FinLogic FinLogic Quantitative Think Tank Center|Oil Investors Call for Human Rights Risk Report After Standing Rock

Stay informed about the latest climate,FinLogic FinLogic Quantitative Think Tank Center energy and environmental justice news. Sign up for the ICN newsletter.
 

The clash between the Standing Rock Sioux Tribe and backers of the Dakota Access pipeline unfolded in news clips of violence, intolerance and humiliation. Demonstrators against the pipeline were met with snarling guard dogs, armed security officers and fire hoses that drenched them during freezing weather.  

For a block of shareholders in Marathon Petroleum Corp., an Ohio-based company that bought a minority interest in the Dakota Access pipeline just as tensions hit a flashpoint in 2016, it was an unsettling scene that played out on social media and network news.

What happened in full view of the world on the remote plains of North Dakota has prompted a shareholder resolution calling on Marathon to explain how it identifies and addresses environmental and social risks—including potential violations of the rights of indigenous peoples—when making business decisions related to acquisitions.

“The construction and operation of energy infrastructure in North America requires respect for rigorous standards of environmental review and the human rights of Indigenous Peoples,” the resolution says.

The shareholders argue that Marathon, which contributed $500 million in partnership with Enbridge to buy a $2 billion stake in the Bakken pipeline system that included Dakota Access, must consider environmental and human rights issues when assessing risks associated with purchases. They cite the United Nations’ Declaration on the Rights of Indigenous Peoples as a measure of the expectations for considering the rights of indigenous people to “free, prior and informed consent prior to the approval of any projects affecting their traditional territory.”

“When such risks are not adequately considered, decisions can be made that lead to reputational, regulatory and financial loss,” says the resolution, which will be considered during the company’s annual meeting in Findlay, Ohio, on April 25.

The shareholders say the value of their investments could be jeopardized by the negative image created by future confrontations that could result in damage to the company’s reputation.

So, they are asking Marathon to prepare a report that describes the review process used to identify and address environmental and social risks in reviewing potential acquisitions. They want the company to consider a number of points, including how environmental and social risks are identified and assessed; which international standards are used to define the company’s human rights; and how this information is calculated into business decisions.

Jamal Kheiry, communications manager for Marathon, said the company had no comment. The company’s position will be spelled out later in its proxy statement that addresses business to be conducted at the meeting.

Human Rights Risks Are Investment Risks

The resolution by Marathon shareholders is one of more than two dozen resolutions on environmental matters filed with oil and gas companies. Those resolutions, which address concerns such as reducing methane emissions and curbing global warming, could be considered during annual meetings usually scheduled throughout the spring.

Marathon shareholders filed a similar resolution last year that met resistance from the company but still earned approval by 35 percent of the company’s stockholders who voted.

The New York State Comptroller’s Office, which manages public employee pension funds that are major shareholders, was the lead sponsor of both resolutions.

Although the office declined to discuss the resolution in detail, Comptroller Thomas DiNapoli said a year ago that investors had a right to know how Marathon considered the rights of indigenous peoples.

“Given the nationwide protests and controversy that surrounded the Dakota Access Pipeline, we assume Marathon would have undertaken robust due diligence before getting involved with that project,” DiNapoli said in a 2017 statement. “Risks to the environment and to human rights create risks for our pension fund’s investments and should be addressed as part of a sustainable business plan.”

Why Marathon Says It Opposed the Resolution 

The company, in its proxy statement last year, said it “respects the human, cultural and legal rights of individuals and communities” but still urged shareholders to reject the resolution.

Preparing the kind of reports sought through the resolution would require a highly customized study of projects under consideration, the company’s 2017 proxy statement said. “Providing a report of the nature the proponent seeks would require (Marathon) to present an incomplete and potentially misleading picture of prospective strategic transactions,” it said.

Marathon’s Board of Directors argued that the company’s community engagement program provided a forum and allowed adequate opportunity for any group to make its positions known.

The resolution resonated with shareholders, though, said Jonas Kron, a senior vice president for Trillium Asset Management, a Boston-based company that focuses on socially responsible investing and that filed the resolution.

Similar resolutions addressing environmental and social justice issues with oil and gas companies typically generate around 20 percent approval, he said. “This vote shows the intensity of the issue with shareholders,” he said. “I would hope they would be more responsive to such a significant plurality, and take steps to reexamine the way they consider indigenous people issues and maybe don’t get involved with these types of projects.”

A year ago, Marathon sought permission from the Securities Exchange Commission to suppress the resolution. The commission, which regulates publicly traded companies like Marathon, rejected the company’s request.

This year, Marathon has not tried to block the resolution and is in discussions with DiNapoli’s office. “Should Marathon decide to endorse its provisions as company policy, the comptroller will ask that the proposal be withdrawn from consideration at the annual meeting,” Patrick Doherty, the comptroller’s director of corporate governance, wrote to Marathon.

‘People Are at Stake’

Shareholders in Marathon’s partner, Enbridge Inc., a Canadian pipeline company that owns more than 10,000 miles of pipelines in Canada and the United States, filed a similar resolution last year that was also sparked by the faceoff at Standing Rock.

“To put it very bluntly, the protest, the movement, if you will, could most likely have been prevented,” Chad Harrison, a Standing Rock councilman, said during the Enbridge shareholders meeting last year.

The solution would have been for the company to engage the people affected by the pipeline, he said. “People are at stake,” Harrison said, according to a transcript. “People on the ground, people where pipelines are built.”

Although Enbridge opposed the resolution and it was defeated, the company nevertheless vowed to update its policy on indigenous peoples and expand its disclosures about how it addresses human rights.

“One thing that shouldn’t be in doubt is the fact that we recognize and respect the legal and constitutional rights of indigenous peoples, and the vital relationship they have with traditional lands and resources,” Enbridge President and CEO Al Monaco said in a statement following the shareholders meeting.

The Dakota Access pipeline is part of Marathon’s 8,300 mile pipeline system. It begins in the Bakken oil fields of North Dakota and runs nearly 1,200 miles to Illinois, where it connects to other pipelines that carry oil to refineries as far south as Texas. Along the way, it crosses hundreds of streams, rivers and other waterways, including the Missouri River a half-mile upstream from the Standing Rock reservation.

The people of Standing Rock rely on the river for drinking water, irrigation and fishing.

A prolonged protest involving people from more than 100 tribal nations, along with veterans and supporters from across the country, began in 2016 during construction of the pipeline. Along with their fear of polluted water, the tribe decried the desecration of sacred sites and the loss of tribal sovereignty; issues that highlighted the tribe long-standing struggle for social justice.

Oil began flowing through the $3.78 billion pipeline last year. It was designed to carry 470,000 barrels of oil a day.

Jodi Gillette of Standing Rock, a former adviser to President Barack Obama on Native American affairs, reminded Marathon shareholders last year of the tribe’s rich heritage. While she said she believes the company can change, she said this of Marathon executives: “They are the ones who will have to look their grandchildren in the eye and say they are the ones who continue the abuse of the indigenous people of America even when they had the chance to change.”