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Shareholder Proposals: A Catalyst for -Related Disclosure, Analysis, and Action?

Elise N. Rindfleisch'

TABLE OF CONTENTS I. Introduction ...... 46 II. Climate Change-Related Risks and Opportunities for Corporations ...... 49 A. Physical Risks ...... 49 B. Regulatory Risks ...... 51 C. Litigation Risks ...... 53 D. Competitive Risks ...... 54 E. Reputational Risks ...... 55 F. Competitive Opportunities ...... 55 G. Reputational Opportunities ...... 56 H. Financial Opportunities ...... 56 III. The Shareholder Proposal Process ...... 57 A. Rule 14a-8 of the Securities Exchange Act of 1934 ...... 57 B. Effects of Shareholder Proposals ...... 61 IV. Case Studies - Shareholder Proposals Filed with Oil and Gas Companies ...... 62 A. Anadarko Petroleum Corporation ...... 62 B. ConocoPhillips Company ...... 65 C. ExxonMobil Corporation ...... 67 V. Analysis ...... 70 A. Impact of Shareholder Proposals ...... 70 1. Anadarko Petroleum Corporation ...... 70 2. ConocoPhillips Company ...... 72 3. ExxonMobil Corporation ...... 73 B. Critique of Responses to Shareholder Proposals ...... 75 VI. Conclusion ...... 78

t J.D./M.E.M. Candidate, Vermont Law School, Yale School of Forestry and Environmental Studies, 2009; B.A., Oberlin College, 2004, with High Honors in Environmental Studies. The author would like to thank Professor Mark Latham, Devorah Ancel, and Matthew Paeffgen for their invaluable comments and advice. Berkeley Business Law Journal Vol. 5.1, 2008

Shareholder Proposals: A Catalyst for Climate Change-Related Disclosure, Analysis, and Action?

"Risk of climate change is real. It's here. It's affecting our business today." - John Coomber, CEO, Swiss Re'

I. INTRODUCTION

Environmental catastrophe is the fashion of the day. The ominous lists- generated by mass media, politicians, and scientist alike-seem never-ending: melting polar ice caps, rising sea levels, proliferation of disease vectors, amplified tropical storms and hurricanes, exacerbated droughts, coral reef 2 bleaching, biodiversity loss . . . If given one guess as to the alleged cause of these effects, "climate change" would likely roll off one's tongue. International attention to climate change has risen along with global temperatures. "Climate change" and "global warming" top the chart of political buzzwords based on their frequency of use in global print and electronic media, in proprietary 3 databases, and on the internet. A preponderance of scientific evidence shows that global temperatures are rising due to an increase in anthropogenic greenhouse gas concentrations. 4 The global consequences of climate change are not theoretical, but real and quantifiable. 5 According to climatologists at the National Aeronautics and Space Administration's (NASA) Goddard Institute for Space Studies, 2005 was the warmest year in over a century. 6 Furthermore, their research indicates that

1. Adam Aston et al., The Race Against Climate Change: How Top Companies Are Reducing Emissions of CO 2 and Other Greenhouse Gases, BUsINESSWEEK, Dec. 12, 2005, available at http://www.businessweek.com/magazine/content/0550/b3963401 .htm. 2. The Pew Center on Global Climate Change & the Pew Center on the States, Climate Change 101: The Science and Impacts, availableat http://www.pewclimate.org/docUploads/I 101 %SFScience% 5Flmpacts%2Epdf 3. According to the Global Language Monitor, a media tracking and analysis organization, "global warming" ranks number I and "climate change disaster" ranks number twelve on its October 7, 2006 list of most used buzzwords. The Global Language Monitor devised this list using a proprietary algorithm, the Predictive Quantities Indicator (PQI), which tracks the frequency of words and phrases in the global print and electronic media, on the internet, throughout blogs, and in proprietary databases. The Global Language Monitor, Top Political Buzzwords Index Belies inside the Beltway Chatter, Oct. 13, 2006, http://www.languagemonitor.com/wst-page I2.html. 4. Intergovemmental Panel on Climate Change, Working Group II Contribution to the Intergovemmental Panel on Climate Change Fourth Assessment Report, Climate Change 2007: Climate Change Impacts, Adaptation and Vulnerability-Summary for Policymakers, available at http://www.ipcc.ch/SPM6avr07.pdf. 5. Kelly Levin & Jonathan Pershing, World Resources Institute, Climate Science 2005: Major New Discoveries, WRI Issue Brief (2006), availableat http://pdf.wri.org/climatescience 2005.pdf. 6. Rob Gutro, 2005 Warmest Year in Over a Century, National Aeronautics and Space Shareholder Proposals the five wannest years of the last century-which includes 2006-occurred in the last decade.7 If this warming trend continues as forecasted, average global temperatures could rise three to ten degrees Fahrenheit by the 8 end of the century. The vast array of climate change's predicted consequences, 9 and the societal reactions which follow in its wake, will cause drastic economic effects. Specifically, climate change will have the most drastic impact on the global economy than any other environmental risk.10 No entity is likely to feel these economic effects more than corporations and, particularly, the shareholders of publicly-held corporations. Climate change presents both risks and opportunities for such corporations." Climate change presents physical risks, regulatory risks, litigation risks, competitive risks, and reputational risks. Conversely, climate change accountability bestows competitive opportunities, financial opportunities, and reputational opportunities. Businesses can no longer afford to ignore climate change, for these risk and opportunities directly impact their business and, in turn, their shareholders' investment. A fair number of corporations, notably General Electric (GE) and BP (formerly British Petroleum), are acting proactively to mitigate these risks and take advantage of the opportunities climate change presents for their businesses. GE's "Ecomagination" campaign, launched in May 2005, centers on reducing carbon emissions, as well as providing eco-friendly devices to other companies, and has raised the company's profit margins. 12 BP, the first major energy company to take action against climate change, reaps financial and reputational rewards as it works to reduce internal carbon dioxide

Administration (Jan. 24, 2006), available at http://www.nasa.gov/vision/earth/environment/2005- warmest.html. 7. Leslie McCarthy, 2006 Was Earth's Fifth Warmest Year, National Aeronautics and Space Administration (Feb. 8, 2007), available at http://www.nasa.gov/vision/earth/environment/2006- warm.html. 8. DOUGLAS G. COGAN, CERES, CORPORATE GOVERNANCE AND CLIMATE CHANGE: MAKING THE CONNECTION, SUMMARY REPORT I I (Mar. 2006), available at http://www.ceres.org/pub/docs/Ceres- corp_govand_climatechangecsrO306.pdf [hereinafter COGAN 1]. 9. Through their broad review of peer-reviewed scientific and technical articles in 2005, the World Resources Institute (WRI) concluded that the consequences of climate change-which generally impact the physical climate, the hydrological cycle, and ecosystems-present an issue of "enormous urgency." WRI was unable to find a single peer-reviewed article denying the consequences of climate change. Levin & Pershing, supra note 5. 10. FRED WELLINGTON ET AL., CERES & WORLD RESOURCES INSTITUTE, QUESTIONS AND ANSWERS FOR INVESTORS ON CLIMATE RISK (Dec. 2004), available at http://www.ceres.org/pub/docs/Ceres-qanda-lnvestors onClimateRisk_1204.pdf. II. David E. Nash & John J. Fahsbender, Palm Trees on Lake Erie?: Managing Climate Change Risks and Opportunities for Clients, CLEV. B. J. 6 (Oct. 2006). 12. GE is working to reduce carbon emissions by one percent over the next seven years, which would otherwise have risen 40 percent. GE also plans to double revenues from green products from $10 billion in 2004 to $20 billion by 2010, as well as double annual spending on "green"-related research to $1.5 billion by 2010. Daniel Fisher, GE Turns Green, FORBES, Aug. 15, 2005, available at http://www.ge.com/files/usa/company/investor/downloads/getums-green.pdf Berkeley Business Law Journal Vol. 5.1, 2008

emissions (a greenhouse gas linked to global climate change) and invests in lower carbon and alternative fuels and technologies.' 3 Ideally, all businesses should follow the examples of companies such as GE and BP by mitigating the risks and taking maximum advantage of the opportunities climate change presents. Shareholders are concerned about these climate change-related risks and opportunities for the companies they own. Climate change and shareholder value are inextricably linked. 14 Inaction places the shareholder's investment at risk. If a corporation's management fails to take adequate actions relating to climate change, shareholders can try to facilitate change through shareholder proposals. Such proposals are a mechanism that allows shareholders to compel the management of a corporation to submit a given issue to all the shareholders for their vote. 15 Whether or not successfully adopted, these proposals enable shareholders to secure disclosure, deeper analysis, and action from the corporations in the area of climate change. Shareholder proposals can demand that corporations address climate change in their businesses by taking steps to reduce their greenhouse gas emissions. 16 Additionally, to better understand the issues involved, shareholders can require the corporation to disclose the risks and opportunities presented by climate change and account for their greenhouse gas emissions. Shareholders increasingly recognize the importance of climate change- related action taken by the companies in which they invest, as demonstrated by the rising numbers of climate change-related shareholder proposals filed in the U.S. In 2004 and 2005, shareholders filed at least twenty-five shareholder proposals targeted toward climate change with corporations-three times the number of filings in 2000 and 2001.17 In 2007, the largest number of climate change-related shareholder proposals was filed, numbering forty-three' 8 . Some of these proposals received the highest levels of shareholders' voting support ever seen. 2007 brought a new record of 39.5 percent of shareholder support

