ESG Can Be More of a Marathon Than a Sprint

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Tuesday, March 12, 2019

At Miller/Howard Investments, ESG is in our DNA. We've been doing this for nearly 30 years, starting back when E, S, and G were mostly unremarkable letters in the alphabet and occasional guest stars on children's television programs. Now, ESG has fused into a powerful tool that enables investors to analyze a company's environmental, social, and governance risks and opportunities. How a company manages those risks and opportunities can directly impact its profitability and risk profile in the present and in the future — key questions for long-term investors.

But ESG analysis and integration is only one part of Miller/Howard's ESG program. The second component — shareholder advocacy — takes findings from that analysis directly to the companies via dialogues, letters, active proxy voting, and shareholder resolutions. This is based on a theory of mutual benefit: What's good for portfolio performance (the investor) is good for company performance (the company). We are "invested" in every sense of the word.

How ESG Engagement Works

So, what do we want? Well, we may ask for information, improvements to policies or practices, or other actions. Our goal is to work with companies to help them improve their risk profiles.

And because the investor voice is the one of capital, economic activity, and ownership, companies listen…

…but not always. These lifts can be quite heavy, and sometimes the voice of one investor group doesn't reach the ears of a receptive audience. So committed and tenacious shareholders use a tried-and-true tactic: We work together and we don't give up.

To use a sports metaphor, ESG engagements may be more marathon than sprint, more relay than solo race.

A Real-Life Success Story

And the process works, it really works. Take, for example, progress we made with Kinder Morgan, one of the largest infrastructure companies in North America. Our COO, Luan Jenifer, details how "it takes a village" sometimes to move a company to do the right thing. Her article, which also appears below, originally appeared in the 2019 edition of Proxy Preview. We encourage you to download the full report.

Shareholders, Working in Concert, Change Kinder Morgan's Tune on Sustainability

LUAN JENIFER
Chief Operating Officer, Miller/Howard Investments

Think back to 2014: At the 20th annual United Nations Climate Change Conference of the Parties (COP 20) in Lima, Peru, political action seemed more achievable than, perhaps, it does today. And think back to last October: Despite the COP 21 global agreement reached in Paris in 2015, the United States had declared its intention to withdraw, and political action on the climate front seemed stalled. However, also in those years and around those times, other parties were at the table, advocating for responsible stewardship and disclosure:

  • In 2014, Kinder Morgan saw, for the first time, a climate change–related proposal on its ballot. Actually, there were three!
  • In 2015, three again; and again in 2016; and every year since.
  • Institutional investors individually and collectively, through global networks, engaged Kinder Morgan. Some — including the New York State Comptroller, First Affirmative Financial Network, Zevin Asset Management, Robeco Institutional Asset Management B.V., Mercy Investment Services, and Miller/Howard Investments — filed environmental resolutions. The requests ranged from publication of a sustainability report, to a 2-degree analysis and scenario report, to a report on methane emissions and reduction targets.
  • Each year, an increasing number of fellow shareholders voted in support of the resolutions.

So as politicians wrangled, as lobbyists lobbied…investors engaged.

What was the outcome?

Over these years, Kinder Morgan moved from providing an absolute dearth of information to adding a Methane Reduction Commitment to "recognizing that addressing climate change is a global priority."

Then, in 2018, a landslide: Majority votes for two of the three resolutions! The votes triggered another more impressive event, publication of the company's inaugural Environmental, Social, and Governance Report in October.

The report includes many of the suggestions and recommendations investors have requested, including using guidance from the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-Related Financial Disclosures (TCFD). It's informed by the Global Reporting Initiative (GRI), CDP (formerly The Carbon Disclosure Project), and the Ceres Roadmap for Sustainability. Many investors consider these five resources to be best-in-class.

Kinder Morgan's report provides information on methane, greenhouse gas emissions reductions and targets, and a timeline for adding additional information going forward. A 2-degree scenario report is due out in 2019.

Let's take a moment to acknowledge the result of dozens of letters and conversations with company management, millions of shares voted in support of our resolutions, the support and collaboration of powerful investor networks such as Ceres, the Interfaith Center on Corporate Responsibility, and the trillion-dollar UN Principles on Responsible Investment. All helped by the tenacity of committed proponents. We don't know if any single thing finally met the internal company threshold for action, but we know the investor community offered strength and persistence.

It may take a village to raise a child. Sometimes it takes the investment world to move a corporation! But it happens, and we are grateful for it.

Now, back to work.


Luan Jenifer, President, joined Miller/Howard Investments in 2002. She manages our Environmental, Social and Governance (ESG) activities. In her prior role as Chief Operating Officer, Ms. Jenifer oversaw the firm’s operations, trading, technology, and performance analytics departments. Ms. Jenifer served for many years as Director of Operations and Shareholder Advocacy. She holds a BS in Organizational Leadership from Marist College.

© 2019 Miller/Howard Investments, Inc.

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Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer’s board of directors, and the amount of any dividend may vary over time. Dividend yield is one component of performance and should not be the only consideration for investment.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs, and changes to any assumptions may significantly affect the economics of any transaction. The information and analyses contained herein are not intended as tax, legal, or investment advice and may not be suitable for your specific circumstances; accordingly, you should consult your own tax, legal, investment, or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such suitability. Any investment returns — past, hypothetical, or otherwise — are not indicative of future performance. Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline, or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance, and investment time horizon.

Past performance does not guarantee future results.

DISCLOSURE

Investment products: are not FDIC insured - May lose value - Are not bank guaranteed

Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer’s board of directors, and the amount of any dividend may vary over time. Dividend yield is one component of performance and should not be the only consideration for investment.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs, and changes to any assumptions may significantly affect the economics of any transaction. The information and analyses contained herein are not intended as tax, legal, or investment advice and may not be suitable for your specific circumstances; accordingly, you should consult your own tax, legal, investment, or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such suitability. Any investment returns — past, hypothetical, or otherwise — are not indicative of future performance. Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline, or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance, and investment time horizon.

Past performance does not guarantee future results.