Kinder Morgan board opposes stockholder proposals for reports on climate change, methane emissions, sustainability, diversity (AGM May 10)

Kinder Morgan’s annual general meeting is May 10, 2016, in Houston Texas and a number of proposals are on the agenda.

The firm’s Board of Directors is recommending that shareholders vote AGAINST the stockholder proposals relating to…

  • a report on company’s response to climate change
  • a report on methane emissions
  • an annual sustainability report
  • a report on diversity of the Board of Directors

The proposals are from various funds and organizations, and include an interesting background, proposed resolution, and supporting statement. For each, Kinder Morgan provides a response and concludes that for its reasons, the proposed report is “unnecessary and unduly burdensome” and that “the cost, both in dollars and employee time, of preparing such a report would outweigh any potential benefits to our stockholders.”

Amid controversy about a proposed Kinder Morgan pipeline deal, which would see a seven-fold increase in bitumen tankers in Vancouver’s harbour and the southern waters of British Columbia, it is good for all to know more about Kinder Morgan’s attitude toward the environment, transparency, climate change, and sustainability.

Vancouver Mayor Gregor Robertson has told the Trudeau government that “Kinder Morgan pipeline is a bad deal for Vancouver,” as reported on April 18 in the Vancouver Sun. Meanwhile, the mayor has sent his communications director Mike Magee to Ottawa to lobby the federal government to ensure “Vancouver gets its share of available federal dollars for infrastructure projects…” as reported in the Vancouver Courier. And while Prime Minister Trudeau has signaled he wants to approve the Kinder Morgan pipeline deal, Green councillor Adriane Carr has announced a motion in Council “calling on Robertson Chief-of-Staff-turned-city-paid lobbyist Magee to lobby hard against Kinder Morgan pipeline approval.” The national Cabinet is due to make its decision on the project after receiving the recommendation of Canada’s National Energy Board, which is due by May 20, 2016.

Kinder Morgan’s information for stockholders for the AGM is available publicly for download: http://www.envisionreports.com/KMII/2016/1B126FE16E/639ed44f39b74f87bf3d6663d73892c5/KMI_PS_03-28-16_secured.pdf

For people who follow this stuff, it is an interesting read. We provide the text on the four stockholder proposals in blue font below, for reader convenience. Similar proposals have apparently been made in recent years, always voted down. How about in 2016?

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ITEM 3
STOCKHOLDER PROPOSAL RELATING TO A REPORT ON OUR COMPANY’S RESPONSE TO
CLIMATE CHANGE

We have received notice that (i) First Affirmative Financial Network, LLC, on behalf of Waterglass, LLC, One Rockridge Place, Oakland, CA 94618, beneficial owner of 641 shares of our common stock (0.0000287% of our common stock outstanding as of the date the proposal was submitted to us), and (ii) Zevin Asset Management, LLC, 11 Beacon Street, Suite 1125, Boston, MA 02108, on behalf of Trust R U/A dated 04/15/2009, beneficial owner of 500 shares of our common stock (0.0000224% of our common stock outstanding as of the date the proposal was submitted to us), intend to submit the following proposal at the annual meeting. The stockholder proponents also furnished the supporting statement immediately following the resolution. We are not responsible for the content of the proposal or the accompanying supporting statement, which are set out below in italics and between quotation marks. Our Board of Directors unanimously opposes this proposal by the stockholder proponents for the reasons set forth in Our Board of Directors’ Statement in Opposition to Stockholder Proposal, which follows the stockholder proposal.

“WHEREAS:

Recognizing the risks of climate change, nearly all nations signed the Cancun Agreement proclaiming “the increase in global temperature should be below 2 degrees Celsius.” In light of this goal, the International Energy Agency (IEA) has developed scenarios to help policymakers and market participants understand potential energy demand futures. The IEA states that “No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2° C goal, unless carbon capture and storage (CCS) technology is widely deployed”.

Kinder Morgan, Inc. (KMI), as the largest midstream and the third largest energy company in North America, has extensive and expanding interests in the transport of energy sources including coal, oil and natural gas. KMI intends to make significant infrastructure investments in the highest carbon fuels, to include coal and oil sands.

KMI intends to invest over $5 billion to expand Canadian oil sands export capacity to the West Coast and Asia. This investment is of concern due to strong community and First Nations opposition, particularly in British Columbia. In addition, continuing low oil prices remain substantially below the breakeven price of the new oil sands production that would feed this pipeline.

The coal industry worldwide faces rapidly increasing competition from lower carbon energy sources and increased regulatory pressure in China, the United States and elsewhere, and yet the company plans to add to and expand existing infrastructure to support coal exports.

