the company’s pipeline for construction. Thirteen solar power systems are currently in place within the firm’s U.S. property portfolio. Ten of the thirteen systems were completed this year. IKEA has stated in their sustainability reports a long-term goal of having all of its buildings run only on renewable energy. IKEA has more than 320 stores in 38 countries, including 37 in the U.S.


Nelson Capital Management disclaimer

Nelson Capital Management is a registered investment adviser and a non-bank affiliate of Wells Fargo & Company. The information in this report was prepared by Nelson Capital Management and expresses the opinions of its investment team unless otherwise noted.

This material is for general information only, is not suitable for all investors, and is not soliciting any action from any particular investor.

Information and opinions presented have been obtained or derived from sources we believe reliable, but we cannot guarantee their accuracy or completeness. Opinions represent NCM’s judgment as of the date of the report and are subject to change without notice.

Affiliates of Nelson Capital may issue reports or have opinions, which are inconsistent with, and reach different conclusions from, this report.

Asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment losses.

Nelson Capital Management and/or its affiliates do not provide tax or legal advice. Please consult appropriate tax or legal advisors to determine how this information may apply to your own situation.

Additional information is available upon request.

This presentation is not an offer to buy or sell, or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this presentation may be unsuitable for some investors depending on their specific investment objectives and financial position.

Tags:   ESG   ESG Notes   Nelson Capital Management   
Blaine Townsend CIMA© CIMC©

Blaine Townsend CIMA© CIMC©

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