Much was afoot in the climate policy arena during the last year. President Biden and a Democratic Congress shepherded landmark legislation into law that holds the promise of a greener economy. The Securities and Exchange Commission (SEC) now is putting the finishing touches on a mandatory climate change disclosure rule that will affect nearly all public companies. Yet supporters of the fossil-fuel sector and their allies are poised to take legal action as soon as the new SEC rule is final; since opponents of climate action hold a slim majority in the House of Representatives they will work to curtail some federal climate policy. Global investors remain deeply worried about impending financial risks, however, even as profits from price gouging at the pump and crimped supplies from Russia’s invasion of Ukraine seemed to have contributed to less investor enthusiasm for climate-related shareholder resolutions in 2022.

The big increase in climate change proposals that started in 2022 continues. Investors have filed at least 122 proposals and plan more for the second half of the year. Average support that jumped in 2021, plus more visible climate impacts and limited progress on emissions reductions, drove some more aggressive requests that seemed to push the envelope too much for some last year, pushing down the average vote by about 10 points, even as companies and shareholders reached more agreements than ever. With the SEC more responsive to shareholders, almost no climate change proposals were omitted in 2022 and that will continue.

Climate proposals in 2023 remain firmly focused on asking for GHG emissions targets and reporting on them. Investors also are asking companies to consider climate risk in their business strategy and disclose how they can adjust to a much lower carbon economy in the future. There are a few more specific angles to related political influence proposals this year, plus a handful of proposals seeking specific oversight and links to compensation. As of mid-February, 72 proposals ask about emissions, 42 ask about strategy and risk assessment and eight are about deforestation. (Climate policy influence proposals have fallen to 15, down from 23 in 2022—see p. 42.)

Proponents: As You Sow continues to be the most prolific filer of proposals with at least 89 to date, but the Ceres coalition still coordinates a wide arrary of climate change proposals, through its Investor Network on Climate Risk (INCR). Others come from a broad coalition of investors, including many from the Interfaith Center on Corporate Responsibility (ICCR), the New York City and State pension funds, other state pension funds around the country, plus responsible investment firms and some individuals. Many support Climate Action 100+, a global initiative focused on more than 100 corporate carbon emitters that account for two-thirds of global industrial emissions and several dozen more companies the network says will be key to a “clean energy transition.” Climate Action 100+ is now backed by 700 institutional investors with assets of more than $68 trillion and is focused on the 166 companies which contribute four-fifths of all global industrial emissions; most are not taking sufficient action to stave off catastrophic shifts in the global climate system.

Emissions

INVESTORS EXPECT SCIENCE BASED GHG TARGETS AND REPORTING

DAVID SHUGAR
Say on Climate Initiative Manager, As You Sow

Shareholders in 2023 are tightly focused on resolutions asking companies to establish science-based greenhouse gas reduction targets that cover the full value chain of emissions—and to report on them. The science is clear that companies need to rapidly act to reduce emissions to limit global warming to a 1.5°C increase in warming.
Investor coalitions have clear expectations for companies. The Climate Action 100+ initiative, a coalition of more than 700 investors with $68 trillion in assets, issued a Net Zero Benchmark to be a key reference; it outlines decarbonization strategies. The benchmark also specifically identifies setting reduction goals for relevant Scope 3 value-chain emissions as essential for corporate climate progress.

The slate of proposals on GHG emissions in 2023 heavily focuses on disclosure (42 proposals) and compared to last year make fewer explicit demands for setting targets (30 proposals). Similar requests have been filed at multiple companies.

Disclosure

“Net zero” goals: Fourteen proposals (including one that has yet to be disclosed) specifically seek reports about how each company “intends to reduce” GHG emissions “in alignment with the Paris Agreement’s 1.5-degree Celsius goal requiring Net Zero emissions by 2050.” Some say the report should cover the “full Scope 1, 2 and 3 value chain” while others seek action across the “operational and value chain,” This is a distinction with little difference. (See table pp. 17-18 for a list; all are slated for votes so far.)

“Paris-compliant” transition plans: Another dozen proposals are slightly less specific, but each invoke the Paris Climate Treaty and discuss the 1.5-degree Celsius warming limit scientists agree is needed to stave off catastrophic global impacts. Three have been withdrawn as of mid-February.

• At C.H. Robinson Worldwide, Comcast, Deere and two other undisclosed companies, the request is for each company to “issue near and long-term science-based GHG reduction targets aligned with the Paris Agreement’s ambition of maintaining global temperature rise to 1.5-degree C and summarize plans to achieve them.”

• At Texas Roadhouse, As You Sow asks for a report on “if, and how, it plans to measure and reduce its total contribution to climate change, including emissions from its supply chain,” aligned with 1.5 degrees.