Investors are concerned that aspects of KMI’s current business strategy are not sustainable given the changing nature of demand, emerging technologies, and policy interventions aimed at limiting global temperatures. Actions taken to reduce global greenhouse gas (GHG) emissions could cause a portion of the company’s infrastructure to lose significant value prior to the termination of its expected useful life. We require additional information on how KMI is preparing for market conditions in which demand growth for the high carbon fuels it transports is reduced due to regulation or other climate-associated drivers.

RESOLVED:

Shareholders request that KMI prepare a report analyzing the consistency of company capital expenditure strategies with policymakers’ goals to limit climate change, including analysis of long- and short-term financial risks to the company associated with transporting high production-cost fossil fuels in low-demand scenarios, as well as analysis of options to mitigate related risk and harm to society. The report should be overseen by a committee of independent directors, omit proprietary information, and be prepared at reasonable cost by December, 2016.

SUPPORTING STATEMENT:

We recommend the report include:

  • Consideration of a range of lower-demand scenarios accounting for more-rapid-than-expected policy and/or technology developments, including the 2 degree scenario as outlined by the IEA.
  • How the company will manage risks under these scenarios, such as redeploying capital to lower carbon fuel servicing assets or returning capital to shareholders.
  • The Board of Directors’ role in overseeing climate risk reduction strategies and related capital allocation.”

OUR BOARD OF DIRECTORS’ [Kinder Morgan] STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL 

Our Board of Directors has considered the stockholder proposal and does not believe that preparing a report analyzing the consistency of company capital expenditure strategies with policymakers’ goals to limit climate change is in the best interests of our stockholders at this time. We believe that our annual and quarterly reports, presentations to investors and other information on our website appropriately and thoroughly describe the businesses in which we operate and the associated risks, including evolving regulations related to climate change, and how we make capital allocation decisions that we believe will both meet our customers’ needs and benefit our stockholders.

We are a diversified midstream energy company primarily engaged in the business of

transportation and storage of natural gas, refined petroleum products, crude oil, condensate, carbon dioxide (CO2) and other products, and storage and handling of a variety of products and materials at our terminals, such as petroleum products, ethanol, chemicals, coal, petroleum coke and steel.

Given the dynamic industry in which we operate, we are constantly analyzing our businesses and our decisions regarding capital allocation. Coal-related terminals constitute a smaller and decreasing percentage of our company’s business. While domestic use of coal has declined, coal continues to play a vital role in providing jobs in economically disadvantaged communities in the U.S. and providing affordable sources of energy for Americans and people around the world. Although we do not currently expect to allocate capital to any additional coal-related expansion projects, we continue to handle coal at several of our terminals, and our existing coal-related investments continue to provide cash flow to us through long-term contracts. When market conditions change, as we have seen with the U.S. coal export market, we pursue opportunities to redeploy assets that may be underutilized. For example, we have adapted our Deep Water facility on the Houston ship channel from a single-use coal-handling facility to a facility now handling five product lines.

For over 60 years, the Trans Mountain Pipeline system has been safely and efficiently providing the only West Coast pipeline access for Canadian oil products. From the time when Trans Mountain was first constructed, the pipeline system has adapted to meet the changing needs of customers. Based on customer needs, the system was expanded in 2007 and 2008 to increase the nominal capacity of the system from 225,000 barrels per day (bpd) to the current 300,000 bpd. Our proposed Trans Mountain Expansion Project, which is a response to further customer demand, would increase the nominal capacity of the system from 300,000 bpd to 890,000 bpd, securing supply of oil products to markets in British Columbia and the Pacific Northwest, unlocking access for Canadian oil to world markets and providing thousands of jobs and significant incremental tax revenue to Canadians. We have signed long-term take-or-pay contracts with Canadian oil sands producers and oil marketing and refining companies for approximately 708,000 bpd of the proposed 890,000 bpd capacity, providing protection from declines in oil prices, production and regulatory risks.

As a diversified company, we generate earnings from a variety of businesses in addition to our coal-related terminals and our Trans Mountain oil pipeline. More than half of our earnings are generated from the transportation, processing and storage of natural gas, a clean and abundant energy source. We believe that natural gas will be the principal bridge fuel to a lower carbon future, and that it is likely to serve as a vital component of the world’s energy mix for years to come. We believe that, if demand for coal continues to decline, it will largely be offset by increasing demand for natural gas, and any revenue reductions we may suffer in our terminals segment relating to reduced demand for coal will likely be more than offset by opportunities for expansion in our natural gas pipelines segment based on the increased demand for natural gas.

