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Raz Godelnik headshot

SEC Allows Shareholders to Challenge Banks' Climate Policies

If someone is already working on the list of climate heroes for 2013, I’d like to add another candidate – Angie Kim. You probably never heard of her, but let me tell you this – a single letter she wrote earlier this month could prove more effective in weakening the fossil fuel industry than Bill McKibben’s divestment campaign.

In her letter of February 13, Ms. Kim, who is attorney-adviser at the Securities and Exchange Commission (SEC) notified PNC that it doesn’t approve PNC’s request to omit a climate change shareholder proposal submitted by Boston Common Asset Management. In this proposal PNC was asked to provide its shareholders its “assessment of the greenhouse gas emissions resulting from its lending portfolio and its exposure to climate change risk in its lending, investing, and financing activities.”

By letting the proposal remain on PNC’s proxy ballots, noting that “the proposal focuses on the significant policy issue of climate change,” Ms. Kim made history. Basically, she reversed an earlier approach the SEC had, where it allowed financial services and insurance companies to exclude similar climate change resolutions from their shareholders because they concerned what the SEC called “ordinary business.”

This shift, explains Boston Common Asset Management “sets a precedent with broader implications for resolutions seeking information about the financial sector's contribution and response to climate change. The SEC's affirmation of climate change management as a pertinent issue for investors will require banks to rethink their roles and responsibilities in contributing, mitigating, and adapting to climate change.”

In other words, Ms. Kim’s decision can make financial institutions more accountable when it comes to financing fossil fuel projects. This is good news for the banks’ shareholders and actually also for the banks, but not so much for oil, gas and coal companies that might have harder time getting the money they need to grow their operations.

The specific case here of PNC actually provides a good example of why this sort of accountability is missing today and why the SEC’s decision is so important.

PNC is a bank with an interesting story – as the LA Times wrote, “it is the only major bank based in Appalachia, a region where coal and gas extraction is a major business. It has long lent to mining companies, including those engaged in mountaintop removal, which involves blowing up peaks to reach coal seams below and has been blamed for degrading landscapes, destroying habitat and polluting streams.”

At the same time, PNC is no stranger to sustainability, claiming that it “knows that good corporate citizenship is a long-term corporate responsibility.” One example is its leadership in green building - about 100 of its branches are LEED-certified, and according to the bank, it has more LEED-certified buildings than any company in the world.

PNC is also no stranger to climate change management and even reports to the Carbon Disclosure Project (CDP). The bank, according to the shareholder proposal, stated in its CDP report that its “credit review process includes due diligence that takes into consideration the environmental impact of a prospective borrower” and claims to perform a “supplemental evaluation for companies in the extractive industries, including an understanding of any significant environmental impacts.”

In addition, PNC states in its 2011 CSR report that it takes these actions because it recognizes the “potential risks associated with changing climate conditions that could affect business operations and performance.”

So what is exactly the problem if PNC takes all of these steps? First, according to the proposal, “Despite a policy not to extend credit to individual mountain top removal (MTR) mining projects or to a coal producer that receives a majority of its production from MTR mining, PNC continues to finance four of the top nine MTR coal mining companies. (Rainforest Action Network, Coal Finance Report Card, 2012).”  Second, the proposal also mentions that PNC has ignored investors’ requests to provide information detailing its MTR policy implementation or the lending impacts of this policy.

Now, there seem to be two possible explanations – either PNC doesn’t really walk the talk, or it just came to the conclusion that these projects are worth financing even with their MTR coal mining practices. Boston Common Asset Management probably wants to know which one it is, hoping that the filing will finally force PNC to provide some answers.

"Investing in a coal dependent infrastructure, as PNC continues to do, requires assumptions that there will be no shifts in public policy and that current rates of greenhouse gas emissions will be allowed to continue," said Meredith Benton , Client Portfolio Manager at Boston Common Asset Management. "Given the climate crisis, we know that a business based on current emissions levels is unsustainable. As investors, we want to ensure that the PNC Board and top management understand climate change as an issue, and the implications it may have for their business," she added.

I’m quite sure we’ll now see a growing number of banks and other financial services companies asked by activist investors to provide explanations of their exposure to fossil fuel projects. It might take the bankers and the financiers some time to understand that from now they will have to provide better answers, but eventually they will, and hence start looking somewhat differently on the risks in financing the fossil fuel industry.

Then everything is possible – from continuing the status quo to revamping the energy sector. If the latter happens, just don’t forget who started it – Angie Kim, a climate hero.

[Image credit: Rick Crocker, Flickr Creative Commons]

Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.

Raz Godelnik headshotRaz Godelnik

Raz Godelnik is an Assistant Professor and the Co-Director of the MS in Strategic Design & Management program at Parsons School of Design in New York. Currently, his research projects focus on the impact of the sharing economy on traditional business, the sharing economy and cities’ resilience, the future of design thinking, and the integration of sustainability into Millennials’ lifestyles. Raz is the co-founder of two green startups – Hemper Jeans and Eco-Libris and holds an MBA from Tel Aviv University.

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