13. Over the next five years, BP will invest $350 million to reduce internal CO 2 emissions by up to one million tons per year. BP, Carbon Reduction: What BP is Doing, http://www.bp.com/sectiongenericarticle.do?categoryld=9008205&content Id=7015200 (last visited Mar. 20, 2007). In the next decade BP will invest over $8 billion in alternative energy technologies, including solar, wind, hydrogen, and combined-cycle power generation. COGAN I, supra note 8, at 10. 14. Innovest Strategic Value Advisors, Carbon Disclosure Project Report 2006 Global FTSO0: On Behalf of Investors with Assets of$31 Trillion 4, available at http://www.cdproject.net/download.asp? file=cdp4_f500_report.pdf. 15. Aaron A. Dhir, Realigning the Corporate Building Blocks: Shareholder Proposals as a Vehicle for Achieving Corporate Social and Human Rights Accountability, 15 AM. Bus. L.J. 365, 367-68 (2006). 16. Nash & Fahsbender, supra note II, at 6. 17. COGAN l, supra note 8, at 16. 18. Heavy Weather, THE ECONOMIST, Sept. 20, 2007, available at http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348924&story-id= 9832854. 19. Peyton Fleming, Investors Achieve Record Results in 2007 in Spurring Corporate Action on Climate Change (Aug. 31, 2007), available at http://www.ceres.org/news/news-item.php?nid=319. Shareholder Proposals

proposal. 20 This figure is significant because most on a climate change-related 21 shareholder proposals receive about three percent of the shareholders' vote. This article aims to examine shareholder proposals as mechanisms for securing disclosure, analysis, and action from corporations in the area of climate change. Part I of this article discusses the aforementioned risks (physical, regulatory, litigation, competitive, and reputational) and opportunities (competitive, financial, and reputational) climate change poses for corporations. Part II explains the shareholder proposal process. Part III discusses three series of climate change-related shareholder proposals filed in American oil and gas corporations: Anadarko Petroleum Corporation, ConocoPhillips Company, and ExxonMobil Corporation. The oil and gas industry provides pertinent case studies because the industry arguably has the biggest impact on greenhouse gas emissions in the ; petroleum fuels and natural gas are the largest sources of carbon dioxide emissions in the country,• •accounting 22 for fifty-eight percent of the nation's total carbon dioxide emissions. Part IV examines these shareholder proposals as a means of securing disclosure, analysis, and action from companies in the area of climate change, and compares the actions brought on in these corporations with those undertaken by their competitors.

II. CLIMATE CHANGE-RELATED RISKS AND OPPORTUNITIES FOR CORPORATIONS

The risks and opportunities climate change poses for corporations provide compelling reasons for corporations to account for climate change in their business practices. Just as most successful businesses are able to adapt to changing times, the businesses that mitigate and adapt to climate change- related risks will benefit the most. 23 Now is the time to take maximum advantage of the opportunities climate change bestows through the creation of 24 products, services, and in-house energy efficiency initiatives.

A. Physical Risks

Businesses should err on the side of caution and account for the physical impacts that climate change poses on weather, water, the environment, and

20. A resolution filed at Allegheny Energy won 39.5 percent support. On average, climate change- related resolutions received record-breaking average voting support of 21.6 percent. Id. 21. See Carolyn Mathiasen & Meg Voorhes, Proponents Score Several Wins in Spring Season, CORP. SOC. ISSUES REP. 1, 6 (June/July 2005). 22. COGAN I, supra note 8, at 25. 23. David Gardiner & Associates, Climate Risk Disclosure by the S&P 500 4 (Jan. 2007), available at http://www.cdproject.net/download.asp?file=CDP4-S_and-P500-Report.pdf. 24. Id. Berkeley Business Law Journal Vol. 5.1, 2008 human health. 25 Climatologists have observed a link between greenhouse gas 26 and emissions and weather instability. Furthermore, the physical environment 2 7 its effects on human health are becoming increasingly less predictable. Greenhouse gas emissions and climate change are associated with phenomena such as flooding, droughts, extreme storms, and the proliferation of disease, which will directly impact certain sectors and businesses. Sectors such as agriculture, forestry, fisheries, tourism, real estate, insurance, oil and gas, and health care are particularly susceptible because of their dependence on the environment and/or human health. 28 Companies must also consider the indirect chain.29 effects that weather phenomena will have on their supply Additionally, businesses operating in areas prone to severe weather are more vulnerable to droughts, flooding, hurricanes, and weather-related damages to their infrastructure. 30 The sixty-seven weather disasters since 1980 caused at least $1 billion in damages each; their combined cost totaled over $500 billion. 31 Climatologists expect such disastrous storms to increase in frequency and severity, 32 which poses grave risks for oil and gas corporations operating in the Gulf of Mexico and other hurricane-prone areas.3 3 In the aftermath of , insurance companies suffered $45 billion in insured losses, and oil companies lost billions due to damage and resultant outages at their refineries and production facilities. 34 To minimize weather- related damage, businesses in such areas need to consider crisis management, disaster planning, and recovery planning. 35 Some insurance companies now require that corporations have plans to reduce climate change and its risks. Insurers, such as Swiss Re, vary their insurance rates based on a company's environmental impact and related risks. 36 Therefore, corporations should be more proactive, and less reactive, to such threats, as it is costing them money whether or not a storm hits.

25. WELLINGTON, supra note 10. 26. Nash & Fahsbender, supra note 11, at 7. 27. WELLINGTON, supra note 10. 28. Id. 29. GLOBAL FRAMEWORK FOR CLIMATE RISK DISCLOSURE, available at http://216.235.201.250/ NETCOMMUNITY/Document.Docid=73. 30. Nash & Fahsbender, supra note I1, at 7. 31. Total cost of $500 billion is normalized to 2002 dollars. Gardiner & Associates, supra note 23, at i. 32. Id. 33. Innovest Strategic Value Advisors, supra note 14, at 113. 34. Gardiner & Associates, supra note 23, at i. These losses are in addition to losses from other recent hurricanes such as Rita, Ivan, and Andrew. 35. Nash & Fahsbender, supra note 1I, at 7. 36. Erik Assadourian, The State of Corporate Responsibility and the Environment, 18 GEO. INT'L ENVTL. L. REV. 571, 575 (2006). Shareholder Proposals

B. Regulatory Risks

The possible regulatory risks companies face depend on the markets in which they operate. A patchwork of climate change regulations at the international, national, regional, state, and local levels pose direct risks for businesses. Businesses and industrial sectors with the highest greenhouse gas emission levels-electric power, oil and gas, manufacturing, and transportation-will face the most significant risks and the greatest compliance 37 costs. At the international regulatory level, the Kyoto Protocol, an international treaty imposing legally binding emission reductions, presents regulatory risks for companies operating in developed signatory countries (referred to as Annex 1 countries). These signatory countries committed themselves to reducing emissions of six greenhouse gases. 38 Specifically, they promised to reduce their emissions by at least five percent below their 1990 levels during the 2008 to 2012 period.3 9 Many signatory countries, such as those in the (EU), plan to meet their reduction goals by targeting individual businesses and industrial sectors.40 Presently, more than 11,000 industrial facilities in the EU are required to reduce their greenhouse gas emissions.4 1 American corporations are not immune from these regulatory schemes. Those corporations with international operations are subject to emission regulations and standards in European Union countries, Canada, and Japan, which require that they take action to comply with these regulations and minimize the risks they present. In the United States, there is no national regulatory scheme relating to greenhouse gas emissions. The United States did not sign the Kyoto Protocol. Currently, the Environmental Protection Agency (EPA) does not regulate carbon dioxide-or the other five greenhouse gases addressed by the Kyoto Protocol-under the Clean Air Act (CAA). This may change, however, due to the Supreme Court's recent ruling in Massachusetts v. EPA that carbon dioxide and other greenhouse gases are air pollutants, which may be regulated in new motor vehicles under the CAA. 42 Additionally, since the Court employed a liberalized standing doctrine,43 plaintiffs may have a stronger basis for challenging the EPA's refusal to adopt rules that address greenhouse gas emissions. Furthermore, since their takeover of Congress in the 2006 election,

37. WELLINGTON, supra note 10. 38. The six greenhouse gases are carbon dioxide (CO2), methane (CH4), nitrous oxide (N20), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). European Commission, Climate Change: The Kyoto Protocol - A Brief Summary, available at http://ec.europa.eu/envi ronment/climat/kyoto.htm. 39. Id. 40. Id. 41. COGAN I, supra note 8, at 10. 42. Massachusetts v. EPA, 127 S. Ct. 1438 (2007). 43. Id. Berkeley Business Law Journal Vol. 5.1, 2008

congressional Democrats introduced a handful of climate change-related legislation. 44 During interviews with The New York Times, industry and environmental lobbyists reportedly stated that one of these climate measures, or a combination of them, "stands an excellent chance of passage in this Congress or the next."45 Therefore, it would behoove all companies to track and monitor these judicial and legislative developments so they can respond to regulatory risks-when they arise-in the most timely, cost-efficient manner. At a regional level in the United States, the Regional Greenhouse Gas Initiative (RGGI) will soon impose regulatory risks for power plants located in Northeastern and Mid-Atlantic states.4 6 RGGI is designing a cap-and-trade emissions reduction program for carbon dioxide emissions from power plants in the region.47 Companies operating in this region should track RGGI carefully since its cap-and-trade system may extend to other sources of carbon dioxide and other greenhouse gases.48 Individual states are also beginning to take individual action to reduce their greenhouse gas emissions. Some states are taking regulatory action aimed 49 at specific industries, especially the automobile and electricity industries. Eleven states adopted or are currently adopting standards to limit carbon dioxide emissions for automobiles. 50 Twenty states have adopted renewable portfolio standards to increase the percentage of renewable energy used by electric power companies. 5 1 California passed the Global Warming Solutions Act of 2006 (AB 32), which was the first state-level legislation aimed at reducing greenhouse gas emissions. It requires a twenty-five percent cut in 53 the state's greenhouse gas emissions by 2020 to reduce them to 1990 levels. Regulations will be implemented in January 2010 for "early-action" greenhouse gas reductions and in January 2011 for regulations to meet the 2020 55 limit. 54 Limits and reduction measures will be enforced beginning in 2012. Since AB 32 will impose regulatory risks on companies operating in California in a few years, companies should begin preparing now for these risks so that they have adequate time to implement the most effective response measures.

