Kinder Morgan vote signals shift in reality
Shareholders’ decision to produce sustainability report for company long overdue
“There’s a new reality.”
I think Neskonlith Band Chief Judy Wilson should turn that sound bite into a slogan and have some buttons made up, for when she uttered those words at a Houston press conference this week it did feel as though a new day was dawning, albeit one that is decades overdue.
It was Wilson who, in opposing the Kinder Morgan Trans Mountain Expansion Project on behalf of the Secwepemc Nation in B.C.’s interior, presented a key resolution at the annual general meeting of Kinder Morgan Inc. It wasn’t complicated. The energy infrastructure company should commit to producing annual sustainability reports in accordance with international guidelines. Sounds simple, no? And obvious.
There was big money behind the pitch: the New York State Common Retirement Fund, the third largest public pension plan in the United States with approximately $209 billion (U.S.) in assets under administration, had submitted the resolution, with some plain language behind it. Com- prehensive corporate disclosure on environmental, social and governance (ESG) business practices is increasingly expected by large institutional investors. “ESG issues can pose significant risks to business, and without proper disclosure, stakeholders and analysts cannot ascertain whether the company is managing its ESG exposure,” the pension fund said in its submission. “One concrete example of this is that opposition to Kinder Morgan’s TransMountain Pipeline from Canadian and Indigenous and community groups has already delayed its operations to 2019.”
Executive chairperson Richard Kinder — the richest man in Houston with a net worth, according to Forbes last fall, of $6.7 billion — and the rest of Kinder Morgan’s board of directors were unanimous in their opposition. “Production of a formal sustainability report, particularly a report prepared in accordance with the (Global Reporting Initiative’s Sustainability Reporting Guidelines) recommended by the stockholder proponent, would be expected to cost Kinder Morgan millions of dollars per year in incremental head count, systems and production costs, which incremental costs are not justified in light of the breadth of ESG related disclosures that we already furnish,” the board wrote in its response. “Accordingly, our Board does not believe that annually preparing a formal sustainability report of the type requested in the stockholder proposal is in the best interest of our stockholders at this time.”
The New York fund has been pushing for this fundamental bit of auditing for the past five years, but the vote at each AGM has resulted in a firm “No.” That changed Wednesday when a majority of shareholders voted against the board’s wishes and passed the resolution.
At the time of this writing the company had yet to file its 8-K, which will disclose the precise vote tally. What we do know is that majority support for the proposition is a seismic turn of events for a company used to getting its way, and a turn too for a tough corporate leader who launched Kinder Morgan with little more than a couple of natural gas pipelines and a coal transfer terminal spun off from Enron. (Yes, that Enron.) Rich Kinder departed that company after not being named CEO in the winter of 1996 and formed the new enterprise with Bill Morgan.
Enron was reduced to cinders not many years later.
Kinder Morgan is not compelled to follow the direction of the majority as the vote was non-binding. But the optics of not ceding to the wishes of the majority are obvious, especially in an era when corporate responsibility reports have moved beyond boilerplate mission statement speak. A survey of corporate responsibility reporting by KPMG last year found that 93 per cent of the 250 largest companies in the world file such reports, up from 35 per cent in 1999. This is significant: the Global Reporting Initiative guidelines that Kinder Morgan rejects have emerged as the most popular, and robust, framework.
Institutional investors are increasingly demanding that companies align with the gold standard in reporting. In its shareholder proposal, the New York pension fund noted that more than 1,700 institutional investors, collectively managing more than $65 trillion, have signed on to the UNsupported Principles for Re- sponsible Investment (PRI). Signatories include 108 from Canada, including the Ontario Teachers’ Pension Plan, AGF Investments Inc. and Ontario’s Colleges of Applied Arts and Technology Pension Plan. PRI has just gone public with a voluntary online vote declaration system, which will result in an easy access peer comparison of proxy voting intentions. Any initiative that enhances transparency is to be lauded. And institutional investors who are not signatories are to be shamed.
There were two other shareholder proposals on the table at Kinder Morgan’s annual meeting. One proposal to “measure, monitor, mitigate, disclose, and set quantitative reduction targets for methane emissions from all operations” did not pass.
A climate change proposal to publish an assessment of the long-term portfolio impacts of scenarios “consistent with the internationally recognized goal of limiting the global increase in temperature to 2 degrees Celsius” did. That assessment is meant to explain how the financial risks of a low-carbon transition will impact capital planning and business strategies. Rich Kinder and the board fought against. And lost. Again, the vote is non-binding. But the executive chairperson can’t help but see the tsunami of climate change awareness and groups such as the 50/50 Climate Project pushing for “climate competent” boards. (Longtime governance expert Nell Minow is on the 50/50 board.)
Judy Wilson wasn’t speaking to board composition at the Houston press conference. She was taking a much broader worldview. Asked what she thought of Houston she lamented this “concrete refinery city.” The visit had strengthened her resolve, she said. “I don’t think that’s the future that we’re looking for.”