We are also at the forefront of several renewable fuel projects and are positioned to meet increased demand for ethanol and biodiesel storage and transportation arising from increasing use of renewable fuels mandated by the U.S. Renewable Fuels Standard. In 2008, we began moving ethanol through our Central Florida Pipeline from Tampa to Orlando, and in 2009, we began moving biodiesel through a portion of the Plantation Pipe Line system as well as our 115-mile Oregon Pipeline, which runs from Portland to Eugene.

We have been in discussions with several customers regarding potential carbon capture and storage (CCS) projects and have invested in facilities to capture CO2 for enhanced oil recovery operations. We have the expertise and infrastructure to assist customers with capturing, processing and redeploying or storing waste CO2 produced from power plants and other facilities should customers decide to pursue CCS projects as a result of regulatory, economic or other factors.

As a responsible allocator of capital to and operator of midstream energy assets, we routinely engage in analysis and strategic planning regarding anticipated demand for and supply of certain fossil fuels, including natural gas, coal and oil, and how such anticipated demand may impact our projected future financial performance and return on investment requirements for proposed new capital projects. We believe that our annual and quarterly reports, investor presentations and other information available on our website, do a thorough job of summarizing how we are responding to current market demand for our midstream energy services and positioning ourselves for the future. We believe our level of disclosure is comparable to or better than the majority of our midstream energy industry peers.

In addition, in 2015 our Board of Directors established a standing Environmental, Health and Safety Committee of the Board (the EHS Committee), the Charter of which is available on our website at www.kindermorgan.com in the “Corporate Governance” sub-section of the section entitled “Media & Investor Relations.” Among other things, the EHS Committee is specifically charged with the responsibility to:

  • review periodically with management the status of material EHS activity, including, but not limited to, …emerging or proposed laws or regulations that may have a material effect on the Company’s financial or physical exposure; and
  • review periodically emerging EHS issues, trends, developments or research and the potential impact on the Company.

In summary, for the above reasons, we believe the report advocated by the stockholder proponents would not cause us to modify our disciplined approach to allocating capital or our commitment to positioning ourselves for the future and that preparation of such a report would be unduly burdensome and unnecessary, and would require us to divert time and resources that would be better used to respond to economic and regulatory changes as they develop. We believe the cost, both in dollars and employee time, of preparing such a report would outweigh any potential benefits to our stockholders.

If this proposal is properly presented by the stockholder proponents at the annual meeting, the affirmative vote of a majority of the votes cast is necessary for approval of the stockholder proposal. Proxies will be voted against the stockholder proposal unless otherwise specified.

Recommendation

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL RELATING TO A CLIMATE CHANGE REPORT FOR THE REASONS DESCRIBED ABOVE.

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ITEM 4

STOCKHOLDER PROPOSAL RELATING TO A REPORT ON METHANE EMISSIONS

We have received notice that Helen Hamada, Senior Advisor of Miller/Howard Investments, Inc., P.O. Box 549, 10 Dixon Avenue, Woodstock, NY 12498, beneficial owner of 275 shares of our common stock (0.0000123% of our common stock outstanding as of the date the proposal was submitted to us), intends to submit the following proposal at the annual meeting. We are not responsible for the content of the proposal or the accompanying supporting statement, which are set out below in italics and between quotation marks. Our Board of Directors unanimously opposes this proposal by the stockholder proponent for the reasons set forth in Our Board of Directors’ Statement in Opposition to Stockholder Proposal, which follows the stockholder proposal.

“WHEREAS:

We believe that reporting on environmental risk management makes a company more responsive to its shareholders who are seeking information on how the company is navigating growing regulation, evolving legislation, and increasing public expectations around how corporate behavior impacts the environment.

Companies in the oil and gas industry face risk due to intended and unintended emissions of methane gas from their operations. According to the Environmental Protection Agency (EPA), the oil and gas sector in the United States is the largest industrial source of methane pollution and leaks more than 7 million metric tons of methane emissions each year.

Methane gas emissions are a significant contributor to climate change. According to the Environmental Defense Fund (EDF), methane is a climate pollutant 84 times more powerful than carbon dioxide over a 20 year period and is responsible for one quarter of the global warming we feel today.

Methane is emitted by oil production and all sectors of the natural gas industry, including drilling, production, processing, storage, transmission, and distribution. Given that methane is the primary component of natural gas, reducing these emissions results in many environmental, economic and operational benefits.

Regulation surrounding methane emissions is growing. In August 2015, the EPA proposed the first-ever direct regulation of methane pollution for new and modified sources in the oil and gas industry.

Increased disclosure surrounding methane emissions management could improve public trust in oil, gas and pipeline companies. In a December 2013 research report, Research + Data Insights noted that if oil and gas companies provided disclosure on emission reduction efforts, they would have an opportunity to see a dramatic increase in public trust.

