Half of the carbon asset risk proposals filed this year ask companies about their goals and reporting on efforts to reduce their GHG emissions and plan for a lower-carbon transition—a critical step if companies are to effectively address climate risks and seize related opportunities. Proposals in this vein have been hit by the SEC’s reinterpretation of what constitutes “ordinary business”—the most commonly used exclusion provision of its shareholder proposal rule—following a no-action letter the SEC staff issued in early 2018 allowing EOG Resources to exclude a resolution. The EOG letter found that a proposal about GHG emissions goals was “micromanagement,” a long-established matter of ordinary business, but not one previously applied to emissions. Proponents in 2019 therefore tried several new formulations to get past this new blockade, asking more generally for reports on company carbon footprints and goals in line with the Paris climate accord’s aims of keeping warming below 2 degrees Celsius. The SEC reiterated the EOG “micromanagement” approach at three companies and three others were omitted for other reasons. But other companies did not challenge similar proposals last year and eight votes averaged nearly 35 percent support, while proponents withdrew seven after reaching agreements. Support for GHG goals proposals has grown from an average of about 24 percent in 2010.

Almost all the 2020 proposals on emissions management and transition planning refer to the Paris treaty as in past years. Only a couple ask for “company-wide, quantitative, time-bound targets,” the EOG stumbling block. Many also seek information or goals on how companies will limit warming to “well below 2 degrees.” As of mid-February, the SEC had rejected one of 11 no-action requests and 19 proposals were pending. (See table.)

CLIMATE ACTION 100+ TARGETS THE 100 LARGEST CORPORATE GHG EMITTERS

MORGAN LAMANNA
Senior Manager, Investor Engagements, Ceres

ROB BERRIDGE
Director, Shareholder Engagement, Ceres

The global investor initiative Climate Action 100+ involves more than 450 investors with a combined $49 trillion in assets under management. Investors engage with the 100 largest corporate greenhouse gas (GHG) emitters, as well as with 60 other influential companies positioned to drive the low-carbon transition. The initiative’s focus companies are collectively responsible for more than two-thirds of global GHG emissions and through engagement investors already have achieved emissions reductions commitments from numerous companies, including BHP Billiton, Daimler, Duke Energy, Heidelberg Cement, Nestle and VW.

GHG Emissions Management

The NYC pension funds resubmitted their 2019 proposal to TransDigm seeking adoption of “a policy with time-bound, quantitative, company-wide goals for managing” GHG emissions and to report. This earned nearly 35 percent in 2019 after an SEC challenge and related lawsuit (see box page 14). Investors will vote again on March 24.

At Halliburton and Williams, the NYC funds have withdrawn a proposal that asked for disclosure of “any medium- or long- term quantitative goals” for managing” GHG emissions and a report on how each “plans to achieve its goals, and whether the goals” take into account the Paris goals. Three additional recipients are not yet public.

Methane is the issue at Spire, where As You Sow withdrew a proposal after dialogue with the company. That proposal sought a report on “what, if any, enhanced measures it is taking beyond regulatory requirements and pipeline replacement to reduce its system-wide methane emissions.”

Transition Planning

Sixteen resolutions ask companies about reporting or taking action to move their companies to Paris compliance, with a variety of formulations.

Pending: Twelve proposals from responsible investing firms and Mercy Investments are pending and ask the following:

As You Sow wants five companies each to report “if, and how, it plans to reduce its total contribution to climate change and align its operations and investments with the Paris Agreement’s goal of maintaining global temperature rise well below 2 degrees Celsius.” That proposal is at Chevron, Devon Energy, ExxonMobil and Hess. The group also wants Hertz Global Holdings to report on “potential climate change mitigation strategies available for reducing the significant carbon footprint of its vehicle rental fleet.”
Trillium Asset Management also asks Chipotle and J.B. Hunt Transport “if, and how” each “plans to reduce its total contribution to climate change and align its operations” with the Paris goal. Last year, Trillium’s proposal asking for adoption of a such a GHG goal was omitted on ordinary business grounds.
Looking at retail companies, Jantz Management wants Dollar Tree and Ross Stores to report within a year on the alignment of “long-term business strategy with the projected long-term constraints posed by climate change.”
Mercy Investments wants Marathon Petroleum to “develop a strategy to increase the scale and pace of the Company’s efforts to reduce its contribution to climate change, including establishing any medium- and long-term goals...with an eye toward” the Paris commitments.
James McRitchie, who mostly files corporate governance resolutions but in the last couple of years has branched out into environmental and social issues, wants Union Pacific to re-port using the same “if and how” formulation employed by As You Sow. Zevin Asset Management asks the same thing of United Parcel Service.