44. Most measures seek to employ a cap-and-trade approach although positions vary. Felicity Barrigner & Andrew C. Revkin, Measures on Global Warming Move to Spotlight in the New Congress, N.Y. TIMES, Jan. 18, 2007, at A24. 45. Id. 46. Regional Greenhouse Gas Initiative, http://www.rggi.org/ (last visited Mar. 20, 2007). 47. Id. 48. Id. 49. WELLINGTON, supra note 10. 50. COGAN I, supra note 8, at 12. 51, Id. at 10. 52. Environment California, Global Warming Solutions Act of 2006 (AB 32) Analysis, available at http://www.environmentcalifomia.org/html/AB32analysis.pdf. 53, Id. 54, Id. 55. Id. Shareholder Proposals

Local governments further complicate the regulatory map by enacting their own climate change initiatives. Specifically, local regulations resulting from the U.S. Mayors Climate Protection Agreement ("Agreement") may pose risks to companies operating in particular communities. The Agreement mirrors the goals of the Kyoto Protocol. 56 Specifically, mayors signing the Agreement commit to three actions: 1) meet or beat the Kyoto Protocol greenhouse gas emission reduction targets established for the United States (seven percent reduction from 1990 levels by 2012) in their community, 2) urge their state and the federal government to meet or beat reduction targets suggested for the U.S. in the Kyoto Protocol, and 3) push Congress to pass greenhouse gas reduction legislation establishing a national emission trading system. 57 As of November 2007, the Agreement was signed by over 600 mayors. 58 Already, cities are requiring companies to reduce their greenhouse gas emissions and more regulations will certainly be seen in the near future. Although many actions target municipal operations, regulations are also being imposed on businesses operating in municipalities. For example, the City of Boulder requires Xcel Energy, Boulder's sole energy provider, to get three percent of retail sales in 2007-2010 and ten percent by 2015 from renewable sources. 59 Companies must track all potential regulations in the individual communities in which they operate so that they can take the most appropriate action to meet the risks. By tracking all regulations, corporations can efficiently synchronize their efforts across regulatory regimes. Even if a company's facilities are not regulated, the company may be indirectly impacted from climate change-related regulations. Regulations imposed upstream, such as on the suppliers on which a company depends, have 6 the potential to greatly increase both operational and compliance costs. 0 Regulations downstream, such as those imposed on consumers and those 6 1 regulating use, could also cause a decrease in sales for applicable industries. Furthermore, a company should consider the secondary effects that regulation 62 will have on energy and transportation costs.

C. Litigation Risks

Like the smoke signals of old, a corporation's greenhouse gas emissions attract attention, except such attention now brings an increased threat of

56. U.S. Mayors Climate Protection Agreement, http://www.seattle.gov/mayor/climate/default.htm (last visited Nov. 11, 2007). 57. Id. 58. Id. 59. City of Boulder, Climate Action Plan, 7 (2002), http://www.bouldercolorado.gov/files/ Environmental%20Affairs/climate%20and,/20energy/cap-final-25septO6.pdf 60. GLOBAL FRAMEWORK FOR CLIMATE RISK DISCLOSURE, supra note 29. 61. Id. 62. Id. Berkeley Business Law Journal Vol. 5.1!, 2008 environmental litigation. Various parties have filed or are currently filing lawsuits seeking damages from sources of greenhouse gas emissions for injuries allegedly associated with the physical effects of climate change.63 In one prominent case, Connecticut v. American Electric Power, various states and non-profit land trusts sued electric utilities operating coal-fired power plants in the Midwest. The plaintiffs argued that the emissions from these plants created a public nuisance, which contributed to climate change.64 The court, however, dismissed the suit on jurisdictional grounds, as it raised political questions, which are non-justiciable. 65 In California, Attorney General Bill Lockyer filed a lawsuit on behalf of the people of California against the big six automakers, attempting to hold them liable for the damage caused by the greenhouse gases their vehicles emit.66 California alleges that these emissions, and the resultant global warming, cause significant harm to California's environment, agriculture, public health, and economy. 67 This suit, still pending in the United States District Court for the Northern District of California, 68 and others soon to come, will likely be influenced by the Massachusetts v. EPA decision that has expanded standing and may lead to the regulation of greenhouse gases under the CAA. 69 Despite current barriers to successful legal action, many litigators remain hopeful. Some even believe that climate change-related payouts could top those recently faced by the tobacco and asbestos industries. 70 High-impact industries, power, and automobiles, will be particularly such as oil and gas, electric 7 1 susceptible to such tobacco-style litigation.

D. Competitive Risks

Companies that fail to take climate change-related actions may find themselves at a competitive disadvantage compared to the rest of their sector.72 Energy-intensive products and processes will likely translate into higher costs and lower profit margins. 73 Furthermore, there is likely to be a decline in

63. Nash & Fahsbender, supra note 11, at 7. 64. Connecticut v. Am. Elec. Power Co., Inc. 406 F.Supp.2d 265, 268 (S.D.N.Y. 2005). 65. Id. at 267. 66. Nick Bunkley, California Sues 6 Automakers Over Global Warming, N.Y. TIMES, Sep. 21, 2006, at C2. 67. Id. 68. Id. 69. Michael Lufkin & Bradley Marten, Marten Law Group, Supreme Court Greenhouse Gas Decision Extends Beyond the Tailpipe, available at http://www.martenlaw.com/news/?20070404- greenhouse-gas-decision. 70. Climate Change Could be Next Legal Battlefield, THE FINANCIAL TIMES, Jul. 7, 2003, available at http://www.climatelaw.org/media/ft.battlefield. 71. Innovest Strategic Value Advisors, supra note 14, at 7. 72. WELLINGTON, supra note 10. 73. Innovest Strategic Value Advisors, supra note 14, at 5. Shareholder Proposals consumer demand for these energy-intensive products. 74 As consumers increasingly demand that companies mitigate their greenhouse gas emissions, companies must respond to these correlative shifts in demand or else they will lose out to their competitors who do.

E. ReputationalRisks

Companies that are viewed as having poor or no climate change policies may face backlash from consumers concerned about climate change. 75 These consumers will choose to patronize companies that openly disclose how their practices relate to climate change, analyze their business in this framework, and take action to minimize their greenhouse gas emissions. As the customer base that cares about climate change grows, businesses that do not take into account climate change will lose increasingly more customers, and may even go out of 76 business. Companies ignoring climate change may face additional reputational risks brought on by activist organizations. Such organizations have targeted, and likely will continue to target, corporations they feel are contributing significantly to climate change. Their campaigns specifically intend to tarnish a brand and reduce customer patronage through the exposure of a company's 77 environmentally harmful practices.

F. Competitive Opportunities

Undertaking climate change-related actions is an investment in a corporation's future success. Although such actions may not always pay off in the short run, corporations that are proactive with respect to climate change will out-compete other businesses in their industry in the long run. Corporations that stay ahead of regulations by developing and implementing efficiency measures and new technology in their business can avoid paying penalties for non- compliance and reduce their costs of compliance. As climate change-related regulations increase the cost of inputs, 78 proactive businesses can stay ahead of the curve by continuously taking steps to minimize the costs of these inputs. Additionally, by being more accountable and proactive with regards to climate change, corporations can attract the patronage of concerned consumers and gain investments from environmentally-responsible investors. 79 The quest for corporate action towards climate change through shareholder proposals has

74. Id. 75. Id. 76. Nash & Fahsbender, supra note 11, at 7. 77. Assadourian, supra note 36, at 574. 78. Inputs are items required for production. 79. Assadourian, supra note 36, at 576. Berkeley Business Law Journal Vol. 5.1, 2008 been adopted by a growing number of institutional investors. Many have joined forces through the Investor Network on Climate Risk (INCR), a network of institutional investors and financial institutions devoted to increasing understanding of the risks and opportunities posed by climate change. g INCR now includes more than sixty institutional began in November 2003 and 8 investors managing more than a combined $4 trillion in assets. 1

G. Reputational Opportunities

In light of the attention popular publications and the media are giving to climate change, 82 concerned customers will gravitate toward companies working to reduce their contribution to climate change. These customers will patronize and invest in such companies. Furthermore, companies taking action relating to climate change often receive positive press, increasing support for their business. Companies can also play into the demand for "green" business and advertise their climate change-related actions to attract business.

H. FinancialOpportunities

Climate change poses financial opportunities for corporations as they reduce emissions and pursue "green" products and services. Companies operating in areas with cap-and-trade markets for greenhouse gas emission credits, such as Kyoto Protocol countries, have the potential to make a significant profit from their emission reductions.8 3 Emission reduction goals can sometimes be satisfied through efficiency measures, which may decrease savings.8 4 the needed quantity of raw materials and therefore translate into cost Climate change will also lead to new markets for products and services, creating opportunities for financial gain. The market for low-emission products is a prime example. The oil and gas industry, in particular, can seek financial opportunities in the natural gas, liquefied natural gas, and midstream power sectors.8 5 Fiscal rewards can also be recognized for this industrial group as corporations pursue carbon sequestration, clean technologies, and renewable resources. 86

80. About INCR, Investor Network on Climate Risk: A Project of Ceres, http://www.incr.comINETCOMMUNITY/Page.aspx?pid=261&srcid=198 (last visited Nov. 11, 2007). 81. Id. 82. Recent attention includes 's movie, An Inconvenient Truth, and climate change-related issues of Vanity Fair and Newsweek. 83. Nash & Fahsbender, supra note I1, at 7. 84. See GreenBiz.com, Energy Efficiency, http://www.greenbiz.com/toolbox/essentials-third.cfm? LinkAdvlD=8556 (last visited Feb. 11, 2008). 85. Innovest Strategic Value Advisors, supra note 14, at 113. 86. Id. Shareholder Proposals

III. THE SHAREHOLDER PROPOSAL PROCESS

Shareholder proposals are a means for shareholders to compel the management of a corporation in which they own securities to hold a shareholder vote on a proposed issue. Shareholders in a public corporation have the ability to have their proposals included with the management's proposals in the corporation's proxy materials. 87 This right granted to shareholders is, however, subject to certain limitations, 88 as are discussed below. The shareholder must comply with certain procedural requirements and the proposal 89 must not fall within one of the thirteen enumerated bases for exclusion. However, once the shareholder meets these requirements, shareholder democracy is promulgated and companies must include the shareholder's proposed resolution in their proxy materials at their own expense. Shareholder proposals fill a distinct niche in corporate law. 90 They provide a proactive mechanism that shareholders use to influence corporate action.9 1 Additionally, shareholder proposals provide minority shareholders an efficient means with which they can express their views and communicate with fellow shareholders and management. Through this expression, dialogue is facilitated 92 at both the shareholder-to-shareholder and shareholder-to-management levels. Furthermore, shareholder proposals are a mechanism for holding the management accountable for their past actions and influencing the 93 management's future actions. Shareholder proposals have been utilized to address a range of issues. Proponents of shareholder democracy use the proposals as a mechanism to address executive pay, board diversity, procedures governing annual meetings, and shareholder voting rights. 94 Shareholder proposals are also used as a method of activism to influence company policies on issues such as animal rights, charitable contributions, energy, , equal employment, global labor standards, human rights, military issues, and political 95 contributions.

