Canary Blog Corporate resolutions on social issues serve activists, not shareholders

America’s growing energy dominance is helping transform our economy and revitalize the forgotten parts of our nation. Through innovation and free-market principles, America’s oil and natural gas sector have moved us from an age of scarcity to a future of abundance. As a nation, we are once again the world’s biggest producer, with all of the economic, trade and national security benefits that portends. But there is a move afoot by wealthy investment firms and environmental activists to undermine that success and turn back to a time of scarcity by making climate change an issue in the boardrooms of energy producers big and small. Under the guise of socially responsible investing or ESG – environmental, social and governance – they are attempting to “decarbonize” our economy one corporation at a time. America’s success in the energy sector is directly attributable to the strength of our economic freedom and competitive markets – just look at Venezuela, Angola, Mexico, Iran, Libya or Russia for the grim alternative. The numbers are astounding. Domestic oil production reached 10.9 million barrels a day this month and is expected to continue its ascent to record-setting levels well into next year, according to the U.S. Energy Information Administration (EIA). By 2019, surging domestic production is expected to drive down our use of imported oil to the lowest level since 1959. The use of hydraulic fracturing to squeeze ever more oil and gas from tight shale rock is a key driver of the energy boom. Production from America’s seven major shale formations is forecast to hit 7.2 million barrels a day by the end of this month, according to EIA. It’s the communities in and around these formations – located almost exclusively in what are often derided as “fly-over states”– that are seeing the everyday benefits of jobs, rising wages and increasing confidence in the economy. The resurrection of the energy sector is turning small towns once on the verge of becoming ghost towns into bustling centers of activity. There’s no guarantee the good times will continue, though, especially if companies stop searching for new supplies of oil and gas. For those who subscribe to the ideas of socially responsible investing, the end of energy dominance can’t come soon enough. Consultancy firms Glass Lewis, ISS and others are increasingly advising their large shareholder clients to turn America’s boardrooms into a battleground over climate change. In the process, they are undermining the financial stability of traditional energy companies by attempting to force directors to invest in renewable energy instead of fossil fuels. Shareholders are, of course, within their rights to propose resolutions and pursue changes to the way corporations are governed. But, increasingly, the aim of these resolutions has shifted from securing better returns to achieving political change when our political leaders have disagreed with the direction these activists wish to go. From the perspective of corporate leaders, this new frontier of so-called social responsibility looks more like the age of proxy pirates, who unfurl the Jolly Roger and swing aboard the boardroom deck intent on striking fear in the hearts of the captains of industry. These attacks on corporate governance and fiscal stability were once rare but are growing in frequency. In the early 2000s during the era of “peak oil” – when many believed our oil supplies were running out on their own – less than 200 shareholder proposals each year focused on environmental or social factors, according to Proxy Preview. Over the past decade, the number of shareholder proposals motivated purely by political aims has increased in lockstep with our growing energy security. And the trend is growing. According to the Institutional Shareholder Services, more than two-thirds of the proposals filed this year were related to social or environmental pet causes. The rising prevalence of climate-risk resolutions threatens to destabilize America’s energy sector, reversing the benefits of energy dominance and forcing change regardless of the economic and security costs to society. The efforts of investment firms like BlackRock, Goldman Sachs and Morgan Stanley are distorting the market and scaring off investment that will if allowed to continue unanswered, result in future supply shortages and higher prices for consumers. Oil and gas projects take years, sometimes decades, to develop. If companies don’t invest today, consumers may find themselves paying more for imported energy. Using shareholder proposals to demand that energy companies disclose what is already known does nothing to improve the environment. In fact, investment strategies designed to force traditional energy companies to stop drilling will likely have the opposite effect. The losers will be both the small retail shareholders who are often unaware of the skullduggery being done in their names and the nation as a whole. Beyond the obvious economic benefits of America’s energy renaissance, the surge in low-cost natural gas – domestic gas production reached 9.8 trillion cubic feet a day in March – has brought significant market-driven cuts to carbon-dioxide emissions. U.S. carbon emissions have declined in six of the past 10 years, and energy‐related carbon emissions in 2016 were 14% lower than 2005 levels – even while our population and gross domestic product (GDP) have grown. Access to affordable, reliable and secure supplies of energy is a social good in and of itself. In the United States, the oil and gas industry supports 10.3 million jobs and nearly 8 percent of the economy. For hundreds of millions of people around the world, regular access to energy is a matter of life and death. Affordable energy is highlighted by the United Nations as “crucial for achieving almost all of the Sustainable Development Goals, from its role in the eradication of poverty through advancements in health, education, water supply and industrialization.” America’s oil and gas industry has done this better than anyone else thanks to our adherence to free-market principles. Renewable energy is important but there is not enough supply to meet demand or our emission reduction goals. Activist investors would be better off advocating for the development of technological innovations to improve the way we […] The post Corporate resolutions on social issues serve activists, not shareholders appeared first on Canary, LLC.