Apache CEO, Vermont activist build alliance on climate issues

Posted by Joseph R. Fonseca
Thursday, April 17, 2014

Steve Farris runs a $33 billion Texas oil and gas company and turns, for advice, to a bearded Vermont environmentalist. As other energy firms battled climate change and anti-pollution activists in recent years, the Apache Corp chief executive instead built an alliance with Steven Heim, managing director of Boston Common Asset Management, one of the better-known socially responsible investment firms.

The relationship helped Apache side step time-consuming proxy fights that have plagued some of its peers, in exchange for changes like committing to protect the rights of native peoples living near remote gas projects, and using cleaner chemicals in hydraulic fracturing, a drilling method that environmentalists say could threaten groundwater.

Heim also stages investor meetings for Apache where its executives and engineers take questions on topics like pollution or human rights. These draw representatives from mainstream investment firms like T. Rowe Price, Gabelli & Co and Morgan Stanley & Co.

"What I've been trying to do is to elevate the level of understanding of issues by the investors, not just the executives," Heim said.

Others have taken notice as climate change becomes more of a business concern. ConocoPhillips now also consults Heim, for instance, while Chevron Corp Chief Governance Officer Lydia Beebe said it has sent representatives to the Apache meetings and staged similar ones of its own.

"The 'Apache Model' is a very appropriate one for constructive share holder/company engagement," Brian Rice, a portfolio manager for the California State Teachers' Retirement System, said in an e-mail.

Peace with environmentalists has helped take some pressure off Apache, whose share price has lagged rivals' on concerns like the security of some of its overseas projects, including a large investment in politically chaotic Egypt.

Proxymonitor.org shows Apache has not faced any shareholder proxy proposals on environmental issues since 2006. Larger rivals like Exxon Mobil Corp have faced dozens, as have smaller ones like EOG Resources Inc, which has faced three.

Apache's Farris said the relationship with Heim helps the company connect with shareholders who increasingly expect transparency. "Shareholders own the company, they have a right to their opinion," Farris said.

Apache Senior Vice President Sarah Teslik said that while Apache does not aim its outreach to pre-empt proposals, "we hope it obviates the need for most of them."

BUILDING BRIDGES

Boston Common owns only about 75,000 shares of Apache, a slight number relative to its influence. Other environmental activists say they too have gotten a better reception lately as companies want to at least appear responsive.

Just last month for instance, Exxon Mobil reported on risks it could face from climate change and Southern Co said it would report on its renewable energy projects, in both cases following deals with activists.

"You can't be a climate-change denier any more," said Andrew Behar, chief executive of As You Sow, a California foundation that has negotiated with both companies.

"Shareholder Engagement" has become a cliche as executives cultivate investor ties and defend against wealthy activists like Third Point LLC's Daniel Loeb or Pershing Square Capital Management's William Ackman. But where those managers run their own candidates for corporate boards, activists like BostonCommon and As You Sow get leverage by sponsoring shareholder resolutions.

Heim, who splits his time between Boston and Montpelier, Vermont, estimates his firm files about five such proxy proposals a year. One in 2013 called on PNCFinancial Services Group to report on the emissions impact of its lending.

Some question the resolutions. In a March 27 speech Daniel Gallagher, a Republican member of the U.S. Securities and Exchange Commission, suggested making it harder to get some resolutions onto ballots. He cited Boston Common's PNC item and said it was "dubious" it was worth a vote.

At least in the energy sector, however, big investors are paying more attention to climate topics. David Smith, portfolio manager for Gabelli & Co said the threat of new regulations also drives companies to embrace climate concerns. "This is something they want to get ahead of," Smith said.

Others worry partnerships such as the one between Apache and Heim do not push far enough to bring real change. "Like apartheid, climate change doesn't yield to incremental tiny steps," said Bill McKibben, president of 350.org, known for protests against the proposed Keystone XL pipeline.

Told of the critique, Heim cited other changes his firm has won like deals with pipeline companies to report on gas leaks and getting solar panel makers to cut waste. "This is all from incremental tiny steps. Cumulatively it all adds up," Heim said.

(Reporting by Ross Kerber; Editing by Richard Valdmanis and Richard Chang)

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