Methane emissions also represent the loss of a saleable product. A recent analysis by the Rhodium Group found that in 2012, about 3.5 trillion cubic feet of unburned natural gas, worth about $30 billion, was emitted globally from the oil and gas industry as a result of leaks and intentional releases.

Low cost solutions for methane reductions exist. A 2014 report by the consulting firm ICF International found that a 40 percent reduction in methane emissions by 2018 would cost $108 million a year in operational expenditures, working out to roughly one penny per thousand cubic foot of gas produced on average in the United States.

Kinder Morgan, Inc. has not provided adequate disclosure, in public filings, on its website, or through a report, that discusses the Company’s strategies to mitigate risk associated with the emission of methane gas from its operations.

RESOLVED:

Shareholders request that the Board of Directors issue a report describing how the company is monitoring and managing the level of methane emissions from its operations. The requested report should include a company-wide review of the policies, practices, and metrics related to Kinder Morgan lnc.’s methane emissions risk management strategy. The report should be prepared at reasonable cost, omitting proprietary information, and made available to shareholders by December 31, 2016.”

OUR BOARD OF DIRECTORS’ [Kinder Morgan] STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL

Our Board of Directors has considered the stockholder proposal and does not believe that preparing a report reviewing our policies on methane emissions is in the best interests of our stockholders at this time. We believe that our annual and quarterly reports, our publicly available reports to the U.S. Environmental Protection Agency (EPA), and information on our website, appropriately and thoroughly describe our methane management strategy.

At Kinder Morgan, we recognize that operating thousands of miles of pipelines and hundreds of terminals across North America is a huge responsibility. Throughout our organization, from the top down, we are committed to maintaining and operating our assets safely and in an environmentally responsible manner. To protect the public, our employees and the environment, we invest hundreds of millions of dollars each year on integrity management, maintenance and environmental programs to meet these goals.

We utilize state-of-the-art technology for pipeline integrity and pipeline maintenance. We employ personnel who constantly monitor pipeline operating conditions in control centers using computer systems. We conduct internal pipeline inspections periodically by passing sophisticated computerized equipment called “smart pigs” through most of our pipelines and use our patented pipeline inspection protocol, the Kinder Morgan Assessment Protocol (KMAP) system, to interpret the data gathered by the smart pigs. Additionally, we use cathodic protection, a technology designed to protect pipelines from external corrosion through the use of an electrostatic current.

In addition to our Environmental, Health and Safety (EHS) corporate department and EHS leadership teams among our business segments, our Board of Directors has established a standing EHS Committee, the Charter of which is available on our website at www.kindermorgan.com in the “Corporate Governance” sub-section of the section entitled “Media & Investor Relations.” This committee assists the Board in overseeing management’s establishment and administration of the Company’s EHS policies, programs, procedures and initiatives, including those that promote the safety and health of our employees, contractors, customers, the public and the environment. The committee also periodically reviews with management our company’s reputation as a responsible corporate citizen and our efforts to employ sustainable business practices consistent with our company’s business purpose and values.

In 2015, the White House proposed a rule to regulate methane emissions from the production, transmission and storage sectors of the natural gas industry and implementation of voluntary methods to reduce methane emissions from existing sources. We strongly support the implementation of voluntary methane emission reductions. Currently, we are participating in several industry initiatives to reduce methane emissions.

Below are a few examples of how we have been actively engaged with various trade organizations and regulatory entities to share our data and experience with methane monitoring and management, and provide perspective on how methane emission reductions can best be achieved.

Over 20 years of Voluntary Participation in the EPA Natural Gas STAR Program. Our pipeline companies have reduced methane emissions by over 80 billion cubic feet through participation in EPA’s voluntary Natural Gas STAR program, a program in which we have participated since 1993, when the initiative was established.

Chair of the INGAA Greenhouse Gas (GHG) Task Force. We have chaired the Interstate Natural Gas Association of America (INGAA) GHG Task Force for several years. As part of that leadership role we, along with INGAA, participated in the Quadrennial Energy Review by the U.S. Department of Energy (DOE), which included a joint effort by the industry, the Administration and other stakeholders to better understand the issues confronting the transportation sector and develop mutually beneficial solutions. As a result, INGAA has developed a voluntary program called the Directed Inspection & Maintenance (DI&M) program.

This program operates under the same principles as traditional Leak Detection and Repair (LDAR) to detect and repair leaks by focusing resources on monitoring the components that are most likely to leak. Research reveals that roughly 10% to 20% of the leaks cause approximately 80% to 90% of the methane emissions from compressor station equipment (the 80/20 or 90/10 rule). DI&M is focused on systematically identifying and repairing these leaks. We believe the DI&M program will be a key voluntary program for reduction of methane emissions from existing facilities as outlined in the methane blueprint issued by the White House. We are committed to implementing the DI&M program outlined by INGAA after finalization and acceptance of the program by EPA as part of the recently proposed Natural Gas STAR Methane Challenge program.