SEC action: Three proposals from the Dutch-based collaborative Follow This are fairly prescriptive, filed at oil supermajors Chevron, ConocoPhillips and ExxonMobil, with slightly different formulations asking for “alignment of strategy” with “well below 2 degrees C” warming that is the Paris aim, including goals for all direct and indirect GHG emissions. But each company is asserting at the SEC that the proponent missed procedural requirements (proof of stock ownership at all three and receipt past the deadline at Conoco). These types of company complaints often succeed.

In addition to the procedural challenges on the Follow This proposals, another eight proposals have been challenged at the SEC. Companies argue that the resolutions either concern ordinary business (ExxonMobil, Hess, J.B. Hunt and Ross Stores) or that current company reporting makes the resolutions moot (Exxon and Hess).

The SEC has disagreed that the J.B. Hunt resolution concerns ordinary business, although the company noted in its challenge that a 2019 proposal asking it to set greenhouse gas emissions goals was omitted for this reason; the same proposal went to a vote in 2018 at the company, earning 21.4 percent support.

Withdrawal: As You Sow withdrew at General Electric after the company lodged a challenging saying a new report, to be released in January, would make the proposal moot.

Strategy and Risk Disclosure

After proposals in 2017 and 2018 requested that companies provide reports on how they will adjust their operations to a world retooled for a 2-degree warming scenario that necessarily would impose constraints on emissions, companies are providing these reports now in large measure, prompted both by the high votes on those proposals and by the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD). Such scenario reporting is a central tenet of the TCFD and is backed by trillions in global investment support as well as the imprimatur of the Financial Stability Board. Still, this year As You Sow and two individual investors are asking several utilities to report on stranded asset risks—a similar issue—and another individual wants corporate support for a carbon pricing model. All the pending resolutions face SEC challenges.

Pending: As You Sow wants Dominion Energy, Sempra Energy and Southern each to report on how they are “responding to the risk of stranded assets of planned natural gas-based infrastructure and assets as the global response to climate change intensifies.”

An individual investor—Robert Andrew Davis—wants PNM Resources to report on “how it is responding to the risk of stranded assets of natural gas-based infrastructure as the global response to climate change intensifies.” Similarly, Stewart W. Taggart has filed a detailed resolution at Cheniere Energy, asking for a report:

discussing price, amortization and obsolescence risk to existing and planned Liquid Natural Gas capital investments posed by carbon emissions reductions of 50% or higher applied to Scope Two and Scope Three emissions by 2030 (in line with the Paris Accord’s 2C target) as well as ‘net zero’ emissions targets by 2050, also called for in the Paris Accord and what the company plans to do about managing this risk.

Further, Chevron and ExxonMobil face a proposal from Clark McCall, asking each to:

support a pricing structure on fossil fuels that will lead to significant reduction in production of carbon dioxide. Such a pricing structure would be of the type in the 2019 U.S. House bill HR763—$15 fee per metric ton fee of carbon dioxide equivalent at the introduction and increasing by $10 per ton each year—or a similar pricing structure.

SEC arguments: Dominion, Sempra and Southern all are arguing at the SEC that the resolution is moot given their current disclosures, while Dominion adds that it concerns ordinary business since it is about its product offerings and is too prescriptive. Cheniere says its detailed proposal is too vague and is ordinary business, while PNM says its proposal is moot. Chevron and Exxon say the carbon pricing proposal is too detailed and therefore ordinary business, while Exxon adds that it also is moot.

Withdrawal: As You Sow withdrew at Duke Energy after reaching an agreement.

NATURAL GAS IN THE POWER SECTOR: BRIDGE FUEL OR A STRANDED ASSET?

LILA HOLZMAN
Energy Program Manager, As You Sow

As the window of opportunity to prevent catastrophic climate change narrows, natural gas has been lauded by many in the power sector as a “bridge” from high-carbon coal to a low-carbon future. Indeed, gas has been an important step on the path of reducing greenhouse gas emissions and helping to move the power sector away from coal. However, natural gas is still a fossil fuel that generates considerable climate impacts, both through methane leakage across the supply chain from production to use, as well as direct combustion emissions. To achieve a safe level of climate stabilization and to protect investor portfolio exposure from global climate risks, the bridge of natural gas and its associated emissions must have a clear end.

Extreme Weather

A new resolution from As You Sow last year asked oil and chemical companies about potential petrochemical contamination following extreme storms induced by climate change. It is back with the same resolution this year, newly filed at Chevron and Phillips 66; the resolution earned 25 percent last year at ExxonMobil. The proposal asks the companies to assess “the public health risks of expanding petrochemical operations and investments in areas increasingly prone to climate change-induced storms, flooding, and sea level rise.”