A. Rule 14a-8 of the Securities Exchange Act of 1934

The Securities Exchange Act of 1934 (SEA) contains provisions pertaining to the regulation of publicly-held companies. The various sections of the SEA

87. Shareholder Proposals, 17 C.F.R. § 240.14a-8 (2007). 88. Id. 89. Id. 90. Dhir, supra note 15, at 374. 91. Id. 92. Id. 93. Id. 94. See Mathiasen & Voorhes, supra note 2 1, at 6. 95. Id. Berkeley Business Law Journal Vol. 5.1, 2008

relate to different participants in the securities trading process. Section 14 regulates the solicitation of proxies from holders of securities. Section 14(a) empowers the Securities and Exchange Commission (SEC) to regulate this process.9 6 The SEC's regulations are set forth in Rule 14a-8.97 First, to be eligible to have a proposal included in a proxy statement, a shareholder must own at least $2000 worth of securities, either beneficially or 98 of record, or one percent of the securities that will be voted at the meeting. The shareholder must own these securities for at least one year99 and do so at the time of the meeting. Proposals must be in the form of a resolution and shareholders are limited to one proposal per annual proxy statement on each issue. The shareholder must intend to introduce the proposals at a shareholders' meeting and the proponent shareholder must be present at the meeting or the ° ° proposal will be rendered excludable. Furthermore, the shareholder must give timely notice to the management of its intention to include a proposal for a forthcoming meeting. If the proposal is for an annual meeting, it generally must be submitted at least 120 days before the day of the year that proxy materials were sent for the previous year's meeting.' 01 The corporation must include this submission deadline on the prior year's proxy statement. Management usually resists the inclusion of shareholder proposals. If management wishes to exclude a proposal and finds reason to do so, it must first give the submitting shareholder a chance to correct it. Management must make this response within fourteen days, giving the shareholder an additional fourteen days to respond with corrections. 10 2 If management would still like to exclude the proposal, it must then file both a letter stating its reasons and a copy of the proposal with the SEC for review. If the SEC agrees that the 1 3 proposal should be excluded, it will issue a "no-action" letter. 0 This letter reflects the recommendation of SEC staff that no action be taken against management if the proposal is omitted. The shareholder proposal rule is continuously refined by these publicly-available letters, rather than by judicial decisions, because there are very few judicial decisions dealing with the shareholder proposal rule. "No-action" letters are generally not subject to judicial review. 104

96. Dhir, supra note 15, at 375. 97. 17C.F.R. § 240.14a-8. 98. Dhir, supra note 15, at 375. 99. 17 C.F.R. § 240.14a-8(b)(l). 100. Id. § 240.14a-8(h)(l). 101. Id. § 240.14a-8(e)(2). 102. Id. § 240.14a-8(f). 103. Id. § 240.14a-8(j). 104. See Amalgamated Clothing & Textile Workers Union v. SEC, 15 F.3d 254 (2d. Cir. 1994) (holding that shareholder could not obtain judicial review of SEC no-action letter); Kixmiller v. SEC, 492 F.2d 641 (D.C. Cir.1974) (holding that judicial review of SEC action does not extend to no-action Shareholder Proposals

Management can exclude a proposal if it falls within one of the thirteen bases for exclusion, enumerated in Question 9, Rule 14a-8(i). These exclusions fit into three general categories: 1) proposals inconsistent with centralized management; 2) proposals that interfere with management's proxy solicitation; or 3) proposals that are illegal, deceptive, or confused. Specifically, management can exclude a proposal if, it: is, under governing state law, not a "proper subject" for shareholder 10 5 action, 0 6 is not "significantly related" to the company's business,' relates to the "ordinary business operations" of the company,107 108 relates to the specific amount of dividends, 10 9 relates to an election of directors or officers, "directly conflicts" with a management proposal,' 10 1 1 is duplicative of another proposal included in the proxy statement, is substantially similar to a proposal previously submitted during the past five years, which received affirmative votes from less than a specified percentage of the shares voted,' 12 1 3 would require the company to violate a law, 1 is contrary to the SEC proxy rules, 14 115 relates to a redress of a personal claim or grievance, is beyond the company's power to effectuate, 116 or has been rendered moot by the company already taking action the shareholder proposes.'17 The "ordinary business" exception is the most common reason for excluding shareholder proposals 118 and is frequently cited by corporations trying to exclude climate change-related proposals.' 19 The SEC does not have

letters). 105. 17 C.F.R. § 240.14a-8(i)(I). 106. Id. § 240.14a-8(i)(5). 107. Id. § 240.14a-8(i)(7). 108. Id. § 240.14a-8(i)(13). 109. Id. § 240.14a-8(i)(8). 110. 17C.F.R. § 240.14a-8(i)(9). I11. Id. § 240.14a-8(i)(I 1). 112. Id. § 240.14a-8(i)(12). 113. Id. § 240.14a-8(i)(2). 114. Id. § 240.14a-8(i)(3). 115. 17 C.F.R. § 240.14a-8(i)(4). 116. Id. § 240.14a-8(i)(6). 117. Id. § 240.14a-8(i)(10). 118. Mathiasen & Voorhes, supra note 2 I, at 3. 119. Sung Ho (Danny) Choi, It's Getting Hot in Here: The SEC's Regulation of Climate Change Shareholder Proposals Under the Ordinary Business Exception, 17 DUKE ENVTL. L. & POL'Y F. 165 (2006). Berkeley Business Law Journal Vol. 5.1l, 2008

for determining if a proposal fits within the "ordinary any set rules or guidance 21 12 basis. business" exception. Decisions are made on a case-by-case Nevertheless, the SEC does consider two factors in its "ordinary business" determination: 1) whether the proposal is an attempt to regulate day-to-day business activities of the corporation, and 2) whether the proposal seeks to micromanage the corporation.' However, proposals involving significant social policy issues are an exception to the exclusion of proposals that pertain to ordinary business matters.123 This defense is often successfully utilized in the face of an ordinary business argument pertaining to a climate change-related proposal. 124 If the proposal does not fit an exception, it must be included in the proxy statement and shareholders must be allowed to vote on the proxy card. Included along with the proxy materials is a supporting statement of no more than 500 words. 25 These materials are mailed to shareholders at the corporation's expense. In addition to including the shareholder proposal, the proxy ballot must include a space for shareholders to vote either "yes" or "no" on the proposal. 126 The shareholders then consider the proposal before a vote at an annual or special shareholders' meeting. To be eligible for resubmission, votes are calculated according to the SEC's out of the total formula: the percentage of shares voted "for" the proposal 2 shares voted "for" and "against" the proposal, excluding all abstentions. 1 Proposals in their first year must win at least three percent support to qualify for resubmission in the following year. In the secondS --year,129 proposals must receive a minimum of six percent support for resubmission. In the third or subsequent year, the proposal must have at least ten percent support.' 30 If a proposal fails to gain adequate support, it cannot be resubmitted for three years. 31 Shareholders resubmit proposals when a corporation does not satisfy their directives. Management has a chance to object to the proposal and state its reasons for the objection in the proxy materials. 132 If management does not include a proposal that is not excludable, a shareholder can seek redress in two ways.

120. Id. at 174. 121. Id. 122. Id. 123. Id. 124. See Choi, supra note 119. 125. 17 C.F.R. § 240.14a-8(d). 126. Id. § 240.14a-8(a). 127. Mathiasen & Voorhes, supra note 21, at 3. 128. Id. 129. Id. 130. Id. 131. Id. 132. 17C.F.R. §240.14a-8(m). Shareholder Proposals

33 They can seek an SEC determination of a violation of the proxy rules.' Additionally, the Second Circuit Court of Appeals has recognized that a shareholder can bring a private action in federal court to compel the inclusion of the proposal or enjoin management's solicitation as a violation of the proxy rules. 134

B. Effects of ShareholderProposals

Shareholder proposals are not binding upon corporations under most state laws unless otherwise provided in a corporation's by-laws. 135 Shareholder proposals are rarely approved by a majority of shareholders.' 36 Most proposals receive about three percent of the vote. 137 Even if one is approved by a 38 majority, there is no guarantee that the proposed action will be implemented. However, shareholder proposals are nonetheless very effective. Boards of directors are attuned to shareholder reactions on certain issues and direct attention to proposals filed on these issues.139 Moreover, shareholder proposals have an educational effect on corporate managers and they foster dialogue 140 between shareholders, as well as between shareholders and management. Corporations will often address the issue, prompting the proponent to withdraw its proposal.' 4 1 Many shareholder activists consider success in working out agreements that enable them to withdraw their proposals to be a greater victory than winning a high number of votes.' 42 In 2005 there were at least 111 proposals withdrawn, a record high for the decade. 43 Thirty-four of these shareholder proposals filed related to climate change. 44 Sixteen of the thirty- four were withdrawn due to the corporation's agreement to adopt its directives. 145

133. Id. § 240.14a-8(k). 134. See Roosevelt v. E.I. Du Pont de Nemours & Co., 958 F.2d. 416 (D.C. Cir. 1992); N.Y. City Employees Retirement Sys. v. Dole Food Co., 969 F.2d 1430 (2d Cir. 1992). 135. Choi, supra note 119, at 172. 136. Id. 137. See Mathiasen & Voorhes, supra note 21, at 6. 138. Id. 139. Id. 140. See General Board of Pension and Health Benefits of the United Methodist Church, Company Descriptions: Anadarko Petroleum Corporation, http://www.gbophb.org/sri funds/companies.asp (last visited Mar. 20, 2007). 141. Id. 142. Mathiasen & Voorhes, supra note 21, at 3. 143. Id. 144. Id. at 5. 145. Id.at 3. Berkeley Business Law Journal Vol. 5.1, 2008