Leadership Role in Collaborating with the EPA and the DOE on Reduction of Methane Emissions. We have taken a leadership role in meeting with the EPA to identify the most effective means for reducing methane emissions from natural gas transmission and storage operations. In addition to our commitment to the DI&M program, we meet with the EPA routinely to share data and engage in discussions regarding numerous potential emissions management strategies.

Steve Kean, our President and Chief Executive Officer, has participated in the DOE’s roundtable discussions with government, industry, non-profit, union and environmental leaders to help identify opportunities, share technical solutions and coordinate best practices to reduce methane emissions.

Founding Member of ONE Future. Additionally, we are a founding member of One Nation’s Energy Future (ONE Future), a unique coalition made up of members across the natural gas industry focused on identifying policy and technical solutions that result in improvements in the management of emissions associated with the production, gathering, processing, transmission and distribution of natural gas. Members of ONE Future are committed to continuously improving their emissions management to achieve voluntary reductions in emissions and to assure efficient increased use of natural gas. ONE Future’s goal is to enhance the energy delivery efficiency of the natural gas supply chain by limiting energy waste and achieving a total methane emission rate of less than one percent of gross natural gas production, the point at which the use of natural gas for any purpose provides obvious and immediate greenhouse gas reduction benefits. The ONE Future coalition represents the entire natural gas value chain, with members from some of the largest natural gas production, gathering, processing, transmission, and distribution companies in the United States.

Collaboration with the Environmental Defense Fund (EDF) on GHG Emissions. We are one of seven natural gas transmission companies that worked with the EDF to develop a comprehensive GHG emissions inventory for the natural gas transmission and storage sector.

Importantly, the results of the EDF study demonstrated that due to actions taken in the gas transportation sector over the years to address methane emissions, the EPA has been overstating emissions from natural gas transportation and storage facilities.

Strict Adherence to Existing Reporting and Compliance Regulation. With regard to methane emissions in our operations, in addition to the efforts described above, certain of our facilities are subject to existing leak detection and repair regulations promulgated by the EPA and state environmental agencies. Our natural gas transmission and storage facilities are subject to the EPA’s GHG Mandatory Reporting Rule, pursuant to which we report emissions to the EPA on an annual basis in accordance with the program’s requirements.

Detailed information regarding our environmental, health and safety initiatives and performance, as well as our efforts to maintain pipeline integrity including through the use of our KMAP system, can be found on our website, http://www.kindermorgan.com/pages/responsibility. We publish our environmental, health and safety performance because we are committed to working openly and transparently with our stakeholders.

Finally, it is worth noting that, unlike methane emission sources such as agricultural separation, mine-mouth coal emissions, and wetlands and other naturally occurring sources, we as a company operating in the natural gas transmission sector have a substantial financial incentive to reduce methane emissions, as the average cost of methane lost exceeds our average fee associated with handling methane on a per-unit basis.

In summary, we believe the report advocated by the stockholder proponent would not cause us to modify our operational approach to maintaining and safely operating our assets and would provide stockholders with little useful information beyond that already provided through our website. Additionally, we believe the cost, both in dollars and employee time, of preparing such a report would outweigh any potential benefits to our stockholders, and that the better use of these resources would be to focus on continued progress in reducing methane emissions.

If this proposal is properly presented by the stockholder proponent at the annual meeting, the affirmative vote of a majority of the votes cast is necessary for approval of the stockholder proposal. Proxies will be voted against the stockholder proposal unless otherwise specified.

Recommendation

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL RELATING TO THE PREPARATION OF A REPORT ON METHANE EMISSIONS FOR THE REASONS DESCRIBED ABOVE.

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ITEM 5

STOCKHOLDER PROPOSAL RELATING TO AN ANNUAL SUSTAINABILITY REPORT

We have received notice that the New York State Common Retirement Fund, with the Comptroller of the State of New York as sole Trustee, 59 Maiden Lane-30th Floor, New York, NY 10038, beneficial owner of 4,687,967 shares of our common stock (0.2101% of our common stock outstanding as of the date the proposal was submitted to us), intends to submit the following proposal at the annual meeting. We are not responsible for the content of the proposal or the accompanying supporting statement, which are set out below in italics and between quotation marks. Our Board of Directors unanimously opposes this proposal by the stockholder proponents for the reasons set forth in Our Board of Directors’ Statement in Opposition to Stockholder Proposal, which follows the stockholder proposal.

“WHEREAS:

Kinder Morgan is the largest midstream and the third largest energy company in North America.