Coal, Oil and Gas

A few new resolutions in 2020 ask for action on coal and reports on its use as well as on oil and gas production. All six are currently pending and two have been challenged at the SEC.

The Sierra Club has a new proposal at Ameren for a report, “evaluating the specific financial risks to shareholders should the costs of self-scheduling be disallowed by the Missouri Public Service Commission and those market losses are shifted from ratepayers to shareholders, or should another regulator such as FERC or MISO were to penalize Ameren for such practices.” The company is arguing at the SEC that it can be omitted on ordinary business grounds since it deals with regulatory compliance and current regulatory proceedings.

At Duke Energy, As You Sow again wants a report on how the company “will mitigate the public health risks associated with Duke’s coal operations in light of increasing vulnerability to climate change impacts such as flooding and severe storms. The report should provide a financial analysis of the cost to the Company of coal-related public health harms, including potential liability and reputational damage.” The proposal earned 41.7 percent last year after a similar coal risk report received 27.1 percent in 2018; they were prompted by a 2014 coal ash spill on the Dan River and breaches of coal ash waste ponds following hurricanes in North Carolina.

Coal is also the issue at PNM Resources, in a resubmission from Dee Homans that asks for a report that will “identify and reduce environmental and health hazards associated with past, present and future handling of coal combustion residuals and how those efforts may reduce legal, reputational and financial risks to the company.” The resolution received 7.8 percent support last year.

Another new and detailed resolution on coal is at the utility from individual proponent Thomas Tosdal asks the company “to cease coal fired generation of electricity from the Colstrip plant and replace that electricity with non-carbon emitting renewable energy and 21st century storage technologies with its own assets or from the market no later than the end of the year 2025, and to share that plan with the shareholders no later than the 2021 annual meeting.” It notes supporting documents “are found at 350montana.org.” As discussed above (box, p. 14), Tosdal filed suit to require inclusion of the proposal, an unusual move also taken last year by the NYC pension funds, and because the suit was pending the SEC declined to opine on the company’s assertion that the proposal is too detailed (and thus ordinary business) as well as false and misleading.

At JPMorgan Chase, Trillium Asset Management faces a challenge from the company to its resolution seeking a report on energy production in the far North. It asks that the report describe how the company will “respond to rising reputational risks for the Company and questions about its role in society related to involvement in Canadian oil sands production, oil sands pipeline companies, and Arctic oil and gas exploration and production.” But the bank is arguing at the SEC that resolution is too detailed; the commission agreed with a similar argument last year.

Another new proposal looks to a different part of the world. Proxy Impact and the Pension Board - United Church of Christ want Noble Energy to report on “the extent of potential environmental and public health impacts in the event of major spills or breaches at its Israel offshore drilling operations including an assessment of the magnitude of related financial, operational and reputational impacts on our Company.” The proposal raises concerns regarding the company’s natural gas drilling off the coast of Israel, and related pollution, safety, security and health issues, particularly in light of the highly controversial decision to relocate its Leviathan production platform from 75 miles offshore to just six miles offshore.

Carbon Finance As You Sow and the Presbyterian Church (USA) are reprising questions about financing carbon-intensive projects and reporting on carbon footprints at six banks:

The proposals to Bank of America and Community Trust Bancorp want a discussion of “the range of risks associated with maintaining...current levels of carbon-intensive lending.” At JPMorgan Chase a more detailed request is for disclosure on “how it intends to reduce the GHG emissions associated with its lending activities in alignment with the Paris Agreements goal of maintaining global temperature rise below 1.5 degrees Celsius.”
At Goldman Sachs, Morgan Stanley and Wells Fargo, the proposal is to provide information “on whether, how, and when” each “will begin measuring and disclosing the greenhouse gas footprint of its lending activities.”

BIG BANKS MUST TAKE RESPONSIBILITY FOR THEIR OWN CLIMATE FOOTPRINTS

DANIELLE FUGERE
President, As You Sow

As climate-related harm accelerates, economy-wide losses are increasing and posing growing risk not only to the individual companies in which shareholders invest but, significantly, to their entire portfolios. A 2018 analysis in Nature found that limiting global warming at 1.5°C versus 2°C will save $20 trillion globally by 2100. Failure to maintain warming below 2°C will cost the economy vastly more.

SEC action and withdrawal: JPMorgan is arguing the proposal is ordinary business since it addresses products sold by the company; last year As You Sow withdrew a similar proposal after a similar SEC challenge. Community Trust has lodged a procedural challenge. But As You Sow withdrew at Wells Fargo after the company said an imminent report would make the resolution moot.