IV. CASE STUDIES - SHAREHOLDER PROPOSALS FILED WITH OIL AND GAS COMPANIES

A. Anadarko Petroleum Corporation

Anadarko Petroleum Corporation is an oil and gas exploration and 47 production company. 146 The company also has a hard minerals business. Anadarko, a Delaware corporation, is headquartered in . 14 8 It mostly operates in the United States, primarily in Texas, Louisiana, the mid-continent region, the western states, Alaska, and the Gulf of Mexico. Anadarko also operates in Canada, Algeria, Venezuela, and Qatar. 149 After two major acquisitions in 2006, Anadarko expanded into new fields in Alaska, China and 5 the Gulf of Mexico. '' In 2006, Anadarko's revenues totaled $10.2 billion.1 1 In October 2003, Trillium Asset Management, along with Domini Social Investments, Ethical Funds, ISIS Asset Management, and the General Board of Pensions and Health Benefits of the United Methodist Church sent a joint letter to Anadarko Petroleum Corporation's investor relations department, requesting a dialogue with Anadarko's on its climate change-related policies. 52 The letter explained these signatory institutional investors' position and stated that they were considering filing a shareholder proposal on the issue.' 53 Anadarko never 54 responded to their letter and the group filed a shareholder proposal.1 On behalf of a client, Trillium Asset Management Corporation-along with the General Board of Pension and Health Benefits of the United Methodist Church, the Nathan Cummings Foundation, Domini Social Investments, and the Libra Fund and Ethical Funds, Inc.-filed this climate change-related shareholder proposal. 155 The proposal's proponents requested that Anadarko "prepare a report. . . explaining how the company is responding to rising regulatory,gas] . - competitive,,156 and public pressure to significantly reduce [greenhouse gas] emissions. The proposal's supporting statement based the need for this report on climate change-related risks and opportunities: "[w]e believe taking

146. Anadarko Petroleum Corp., Annual Report (Form 10-K), at 18 (Feb. 28, 2007) [hereinafter Anadarko Annual Report]. 147. Id. 148. Id. at 16. 149. Id. at 18. 150. 2007 Anadarko Fact Sheet, available at http://www.anadarko.com/PDF/FactSheetAnadarko 0507.pdf. 15 I. Anadarko Annual Report, supra note 146, at 31. 152. Anadarko Petroleum Corp., SEC No-Action letter, 2004 SEC No-Act. LEXIS 234, at *58-59 [hereinafter Anadarko No-Action Letter]. 153. Id. at *59. 154. Id. 155. Id. at *2. 156. Anadarko Petroleum Corp., Proxy Statement (Schedule 14A), at 25 (Mar. 12, 2004) [hereinafter Anadarko Proxy Statement]. Shareholder Proposals early action to reduce emissions and prepare for standards could provide competitive advantages, and inaction and opposition to emissions control efforts could expose companies to regulatory and litigation risk, and reputation damage."' 57 The proponents detailed some of these risks in their proposal. For example, they explain how U.S. oil and gas companies are at a competitive disadvantage with oil and gas companies operating in Kyoto Protocol countries because these companies are accustomed to operating in a regulatory climate in which their greenhouse gas emissions are limited.158 The proponents also recognize actions taken by industry leaders, such as BP, who account for the cost of carbon in their strategic planning, disclose and reduce their greenhouse gas emissions, and invest in renewable energy technology.159 Specifically, they stated that BP attributed a savings with a net present value of $650 million to their greenhouse gas emission reduction activities.1 60 Additionally, the proponents mentioned that BP claims that their proactive climate change 61 policies help them recruit and retain employees.' After the shareholders filed this proposal, Anadarko submitted a request to the SEC to exclude the proposal from its proxy materials. Anadarko alleged that the proposal: 1) dealt with matters pertaining to the corporation's "ordinary business" operations (Rule 14a-8(i)(7)), 2) contained "false or misleading statements" (Rule 14a-8(i)(3)), and 3) requested action already substantially implemented (Rule 14a-8(i)(10)). 62 In support of exclusion under Rule 14a- 8(i)(7), Anadarko argued that the proposal focused on the "business prospects and strategy of Anadarko" and therefore encroached on day-to-day business operations and attempted to micro-manage the company.163 To bolster its claim of exclusion under Rule 14a-8(i)(3), Anadarko analyzed the 10 prominent statements made in the proposal in an attempt to show they were vague, false or misleading, and unsupported.164 In relation to its claim for exclusion under Rule 14a-8(i)(10), Anadarko discussed its annual report, which stated that environmental laws may have a material effect on the company, and explained its "seven guiding principles that drive [its] environmental responsibility, health 165 and safety programs."' The SEC Office of Chief Counsel, Division of Corporation Finance, did not concur with any of Anadarko's reasons for exclusion. 66 The SEC did not offer

157. Id. at 26. 158. Id. 159. Id. 160. Id. 161. Anadarko Proxy Statement, supra note 156, at 26. 162. Anadarko No-Action Letter, supra note 152, at *3 1. 163. Id. at *36-39. 164. Id. at *40-52. 165. Id. at *54-56. 166. ld. at * 1-3. Berkeley Business Law Journal Vol. 5.1, 2008

an explanation for why it disagreed with the Rule 14a-8(i)(7) and Rule 14a- 8(i)(10) arguments. 167 The SEC permitted the proponents to rephrase and cite 68 some of their statements, based on Anadarko's Rule 14a-8(i)(3) contentions. As a result, the proposal was included in Anadarko's proxy materials and won 1 69 31.4 percent of the shareholders' votes. Despite this shareholder support, Anadarko's response was limited. 70 The shareholders made essentially the same request in a 2005 proposal.' 71 This shareholder persistence sparked a positive response from Anadarko, ultimately impacting its corporate behavior related to climate change. As a result of the proposal, Anadarko agreed to post statements about climate change on its website and in its annual report (form 10-K filling with the SEC). 172 Due to this 173 progress, the shareholders withdrew the proposal. In 2006 shareholders demanded more action from Anadarko. Another shareholder proposal was filled, which was almost identical to the 2005 proposal. 7 4 The only addition was a paragraph in the supporting statement: The shareholders acknowledge and applaud Anadarko's commitment to establishing a [greenhouse gas] baseline, but note with concern that our company appears to lag behind its industry peers in developing and implementing a strategic and comprehensive approach to the challenges posed by climate change. 175 Anadarko agreed to measure and disclose its annual greenhouse gas emissions and report these emissions on its website. 176 Furthermore, Anadarko agreed to select a greenhouse gas registry to help the company establish its greenhouse gas emission reduction targets. 177 As the result of these 78 commitments, the shareholders again withdrew their proposal.1 In 2007, yet another climate-related shareholder proposal was filed with

167. Anadarko No-Action Letter, supra note 152, at *3. 168. Id. at * 1-2. 169. Trillium Asset Management, Environmental Advocacy, http://www.trilliuminvest.com/pdf/ tamc-environmentsl 1-03.pdf (last visited Mar. 21,2007). 170. General Board of Pension and Health Benefits of the United Methodist Church, supra note 140. 171. Id.; see also Trillium Asset Management, Resolution Detail: Climate Change Report (2004- 2005), http://www.trilliuminvest.com/pages/activism/activism-resdetail.aspx?ResolutionlD = 116 [hereinafter Trillium: Climate Change Report]. 172. General Board of Pension and Health Benefits of the United Methodist Church, supra note 140. 173. Trillium: Climate Change Report, supra note 171. 174. Trillium Asset Management, Resolution Detail: Greenhouse Gas Emissions (2005-2006), http://www.triIIiuminvest.com/pages/activism/activism-resdetail.aspx?ResolutionID= 136. 175. Id. 176. General Board of Pension and Health Benefits of the United Methodist Church, supra note 140. 177. Id. 178. Id. Shareholder Proposals

Anadarko.179 This proposal, also filed by Trillium, requested that the company set greenhouse gas emission reduction goals below 2004 levels and report their plans relating to products and operations.18 This proposal was also withdrawn due to progress made by Anadarko. 181 Specifically, Anadarko agreed to reduce greenhouse gas emissions per unit of output by establishing an "intensity reduction target" by the end of 2008182 and arranged meetings between investors and senior executives. 183

B. ConocoPhillipsCompany 184 ConocoPhillips Company is an integrated energy corporation. Specifically, the company engages in: petroleum exploration, production, refining, marketing, supply, and transportation; natural gas gathering, processing, and marketing; and chemicals and plastics production and distribution.185 ConocoPhillips is a Delaware corporation, 186headquartered in Texas187, which operates in over 40 countries.188 In 2006, ConocoPhillips' 89 revenues totaled $183.7 billion. 1 In 2003, Trillium Asset Management Corporation and the General Board of Pension and Health Benefits of the United Methodist Church filed a shareholder proposal with ConocoPhillips. These shareholders asked that the 19 corporation disclose the business risks posed by greenhouse gas emissions. 0 Specifically, they requested that the Board of Directors prepare a report, available to its shareholders, detailing the risks posed to the corporation from past, current, and future greenhouse gas emissions from its products and operations. 191 The resolution framed the risks associated with climate change as an "off-balance-sheet liability" that threatened the financial viability of the

179. Ceres, 2007 Proxy Season - Resolution Tracker, http://www.ceres.org/pub/docs/Resolution- tracker.pdf (last visited Nov. 1i, 2007) [hereinafter Ceres 2007 Proxy Season]. 180. Id. 181. Id. 182. Shelley Alpern, 2007 Shareholder Resolution Roundup (June 2007), http://www.trilliuminvest.com/pages/news/news-detail.aspx?Articlel D=571 &status=CurrentIssue. 183. Fleming, supra note 19. 184. ConocoPhillips Co., Annual Report (Form IO-K), at 2 (Feb. 23, 2007) [hereinafter ConocoPhillips Annual Report]. 185. Id. 186. Id. at 1. 187. ConocoPhillips Fact Book, http://www.conocophillips.com/NR/rdonlyres/C839D93F-BACI- 465E-A54D-8BFFB87D7A26/0/fbscoverprofile.pdf, at 6. 188. ConocoPhillips Annual Report, supra note 184, at 2. 189. Id. at 48. 190. ConocoPhillips Co., SEC No-Action letter, 2003 LEXIS 466, at *2 (March 24, 2003). 191. Trillium Asset Management, Resolution Detail: Report on the Business Risks of Greenhouse Gas Emissions (2002-2003), http://www.triIliuminvest.com/pages/activism/activism_resdetail.aspx? ResolutionlD=63. Berkeley Business Law Journal Vol. 5.1!, 2008 company. 19 The proposal explicitly identified all of the aforementioned risks- regulatory risks, litigation risks, competitive risks, and reputational risks-with the exception of physical risks.' 93 Additionally, the resolution acknowledged that ConocoPhillips itself recognized regulatory risks from climate change in the Kyoto Protocol, but failed to inform its shareholders of SEC filings, such as 19 4 how it planned to manage these risks. In response to this proposal, ConocoPhillips submitted a request to the SEC to exclude the proposal from its proxy materials.' 95 ConocoPhillips requested the proposal be excluded pursuant to Rule 14a-8(b)(l), on the grounds that Trillium, the beneficial owner of the shares, had not held the securities for at proposal. 96 least one year and was therefore not eligible to file a shareholder ConocoPhillips also argued for exclusion, in the alternative, under Rule 14a- 8(e), on the grounds that Trillium failed to meet the deadline for submitting shareholder proposals. 197 The SEC's Office of Chief Counsel, Division of Corporation Finance, did not even address this alternative argument, finding that ConocoPhillips could omit the proposal from its proxy materials in reliance stated that they would not recommend enforcement on rule 14a-8(b) (the SEC 98 action if the proposal was omitted).1 Despite the omission of this shareholder proposal from ConocoPhillips's proxy materials, ConocoPhillips decided to implement the request it contained. ConocoPhillips agreed to develop its first statement acknowledging the risks posed by climate change, 199 committing to addressing these risks above and beyond what it was legally required to do.2 0 0 The proposal thus fostered an alteration in the corporate management's view of climate change. In the 2007 proxy season, shareholders submitted another climate change- related proposal to ConocoPhillips. This proposal, also submitted by Trillium, z as well as the North Carolina State Treasurer,20 requested that ConocoPhillips disclose its plans to develop renewables, in light of the rising pressures on the 2 2 company pertaining to this area. 0 This proposal was withdrawn due to