Managing and reporting environmental, social and governance (ESG) business practices helps companies compete in a global business environment characterized by finite natural resources, changing legislation, and heightened public expectations.

Reporting allows companies to publicize and gain strategic value from existing sustainability efforts and identify emerging risks and opportunities.

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. One concrete example of this is that opposition to Kinder Morgan’s Trans-Mountain pipeline from Canadian indigenous and community groups has already delayed its operations to 2019.

More than 1,200 institutional investors managing over $33 trillion have joined The Principles for Responsible Investment and publicly commit to seek comprehensive corporate ESG disclosure and incorporate it into investment decisions.

The link between strong sustainability management and value creation is increasingly evident. A 2012 Deutsche Bank review of 100 academic studies, 56 research papers, two literature reviews, and four meta-studies on sustainable investing found 89% of studies demonstrated that companies with high ESG ratings show market-based outperformance, and 85% of the studies indicated that these companies experience accounting-based outperformance.

The majority of large corporations also recognize the value of sustainability reporting. As of December 2012, 53% of the S&P 500 and 57% of the Fortune 500 published a corporate sustainability report; 63% of S&P 500 reporters utilized the Global Reporting Initiative (GRI) Guidelines. According to a 2011 KPMG report, 80% of Fortune Global 250 companies produce GRI-based sustainability reports.

Bloomberg reports that the number of customers accessing ESG information on its terminals has increased on average 47.7% annually between 2009 and 2012.

Kinder Morgan does not publish a comprehensive sustainability report or respond to CDP’s (formerly the Carbon Disclosure Project) annual survey. Several of Kinder Morgan’s industry peers, such as Enbridge and Spectra Energy, publish an annual GRI sustainability report.

RESOLVED:

Shareholders request that Kinder Morgan issue an annual sustainability report describing the company’s short- and long-term responses to ESG-related issues, including issues related to human rights and the rights of indigenous communities. The report should be prepared at reasonable cost, omit proprietary information, and be available to shareholders by October, 2016.

SUPPORTING STATEMENT:

We recommend Kinder Morgan consider using the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines to prepare the report. The GRI is an international organization developed with representatives from business, environmental, and human rights communities. The Guidelines cover environmental impacts, labor practices, human rights, product responsibility, and community impacts, providing a flexible reporting system that allows the omission of content irrelevant to company operations.

The Governance & Accountability Institute found that companies who use the GRI framework experience positive associations with inclusion in sustainability-focused stock indices, higher CDP and Bloomberg ESG Disclosure scores, and more favorable third-party disclosure transparency ratings.”

OUR BOARD OF DIRECTORS’ [Kinder Morgan] STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL

Our Board of Directors has considered the stockholder proposal and does not believe that annually preparing a sustainability report is in the best interest of our stockholders at this time. We believe that our annual and quarterly reports, our publicly available reports to the EPA, and information on our website, appropriately and thoroughly describe our employment of sustainable business practices.

At Kinder Morgan, we believe that being a good corporate citizen goes well beyond operating our assets safely. Throughout our organization, from the top down, we are committed to doing the right thing every day, employing sustainable business practices and complying with applicable laws, rules and regulations. Our core values are honesty, integrity and respect for people, and we firmly believe in the fundamental importance of the promotion of trust, openness, teamwork, professionalism and pride in what we do. Our company’s social and environmental activities are aligned with our business purpose and values.

Our Code of Business Conduct and Ethics, which is available on our website, outlines our commitment to honesty, integrity and respect for people and describes additional corporate policies on environmental, social and governance issues. We recognize that we have a responsibility to conduct business as responsible members of society, to observe the laws of the countries in which we operate, to express support for fundamental human rights in line with the legitimate role of business, and to give proper regard to health, safety, and the environment consistent with our commitment to contribute to sustainable development. We expect our employees and directors to uphold the standards set forth in the Code of Business Conduct and Ethics at work every day, and compliance with the standards serves as a critical element of compensation determinations throughout the organization. We are committed to an Operations Management System (OMS) to direct and control our work in an intentional manner, to meet our operational objectives and expectations, and to continuously improve. As described in our Environmental, Health and Safety (EHS) Policy Statement, which is also available on our website, our employees and contractors are expected to share our commitment to pursue the goal of not harming people, protecting the environment, using material and energy efficiently and promoting best practices, thereby earning the confidence of customers, security holders and society at large, being a good neighbor and contributing to sustainable development. EHS performance is considered in allocating incentive compensation among the business units and to individual employees.

