New Study Finds Climate Change Shareholder Resolutions Have No Impact

A new study finds that the climate-based shareholder resolutions being so actively pushed by proxy advisory firms and their Environmental, Social and Governance (ESG)-based institutional investors have “no statistically significant impact” on a company’s bottom line, either positive or negative. The study, funded by the National Association of Manufacturers (NAM), was led by the highly-respected PHD economist Joseph Kalt, Senior Economist at Compass Lexecon and is the Ford Foundation Professor (Emeritus) of International Political Economy at the John F. Kennedy School of Government at Harvard University.

This was an interesting finding given the elevation of the demands from this kind of investor activism in the past several years, especially against fossil fuel companies, and the recent decision by several big institutional investor firms to use their market position in an attempt to frighten major oil and gas companies away from attempting to explore for oil in the always-controversial Arctic National Wildlife Reserve (ANWR). The study’s lead finding will no doubt not sit well with the proxy advisory firms who place such high priority on having their clients push climate change-related shareholder resolutions, or with the companies for whom such resolutions can create onerous new administrative burdens.

Kalt and his team state in the executive summary that claims by institutional investors that such resolutions actually benefit shareholders provided the main direction for their study:

“We focus on climate change resolutions both because of the growing activism on the part of certain large institutional investors around climate change disclosure and because of the argument upon which that activism is predicated, i.e., that such additional disclosure provides meaningful information to the marketplace and therefore serves to benefit shareholders. Our analysis fails to find support for such assertions.”

The report’s authors are unsurprised by their study’s findings. Noting the “stridency of arguments” that often accompany the debates over such proposals, the authors go on point out the reality that “The fundamental drivers of risk and the impact of an issue like climate change on the ability of management’s decisions to enhance or detract from shareholder value are political.” Which is, of course, absolutely correct.

The ability – or even the necessity – of a company to respond to a constantly shifting and evolving issue such as “climate change” depends to a very high degree on the whims of voters and the politicians they elect. Nowhere has this fundamental reality played out with greater impact over the past decade than in the United States of America.

From 2009 through 2016, America’s voters chose to first put in place and then to re-elect a presidential administration which greatly empowered its agencies to heavily regulate the country’s fossil fuels industries under the overarching justification of fighting climate change. The Obama Administration barely attempted to even deny that a big part of its agenda was to effectively put the coal industry out of business, something it came fairly close to doing. A similarly-focused effort to heavily regulate the oil and gas industry and its methane emissions was a huge part of the agenda at the Obama EPA and Department of Interior during the administration’s final three years in office.

Then, in 2016, the voters chose to elect Donald Trump to the presidency, and his administration has spent the better part of the last 17 months rolling back much of the Obama regulatory agenda. Thus, as the report’s authors point out, the ability of any company to respond to an issue such as climate change “turns overwhelmingly on political actors and factors: Will nation A adopt certain kinds of policies to deal with climate change? If so, when? Will adopted policies “stick”, or will new political forces come along and change the direction of policy?”