192. Id. 193. id. 194. Id. 195. ConocoPhillips Co., supra note 190, at *2. 196. ConocoPhillips asserted that the earliest date anyone could have acquired shares of their stock was August 30, 2002, the effective date of the merger between Conoco Inc. and Phillips Petroleum Company, and therefore Trillium had not held the stock for at least one year when they submitted their proposal on January 20, 2003. Id. at *5-6. 197. /d. at*10-11. 198. Id. at * 1-2. 199. Trillium Asset Management, Environmental Advocacy, http://www.trilliuminvest.com/pdf/ tame-environment_ 11-03.pdf (last visited Mar. 21, 2007). 200. Id. 201. Fleming, supra note 19. 202. Trillium Asset Management, Resolution Detail: Report on Efforts to Develop Renewable Energy Sources (2006-2007), http://www.trilliuminvest.com/pages/activism/activism-resdetail.aspx? Shareholder Proposals progress at ConocoPhillips. 20 3 ConocoPhillips joined the U.S. Climate Action Partnership, a coalition supporting a national policy to reduce greenhouse gas emissions by sixty to eighty percent by 2050,204 agreed to fund $300 million of low-carbon fuels research,2 °5 committed to reduce ten percent of greenhouse gases at refineries by 2012 through efficiency measures, and will incorporate 20 6 carbon cost in its capital spending plans.

C. ExxonMobil Corporation

2 7 ExxonMobil is the world's largest energy company. 0 Its businesses include: exploration, production, transportation, and sale of oil and natural gas; the manufacture, transport, and sale of petroleum and petrochemical products; 2 8 and interests in electric power generation facilities. 0 ExxonMobil is a New 2 9 Jersey corporation, headquartered in Texas, 0 operating in most countries of 2 10 the world. In 2006, ExxonMobil's revenues totaled $365.5 billion. Since 1990, ExxonMobil received numerous shareholder proposals relating to climate change. 211 While Exxon Mobil successfully excluded some of these proposals, the proposals that were included received a range of lesser percentages of support. 212 In the 2005 proxy season, however, ExxonMobil included one of the highest-scoring shareholder proposals on a corporate social responsibility issue. This proposal asked ExxonMobil to report how it will comply with greenhouse gas emission reductions in countries in which it operates that adopted the Kyoto Protocol. 213 Province of St. Joseph of the Capuchin Order filed the proposal, which was supported mostly by religious investors-Adrian Dominican Sisters, Maryknoll Sisters of St. Dominic, Sisters of St. Joseph of LaGrange, Catholic Healthcare West, Sisters of St. Joseph-as well as Trillium Asset Management and the State of Maine. 2 14 It received 28.4 215 percent support. The supporting statement to the proposal outlined why the filing

ResolutionlD=183. 203. Fleming, supra note 19. 204. Alpem, supra note 182. 205. Fleming, supra note 19. 206. Alpem, supra note 182. 207. ExxonMobil Corp., Annual Report (Form 10-K), at 24 (Feb. 28, 2007) [hereinafter ExxonMobil Annual Report]. 208. Id. at 1. 209. Id. 210. ld. at 24. 211. Id. 212. See id.; see also ExxonMobil Corp., SEC No-Action Letter, 2005 LEXIS 466 (Mar. 23, 2005) [hereinafter ExxonMobil No-Action Letter ]. 213. Mathiasen & Voorhes, supra note 21, at 6. 214. ExxonMobil No-Action Letter 1, supra note 212. 215. Mathiasen & Voorhes, supra note 21, at 6. Berkeley Business Law Journal Vol. 5.1, 2008 shareholders "believe ExxonMobil is poorly positioned to meet increasing mandates to reduce [greenhouse gas] emissions in a cost-effective way." 216 The proponents referenced comments by ExxonMobil spokespersons stating that the corporation intended to focus on energy efficiency gains, and not on setting targets to reduce its greenhouse gas emissions.217 Its emissions actually 2 increased two percent in the previous year. 8 Citing a variety of news sources, the proponents showed how ExxonMobil lagged far behind its competitors. At that time, ExxonMobil's emissions were over 50 times higher than BP's, even though ExxonMobil's oil and gas production was only "slightly larger" than BP's.2 19 While competitors invested increasingly in emission reduction activities and reaped the benefits (BP's activities generated savings with a net present value of $650 million), ExxonMobil's research and development 22 spending decreased. 0 Beyond asking ExxonMobil to show its Kyoto compliance plans, the shareholders also requested projections of costs, timelines for meeting reduction requirements, an evaluation of whether earlier have reduced costs, and the action-like those taken by its competitors-would22 1 feasibility of reducing emissions in the U.S. ExxonMobil submitted a request to the SEC to exclude the proposal based on the exclusions enumerated in rule 14a-8(i)(7)-that it related to the "ordinary business operations" of the company-and rule 14a-8(i)(10)-that it was rendered moot by the company already haven taken action in accordance 2 2 with the shareholder proposals. 2 To support exclusion under rule 14a-8(i)(10), ExxonMobil discussed its "Report on Energy Trends, Greenhouse Gas Emissions and Alternative Energy," which details climate change-related initiatives that ExxonMobil was undertaking. 3 ExxonMobil also submitted its annual Corporate Citizenship report and its response to the Carbon Disclosure Project.224 In support of the rule 14a-8(i)(7) ordinary business exception, ExxonMobil contended that the proposal was merely a report on the risks and benefits related to a regulatory compliance issue. 225 The SEC's Office of Chief Counsel, Division of Corporation Finance, found that neither of these rules provided a basis for ExxonMobil to omit the shareholder proposal.2 26 Subsequent to its inclusion in the proxy materials, the proposal received 28.3

216. ExxonMobil No-Action Letter 1,supra note 212. 217. Id. 218. Id. 219. Id. 220. Id. 221. ExxonMobil No-Action Letter I, supra note 212. 222. Id. 223. Id. 224. Id. 225. Id. 226. ExxonMobil No-Action Letter 1,supra note 212. Shareholder Proposals

percent of the shareholders' support.227 Due to a lack of action, the same shareholder proposal was again filed in by the Sisters of St. Joseph of LaGrange (lead filer) with co-filers Sisters 2006 228 of the Holy Spirit and Mary Immaculate and Trillium Asset Management. Once again, ExxonMobil requested a no-action letter from the SEC to exclude the proposal based on rule 14a-8(i)(10), on the grounds that it had already substantially implemented the proposal.229 In its request, ExxonMobil described its 2006 report, entitled "Tomorrow's Energy, A Perspective on Energy Trends, Greenhouse Gas Emissions and Future Energy Options," which it believed implemented the proponent's request. 23 The corporation stated that the report discussed its responses to greenhouse gas emission regulations, including emissions trading in the EU, the current and future status of its compliance efforts, and Kyoto-related public policy issues.2 3 1 The Report also described how ExxonMobil would reduce greenhouse gas emissions through improved 232 efficiency in operations and improved use of its products. As a result of this response to their demands, the proponents withdrew their proposal.2 33 In their correspondence with the SEC, the Sisters of St. Joseph of LaGrange stated that they reviewed ExxonMobil's report, had conversations with the company, and understood that the SEC would rule in favor of the ExxonMobil's request to exclude the proposal under rule 14a-8(i)(10) because the proposal was substantially implemented. 234 Although the Sisters of St. Joseph of LaGrange may have withdrawn their proposal for fear of defeat, it appears rather that they were satisfied that its shareholder proposal had the intended effect: ExxonMobil took action regarding greenhouse gas emissions. Shareholders still want to see ExxonMobil make further progress concerning climate change-related risk disclosures and general responses to the climate change issue. 235 In the 2007 proxy season, shareholders filed five 236 climate change-related proposals with ExxonMobil. These proposal included requests to set greenhouse gas emission reduction goals for operations and products, to respond to pressure for renewables, and to adopt a plan to respond

227. Ceres 2007 Proxy Season, supra note 179. 228. ExxonMobil Corp., SEC No-Action Letter, 2006 LEXIS 262 (Feb. 28, 2006) [hereinafter ExxonMobil No-Action Letter 11]. 229. Id. 230. id. 231. Id. 232. Id. 233. ExxonMobil No-Action Letter II, supra note 228. 234. Id. 235. Ceres, TXU, ExxonMobil Among 10 'Climate Watch' Companies Targeted by Investors: US Companies Face Record Number of Global Warming Resolutions, (Feb. 13, 2007), available at http://www.ceres.org/news/pf.php?nid=267 [hereinafter Climate Watch Companies]. 236. Ceres 2007 Proxy Season, supra note 179. Berkeley Business Law Journal Vol. 5.1, 2008

to California's climate change legislation, AB32. 237 ExxonMobil challenged all of these proposals. 238 One resolution, filed by Trillium Asset Management and the Sisters of St. Dominic of Caldwell, requested that ExxonMobil set quantitative goals, based on current technology, to reduce greenhouse gas emissions from both the company's operations and products. 239 This proposal won 31.1 percent support. Another proposal, calling for a policy to source 240 fifteen to twenty-five percent renewables, received 7.3 percent support.