It is our goal to work openly and cooperatively with all stakeholders regarding EHS and corporate governance issues. To help us achieve this goal, we integrate Kinder Morgan EHS employees into each business unit, where they actively participate in the overall operating success of the organization. To keep the public informed about our efforts, we publish on our website a report on our EHS performance, including data regarding our safety performance and pipeline incident rates, together with comparisons of our performance against published industry averages. We also prepare annually and publish on our website an Operational Excellence Report detailing our safety, environmental and community achievements for the preceding year.

Our employees are part of the communities where they work and live. We practice social and environmental responsibility, contributing to the well-being of the communities and society we affect and on which we depend. Our employees are active in environmental sustainability and stewardship initiatives. For example, Kinder Morgan has won an Environmental Excellence Award for its recycling program in the category of Technology/Conservation from the Southern Gas Association. The knowledge and skills of our experts allow us to minimize our footprint in environmentally sensitive areas. Our people keep us at the forefront of innovation, providing access to the latest technologies and best management practices to keep our facilities safe and environmentally sound for many years to come.

The stockholder proponents request that we prepare an annual sustainability report describing our short- and long-term responses to environmental, social and governance issues. Our Board of Directors believes that preparation of such a broad and general report would be an expensive and time-consuming exercise that would be largely duplicative of information already available on our website (such as our EHS policy and performance report, our Code of Business Conduct and Ethics and our annual Operational Excellence Report), which addresses many items related to safety, environmental, and community matters typically contained in a formal sustainability report. We believe our level of disclosure is comparable to or better than the majority of our midstream energy industry peers.

In summary, we believe that preparation of a formal sustainability report would not cause us to modify our commitment to doing the right thing every day, employing sustainable business practices and complying with applicable laws, rules and regulations. We also believe that our existing corporate policies and the information available on our website adequately address the stockholder proponents’ request, such that a formal sustainability report would be unnecessary and duplicative. Further, the cost, both in dollars and employee time, of preparing a formal sustainability report would outweigh any potential benefits of such a report.

If this proposal is properly presented by the stockholder proponents at the annual meeting, the affirmative vote of a majority of the votes cast is necessary for approval of the stockholder proposal. Proxies will be voted against the stockholder proposal unless otherwise specified.

Recommendation

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL RELATING TO THE PREPARATION OF A SUSTAINABILITY REPORT FOR THE REASONS DESCRIBED ABOVE.

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ITEM 6
STOCKHOLDER PROPOSAL RELATING TO A REPORT ON DIVERSITY OF THE BOARD OF
DIRECTORS

We have received notice that the Connecticut Retirement Plans and Trust Funds, 55 Elm Street, Hartford, CT 06106, beneficial owner of 314,423 shares of our common stock (0.0141% of our common stock outstanding as of the date the proposal was submitted to us), intends to submit the following proposal at the annual meeting. We are not responsible for the content of the proposal or the accompanying supporting statement, which are set out below in italics and between quotation marks. Our Board of Directors unanimously opposes this proposal by the stockholder proponent for the reasons set forth in Our Board of Directors’ Statement in Opposition to Stockholder Proposal, which follows the stockholder proposal.

“WHEREAS:

Kinder Morgan has one woman on its Board of Directors, and the racial and ethnic diversity of the Board is unclear because the company does not disclose the racial and ethnic profile of its board nominees.

We believe that diversity, inclusive of gender and race, is a critical attribute of a well-functioning board and a measure of sound corporate governance.

Research confirms the strong business case for diversity on corporate boards.

For example, the August 2012 Credit-Suisse Research Report Gender Diversity and Corporate Performance links board diversity to better stock market and financial performance (higher return on equity, lower leverage, higher price/book ratios and improved growth prospects). It suggests several explanations for this better performance including a stronger mix of leadership skills, improved understanding of consumer preferences (women control more than two-thirds of U.S. consumer spending), a larger candidate pool from which to pick top talent, and more attention to risk. In 2014, Credit-Suisse updated its research and observed similar results.

Business leaders are also increasingly vocal about the benefits of greater race and gender balance in the workplace and on boards of directors. Leaders like Warren Buffet, Larry Fink of Blackrock and Sheryl Sandberg of Facebook are all calling for aggressive steps to improve Board diversity.

In March 2015 a group of institutional investors—including the Connecticut Retirement Plans and Trust Funds—petitioned the Securities and Exchange Commission to require new disclosures related to nominees for corporate board seats in order to provide investors with necessary information to evaluate the nominees’ gender, racial, and ethnic diversity, as well as their mix of skills, experiences, and attributes needed to fulfill the corporation’s mission.

The company’s Nominating Committee Charter and proxy statement state that board diversity is an important attribute of a well-functioning board, and race and gender are included in the definition of diversity. Yet, Kinder Morgan lags other companies with respect to the representation of women on its Board.