V. ANALYSIS

A. Impact of ShareholderProposals

Shareholder proposals are an effective means of furthering climate change- related progress in American oil and gas corporations. While a corporation's response may not always follow the first inclusion, and at times the corporation may challenge the proposals on various grounds, shareholders' proposals do prompt corporate action. By and large these proposals are a catalyst for climate change-related disclosure, analysis, and action.

1. Anadarko Petroleum Corporation

Anadarko appears to be making a genuine effort to disclose and analyze its climate change-related business practices and reduce its greenhouse gas emissions. The climate change-related shareholder proposals filed in the last three proxy seasons appear to have to fostered this disclosure, analysis, and action. After its shareholders filed proposals, Anadarko agreed to their directives and the proponents subsequently withdrew their proposals following the satisfaction of their requests for disclosure, analysis, and action. Anadarko is currently establishing a company-wide greenhouse gas emissions management system. 24 1 Its , an executive-level committee, directs this system, and it is overseen by the board. 242 Anadarko's management plan uses 2004 as an emissions baseline, although it will be updated annually. 243 Through this initiative, the company evaluates possible

237. Id. 238. Id. 239. Trillium Asset Management, Resolution Detail: Reduce Greenhouse Gas Emissions (2006- 2007), http://www.trilliuminvest.com/pages/activism/activism-resdetail.aspx?ResolutionlD= 150 [hereinafter Trillium: Reduce Greenhouse Gas Emissions]; Fleming, supra note 19. 240. Ceres 2007 Proxy Season, supra note 179. 241. DOUGLAS G. COGAN, CERES, CORPORATE GOVERNANCE AND CLIMATE CHANGE: MAKING THE CONNECTION 204 (Mar. 2006), available at http://216.235.201.250/netcommunity/Document.Doc? id=90 [hereinafter COGAN I1]. 242. Id. 243. Id. Shareholder Proposals emission reduction goals.244 To help with its analysis of the appropriate climate change-related actions, Anadarko is arranging meetings between concerned investors and senior executives. 245 Anadarko will establish an "intensity reduction target" by the end of 2008 which will specify a greenhouse gas 246 emission reduction goal per unit of output. There is, however, more work yet to be accomplished. Anadarko does not presently have plans for third-party verification of its emission accounting activities. 247 More significantly, Anadarko has yet to publicly state its objectives and quantitative goals for reducing greenhouse gas emissions. 248 Without such disclosure, shareholders cannot monitor Anadarko's progress and performance. It appears Anadarko will disclose these goals shortly, by the end of 2008 at the very latest. The shareholders withdrew their 2007 proposal, which requested that the company set greenhouse gas emission reduction goals below 2004 levels, due to sufficient progress on this directive. After such disclosure, shareholders can evaluate Anadarko's subsequent emission reduction actions. It is too early to tell if Anadarko is making significant progress toward reducing its greenhouse gas emissions across its operations. The only indicative figure available is the amount of Anadarko's direct carbon dioxide emissions in 249 2005, which totaled 4.9 million metric tons of carbon dioxide equivalents. However, Anadarko is reducing the amount of greenhouse gas emissions through individual projects. Anadarko currently engages in oil recovery and 250 coal-bed mercury recovery projects, which reduce greenhouse gas emissions. Such a project in Wyoming is expected to sequester about 29 million tons of carbon dioxide over the lifetime of the project.251 Anadarko is also the eighth largest domestic producer of natural gas, a source of energy that is low in 252 carbon. Despite its climate change-related disclosure, analyses, and action, Anadarko does not feel climate change is presently a material strategic business issue, and does not expect it to become one during the next five to seven years. The corporation, however, states that it may change this assessment after conducting further research on the issue. 253 Such a statement may be a word of caution to its shareholders, as doubts remain as to whether Anadarko will

244. Id. 245. Fleming, supranote 19. 246. Alpem, supra note 182. 247. COGAN II, supra note 241, at 206. 248. Trillium Asset Management, Resolution Detail: Reduce Greenhouse Gas Emissions (2006- 2007), http://www.trilliuminvest.com/pages/activism/activism-resdetail.aspx?ResolutionlD= 77. 249. Id. 250. COGAN 11, supra note 241, at 206. 251. Id. 252. Id. 253. Id. at 205. Berkeley Business Law Journal Vol. 5.1, 2008

engage in sufficient actions in the short term to minimize the risks and take advantage of the opportunities climate change poses for its business.

2. ConocoPhillips Company

Beginning in 2003, ConocoPhillips committed to taking action to address climate change. 254 ConocoPhillips elected to take this action even though it successfully excluded the shareholder proposal on the issue from its proxy material. ConocoPhillips engages in disclosure and analysis, monitoring its annual carbon dioxide and methane emissions and taking these levels into account as it develops management programs for greenhouse gases. 255 The company is also analyzing methods of integrating climate change-related considerations into its project planning and approval process, such as incorporating carbon costs in its capital spending plans,256 as well as emissions trading in and the International Emissions Trading Association (IETA), which the company voluntarily joined in 2004. 257 In 2007, ConocoPhillips joined the U.S. Climate Action Partnership, a coalition supporting a national policy to reduce greenhouse gas emissions by sixty to eighty percent by 2050,258 agreed to fund $300 million of low-carbon fuels research, 259 and committed to a greenhouse gas reduction goal: 10 percent reduction at 26 refineries by 2012 through efficiency measures. 0 Despite this disclosure, analysis, and intended action, ConocoPhillips' annual global carbon dioxide emissions actually increased from 50 million tons of carbon dioxide equivalent in 2002 to 55 million tons of carbon dioxide equivalents in 2004. 261 It appears that the disclosure and analysis brought on by the shareholder proposal has yet to translate into quantifiable action. Since these are the most recent figures available, it cannot be determined if ConocoPhillips made any progress within the last two years. Additionally, ConocoPhillips' greenhouse gas emission program is limited, as it only applies to refineries, and is just beginning. As a result, no means currently exist to benchmark its progress and performance. However, ConocoPhillips is working on several projects that will reduce greenhouse gases, such as the development of liquefied natural gas, coal gasification, hydrogen fuels, and carbon sequestration technologies, as well as

254. Carbon Disclosure Project (CDP), Greenhouse Gas Emissions Questionnaire, ConocoPhillips Response, 2006, http://www.cdproject.net/search.asp (search for "ConocoPhillips"; then download second search result). 255. COGAN I1,supra note 241, at 217. 256. Alpem, supra note 182. 257. COGAN II, supra note 241, at 219. 258. Alpem, supra note 182. 259. Fleming, supra note 19. 260. Alpem, supra note 182. 261. COGAN II,supra note 241, at 218 Shareholder Proposals evaluating renewable energy options. 262 Despite these actions, ConocoPhillips shows no interest in carbon-free energy sources. 263 ConocoPhillips has not made significant investments in solar, wind, or other renewable energy technologies, the markets expected to expand significantly in the coming years. 264 Recently, ConocoPhillips became a non-operating partner in a gas recovery and utilization initiative at Vietnam's Rang Dong oil field. 265 Because ConocoPhillips has yet to quantify its greenhouse gas emission reductions from its specific projects, the company's progress in this area cannot be determined.266

3. ExxonMobil Corporation

Over the last decade and a half, ExxonMobil saw shareholders file numerous climate change-related proposals. ExxonMobil was able to successfully exclude some of these proposals, but was forced to include other proposals in the proxy that went to a vote. In response to shareholders' persistent attempts, ExxonMobil has engaged in climate change-related disclosure and analysis, although it has not taken sufficient action to satisfy 267 many of its shareholders. In terms of disclosure and analysis, the Capuchin Order's 2005 shareholder proposal requesting ExxonMobil to report on its Kyoto compliance plans was a success. ExxonMobil's 2006 report included the following sections: "Responding to Greenhouse Gas Regulations;" "Climate Policy: Assessing Risks to Investors;" and "Assessing the Impact on ExxonMobil of Europe's Emissions Trading Scheme (EU-ETS) for 2005-2007;" a discussion of Kyoto- related public policy issues; and a discussion of ExxonMobil's efficiency improvements scheme for complying with current and future emissions regulations. 268 However, its implementation appears to be more of a procedural concession than the substantive action the proposal's proponents had in mind. In their letters to ExxonMobil, proponents included their reasons for supporting this proposal, which included addressing climate change through the use of renewable resources, reductions in greenhouse gas emissions beyond those required by Kyoto, and concern that ExxonMobil was not positioned to meet greenhouse gas emission reduction mandates in a cost-effective manner.269 This underlying reasoning was not satisfied by ExxonMobil's corresponding action

262. Id. 263. Alpern,supra note 182. 264. Climate Watch Companies, supra note 235. 265. Innovest Strategic Value Advisors, supra note 14, at 117. 266. COGAN 11,supra note 241, at 218. 267. Id. 268. ExxonMobil No-Action Letter H,supra note 228. 269. ExxonMobil No-Action Letter 1,supra note 212. Berkeley Business Law Journal Vol. 5.1, 2008

and ExxonMobil has yet to make significant progress in its corporate governance on climate change. Ceres 27 conducted an independent report, "ExxonMobil's Corporate Governance on Climate Change," in which it made three findings: 1) ExxonMobil's "2006 Tomorrow's Energy Report" and "2005 Corporate Citizenship Report" "demonstrate a corporate plan and mindset unprepared for leadership in a carbon constrained world," 2) ExxonMobil's climate change- related statements, plans, actions, and investment lag behind their competitors (BP, , Chevron, and Total), and 3) ExxonMobil's lack of action produces significant financial, competitive, and reputational risks for its shareholders.2 7' Much of these findings may rest on the fact that, until recently, ExxonMobil questioned the science supporting climate change2 72 and therefore questioned the necessity of making significant investments in clean energy and alternative fuels. 273 The corporation feels that oil is still the future. Specifically, ExxonMobil believes that oil and gas will represent sixty percent of energy sources and that solar power, wind power, and biofuels will only comprise two percent in 2030 (despite the fact the renewable energy already supplies four percent of the world's power).274 Furthermore, some believe that ExxonMobil engages in the largest and most successful disinformation campaign regarding climate change since Big Tobacco mislead the public about the link between 5 smoking and lung cancer and heart disease.2 ExxonMobil continues to lag far behind its competitors in greenhouse gas emission reduction efforts. ExxonMobil failed to implement a greenhouse gas emission reduction program with formalized goals.276 However, ExxonMobil is working to increase energy efficiency at its refineries and chemical plants to achieve a reduction in energy and carbon dioxide intensity rates (rather than emissions). 277 It has achieved reductions in these intensity rates by thirty-five percent since 1973 and plans to reduce them by an additional ten percent from

270. "Ceres is a national network of investment funds, environmental organizations and other public interest groups working to advance environmental stewardship on the part of businesses." Ceres, Ceres: Investors and Environmentalists for Sustainable Prosperity, http://www.ceres.org/ceres/ (last visited Apr. 15, 2007). 271. ANDREW LOGAN & DAVID GROSSMAN, CERES, EXXONMOBIL'S CORPORATE GOVERNANCE ON CLIMATE CHANGE, I (2006), http://www.ceres.org/pub/docs/CeresXOM-corp-gov_climate- change_053006.pdf. 272. ExxonMobil, ExxonMobil's response to publication of the IPCC Fourth Assessment Report of Climate Change 2007: Climate Change Impacts, Adaptation and Vulnerability, http://www.exxonmobil.com/Corporate/news-statements-20070213_climateipcc.aspx. 273. Logan & Grossman, supra note 271, at 4. 274. Logan & Grossman, supra note 271, at 4-5. 275. Union of Concerned Scientists, Smoke, Mirrors & Hot Air: How ExxonMobil Uses Big Tobacco's Tactics to Manufacture Uncertainty about Climate Science, Jan. 2007, http://www.ucsusa.org/global-warming/science/exxonmobil-smoke-mirrors-hot.html (follow "Full Report" hyperlink under "Related Links"). 276. Innovest Strategic Value Advisors, supra note 14, at 114. 277. Logan & Grossman, supra note 271, at I. Shareholder Proposals

2002-2012.278 ExxonMobil also lags behind its competitors in the research and development of alternative energy technologies. In the next decade, ExxonMobil will spend only $100 million on climate change research at Stanford.279 To date, ExxonMobil has dismissed the potential for wind and solar power as "inconsequential. 28 °

B. Critique of Responses to ShareholderProposals

Most American companies, across industrial sectors, lag behind their 28 international competitors in addressing climate change in their businesses. 1 Overseas oil and gas companies, specifically BP and Royal Dutch Shell, already enjoy competitive advantages for climate change-related actions. Anadarko, ConocoPhillips, and ExxonMobil and are prime examples of American corporations lagging behind their international competitors in the climate change arena. ExxonMobil is the world's largest energy and petroleum company, with revenues of $365.5 billion in 2006. 282 Depending on how climate change risks and opportunities play out in the oil and gas industry, ExxonMobil may not remain in the lead for long. Anadarko, with revenues of $10.2 billion in 2006, 283 and ConocoPhillips, with revenues of $183.7 billion in 2006,284 may not stay in their respective ranks for long either. In 2006, Ceres issued its report, "Corporate Governance and Climate Change: Making the Connection." This report evaluates how 100 leading global companies (76 U.S. companies and 24 non-U.S. companies) are addressing climate change. 285 Companies are evaluated according to the "Climate Change Governance Checklist," which includes steps relating to board oversight, actions of management, public disclosure, greenhouse gas emissions accounting, and strategic planning. 286 Based on this checklist, companies are ranked on a 100-point scale. 287 In the Oil and Gas sector, non- U.S. companies BP and Royal Dutch Shell topped the list with 90 and 79 points respectively. 288 Anadarko, ConocoPhillips, and ExxonMobil each lagged well

278. Id. 279. Shari L. Diener, Ratification of Kyoto Aside: How InternationalLaw and Market Uncertainty Obviate the Current U.S. Approach to Climate Change Emissions, 47 WM. & MARY L. REV. 2089, 2125 (Apr. 2006). 280. COGAN Ii, supranote 241, at 23. 281. Id. at ii. 282. ExxonMobil Annual Report, supra note 207, at 24. 283. Anadarko Annual Report, supra note 146, at 3 1. 284. ConocoPhillips Annual Report, supra note 184, at 48. 285. COGAN II, supra note 241, at ii. 286. Id. 287. Id. at 7. 288. Id. at4. Berkeley Business Law Journal Vol. 5.1, 2008

behind with mere 39, 35, and 35 points respectively. 289 However, all three companies rank above average (34.8),290 which is likely the result of shareholder proposals on climate change. These shareholder proposals sparked disclosure, analysis, and at least some degree of action relating to climate- change, which likely bolstered their scores. Nonetheless, these companies still have a long way to go to catch up to their international competitors and to prepare to meet future international and domestic regulations on the issue. Despite some success in spurring disclosure and analysis as a result of these shareholder proposals, the corporate actions of Anadarko, ConocoPhillips, and ExxonMobil lag behind those of their competitors, most of which are based overseas. Actions are lacking in two main areas: 1) there have been no quantitative goals set for reducing greenhouse gas emissions, and 2) there have been no significant investments or engagements in renewable energy technologies. These differences may be attributed to differences between the regulatory climate in the U.S. and the regulatory climate in countries that have adopted the Kyoto Protocol. In other words, the Kyoto Protocol appears to be an even stronger force in eliciting corporate action on climate change than shareholder proposals have been. The Kyoto Protocol sets greenhouse gas emission reduction targets for countries, which translate into goal-setting for emission reductions in companies operating within these countries. Furthermore, the Kyoto Protocol has increased market demand for renewable energy technologies. Anadarko, ConocoPhillips, and ExxonMobil lag far behind their competitors with regards to greenhouse gas emission goals. Anadarko and ConocoPhillips are just beginning to set greenhouse gas emission goals, and ExxonMobil has not set any such goals. In 1997, BP became the first large oil company to state publicly that it would take action to reduce its climate change- related impacts. 29 The company has already cut its operational greenhouse gas emissions to ten percent below its 1990 levels. 292 BP plans to maintain these emission levels through 2012.293 Royal Dutch Shell is working to keep its greenhouse gas emissions at least five percent below 1990 levels through 2010.294 Additionally, American corporation Chevron set a target in 2004 not to increase its greenhouse gas emissions. 295 Furthermore, unlike BP and Royal Dutch Shell, Anadarko, ConocoPhillips, and ExxonMobil do not measure 296 emissions from consumer's use of its products.

289. Id. 290. COGAN II, supra note 241, at 4. 291. Id. at 6. 292. Id. 293. Id. 294. Logan & Grossman, supra note 271, at 5. 295. Id. 296. COGAN II, supra note 241, at 23. Shareholder Proposals

In contrast to their competitors, Anadarko, ConocoPhillips, and ExxonMobil have not made significant investments in solar, wind, and other renewable energy technologies. As of fall 2005, ExxonMobil made a small contribution of $8.9 million 297-a small portion of the nearly $100 million in profit it made each day of that year 298-to the Stanford Global Climate and Energy Project,299 whereas Anadarko and ConocoPhillips have not made any comparable investments. In fact, Anadarko and ConocoPhillips have done little more than simply analyze renewable energy options. 300 Through its alternative energy business, established in 2005, BP will invest over $8 billion in solar, wind, hydrogen and combined-cycle power generation technologies in the next decade.30° Royal Dutch Shell has already invested over $1 billion in alternative 3 2 energy technologies. 0 Chevron invests over $100 million per year in low- 30 3 carbon and carbon-free technologies. Anadarko, ConocoPhillips, and ExxonMobil face great risks due to their lack of climate change-related actions. These corporations face reputational risks, as the climate change-related actions of their competitors increase in prevalence and prominence. Furthermore, they are subject to competitive risks as the markets for lower-carbon and carbon-free energy sources expand. Solar and wind power are already two of the fastest growing energy technologies in the world, due in large part to the Kyoto Protocol. 304 New regulations are also 3 5 increasing the use of alternative energy sources. 0 The Kyoto Protocol has caused an unprecedented growth in solar, wind, and other renewable energy 3 6 sources. 0 Twenty-one U.S. states have implemented renewable portfolio standards307 so far, which will also increase the market for these energy sources. Furthermore, these companies stand to face physical risks from climate change. They have substantial offshore operations in areas prone to 3 8 severe weather phenomena, such as the Gulf of Mexico. 0 Anadarko, ConocoPhillips, and ExxonMobil must take more substantive actions to mitigate these climate change-related risks and take full advantage of the business opportunities climate change presents.

297. Trillium: Reduce Greenhouse Gas Emissions, supra note 239; Fleming, supra note 19. 298. Union of Concemed Scientists, supra note 275, at 4. 299. Trillium: Reduce Greenhouse Gas Emissions, supra note 239; Fleming, supra note 19. 300. Innovest Strategic Value Advisors, supra note 14, at 114. 301. Id. at 6. 302. Logan & Grossman, supra note 271, at 5. 303. Id. 304. Id. 305. Id. 306. Id. 307. Logan & Grossman, supra note 271, at 5. 308. Id. Berkeley Business Law Journal Vol. 5.1, 2008

V1. CONCLUSION

The risks and opportunities climate change present for business make a compelling case for corporate action. No group is more rightfully concerned than shareholders, as such risks and opportunities have a direct impact on their investments. Shareholder proposals are an essential tool to induce corporations to take climate change into account. As evidenced through Anadarko, ConocoPhillips, and ExxonMobil, shareholder proposals are a catalyst for compelling climate change-related disclosure, analysis, and action, prompting even some action where the corporation would prefer to take none. Despite much success in prompting disclosure and analysis, many American oil and gas corporations-namely, Anadarko, ConocoPhillips, and ExxonMobil-need to take further climate change-related actions. They must set and implement greenhouse gas emissions reduction goals across all aspects of their business, become more energy efficient, and pursue renewable energy technologies. Doing so will significantly reduce climate change-related risks and provide a means to take advantage of some of the opportunities climate change bestows. Moreover, not until these actions are undertaken will American oil and gas companies begin to catch up to the climate change-related actions of their overseas competitors and recognize the resulting profits that their competitors realize today.