RESOLVED: Shareholders request that the Board of Directors prepare a report by September 2016, at reasonable expense and omitting proprietary information, on steps Kinder Morgan is taking to foster greater diversity on the Board over time including but not limited to the following:

  1. Strengthened Nominating and Corporate Governance policies which embed a commitment to developing for all Board searches a diverse candidate pool inclusive of gender, race, and ethnic diversity;
  2. The inclusion of women and minority candidates in every pool from which Board nominees are chosen and our company’s plans to advance Board diversity;
  3. Disclosure of race, gender, and ethnic diversity of all board nominees in the proxy statement;
  4. An annual assessment of challenges experienced and progress achieved.”

 

OUR BOARD OF DIRECTORS’ [Kinder Morgan] STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL

Our Board of Directors has considered the stockholder proposal and does not believe that preparing a report reviewing our company’s efforts to foster greater diversity on the Board over time is in the best interests of our stockholders at this time.

Our Board appreciates the benefits of broad diversity throughout the company and on the Board of Directors and believes that its existing nominating process considers the needs of the company in light of the current mix of director skills and attributes and is designed to identify the best possible nominees for director.

Our Corporate Governance Guidelines state our Board’s policy that:

  • each director candidate should be
  • a person of integrity who is dedicated, industrious, honest, candid, fair and discreet;
  • knowledgeable, or willing to become so quickly, in the critical aspects of the company’s business and operations; and
  • experienced and skillful in serving as a member of, overseer of, or trusted advisor to, the senior management or board of at least one substantial corporation, charity, institution or other enterprise; and
  • the Board should encompass a range of talent, skill and expertise sufficient to provide sound and prudent guidance with respect to the full scope of our operations and interests.

In furtherance of these objectives, our Nominating and Corporate Governance Committee’s charter provides for the committee to consider a variety of issues and factors when assessing individuals to recommend to the Board for membership, including a candidate’s experience, knowledge, skills, integrity, independence, expertise, commitment to our core values, relationships with our company, ownership of our equity securities, service on other boards, willingness to commit the required time, and ability to work as part of a team.

Our Board believes that diversity is an important attribute of a well-functioning board. When identifying and evaluating candidates for director, diversity is a part of the overall mix of factors that the Board and the Nominating and Governance Committee are to consider. The Board and the Nominating and Governance Committee consider diversity broadly to include race, gender, culture, thought and geography. This diversity contributes to a board that, as a whole, reflects a range of viewpoints, backgrounds, skills, experience and expertise.

Additionally, we note that the Consolidation changed the composition and size of our Board, which increased from 11 directors to 16 as a result. All but one of our directors prior to the Consolidation continued after the Consolidation, and each of the non-employee directors of KMR, KMGP and the general partner of EPB joined our Board after the Consolidation, enabling us to maintain valuable historical perspective on the Board.

Our Board currently consists of 15 directors of diverse backgrounds and vast experience, including Ms. Macdonald, Mr. Hall, who is African-American, and Mr. Sarofim, who is Coptic Egyptian-American. All of our directors make valuable contributions to our Board and our company. We believe that requiring any of our directors to resign for the sake of meeting specified diversity targets would harm the composition of our Board and adversely affect our company. Additionally, we do not believe that expanding the size of our Board solely to enhance gender, ethnic and racial diversity would be in the best interests of our company and our stockholders.

The Board and the Nominating and Governance Committee recognize the merits of diversity on the Board of Directors and, when nominating candidates for Board vacancies, seek to achieve or maintain a board size that our Board believes is appropriate for our company and aim to enhance diversity on our Board. While our governance policies do not set specific targets for gender, ethnicity and race, we feel that formal targets are not necessary to developing a diverse candidate pool. We believe that diversity on our Board will increase over time as Board members elect to retire and the Nominating and Governance Committee recommends new directors. Our Nominating and Governance Committee and Board will then identify and nominate candidates in accordance with the policies stated in our Corporate Governance Guidelines and Nominating and Governing Committee Charter, which are consistent with the stockholder proposal. We do not believe that this stockholder proposal would change the nominating process.

For the foregoing reasons, the Board believes that the preparation of the report advocated by the stockholder proponents is unnecessary and unduly burdensome. We believe the cost, both in dollars and employee time, of preparing such a report would outweigh any potential benefits to our stockholders.

If this proposal is properly presented by the stockholder proponents at the annual meeting, the affirmative vote of a majority of the votes cast is necessary for approval of the stockholder proposal. Proxies will be voted against the stockholder proposal unless otherwise specified.

Recommendation

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “AGAINST” THIS STOCKHOLDER PROPOSAL RELATING TO THE PREPARATION OF A REPORT REGARDING DIVERSITY ON THE BOARD FOR THE REASONS DESCRIBED ABOVE

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