• At Cleveland-Cliffs, Mueller Industries, Olympic Steel and Ryerson Holdings, As You Sow is similarly focused on Scope 3 emissions and asks for a report on how the companies intend ”to reduce its operational and value chain GHG emissions in alignment with the Paris Agreements 1.5 degree C goal requiring Net Zero by 2050 emissions.”

Still another variation is a resubmission at Valero Energy, where last year Mercy Investments earned a near majority of 45.1 percent. The resolution asks for annual reports on the company’s “climate transition plan to align operations and value chain emissions with a well-below 2 degrees Celsius scenario, including short-, medium- and long-term reduction targets.”

A new proposal at the utilities Ameren and Southern seeks information on “operational” emissions goals for the “short, medium and long-term” aligned with a 1.5-degree Celsius temperature increase, but also says the report should be “consistent with sector-modelled pathways.” Each proposal acknowledges the companies have set goals, but asserts investors need to know more about how they will achieve them, contending they lag peers. The proposals argue for Science-Based Targets initiative (SBTi) recommendations, which require action on Scope 3, and consulting the Transition Pathways Initiative that defines sectors-specific benchmarks. Southern has yet to set Scope 3 goals but has significant emissions from upstream natural gas production and downstream gas combustion, while Ameren plans to keep operating two coal-fired power units until 2040.

STEEL INDUSTRY NET ZERO TARGETS KEY FOR DECARBONIZATION

DANIEL STEWART
Energy and Climate Program Manager, As You Sow

KELLY POOLE
Energy and Climate Program Associate, As You Sow

Reducing GHG emissions from steel, one of the most widely used industrial materials, is a critical part of the global challenge of maintaining global temperatures to 1.5˚C. According to the U.S. Energy Information Administration, the iron and steel sector accounts for 7 percent of global CO2 emissions due to its significant use of fossil fuels, heavy industrial process emissions, and power use. By 2050, demand for steel is expected to increase by more than one-third, posing the significant challenge of decoupling emissions from the sector’s growth.

Withdrawals—Mercy Investments withdrew after Walgreens Boots Alliance agreed to consider near- and long-term GHG reduction SBTI goals, report biannually, set related energy efficiency and renewable energy targets and publish a “climate action transition” plan with specifics. As You Sow also reached an agreement at Deere. The withdrawal at C.H. Robinson came after a procedural problem with the filing, however.

SEC action—Ameren has lodged a challenge at the SEC, arguing its current disclosures and GHG ambitions make the resolution moot, but the commission has yet to respond.

Scope 3: Trillium Asset Management zeros in on the vast reach of Amazon.com’s physical infrastructure and asks it to “measure and disclose scope 3 GHG emissions from its full value chain inclusive of its physical stores and e-commerce operations and all products that it sells directly and those sold by third party vendors.” (See below for requests to set Scope 3 goals.)

Methane: Proponents have withdrawn three of ten resolutions that are all the same, asking for direct methane measurements instead of the estimated measurements that companies commonly utilize. The resolution says “the reliability of methane emission disclosures” is “a critical climate change concern” and requests public reports that will:

- summarize the outcome of efforts to directly measure methane emissions by Williams, using recognized frameworks such as OGMP;
- describe any material difference between direct measurement results and Company’s reported methane emissions; and
- assess the degree to which any differences would alter estimates of the Company’s Scope 1 emissions.

Withdrawals—Both EOG Resources and Williams agreed to join the Oil and Gas Methane Partnership 2.0 (OGMP), and first-time recipient APA, a small independent oil and gas firm, also reached an agreement according to the Ceres coalition. OGMP is a voluntary industry initiative formed in 2014 to cut methane releases and its 2.0 framework in 2020 overhauled reporting to educate companies and make reporting more credible. All those aside from APA have received proposals in the past and engaged with investors. Ovintiv agreed to publish additional disclosure regarding its methane detection and measurement methodologies, and to meet with OGMP to compare its own direct methane measurement approach and OGMP’s recommendations.

METHANE EMISSIONS SIGNIFICANTLY UNDERESTIMATED – DIRECT MEASUREMENT NEEDED

LUAN JENIFER
CEO and President, Miller/Howard Investments

Why does methane matter? It is a powerful greenhouse gas with a global warming potential 80 times that of carbon dioxide over a 20-year period. While carbon dioxide emissions remain in the atmosphere for hundreds to thousands of years, methane breaks down in a decade – impactful while it lasts (and, so far, it’s responsible for around 30 percent of global temperature rise), but it has a shorter life in the atmosphere.
Reducing methane emissions now would have an impact in the near term and give us a chance to keep the world on a pathway to a 1.5°C future.

Flaring: In addition to the methane reporting resolution, Targa Resources has a second proposal from Proxy Impact, asking it to “to go beyond its existing efforts to curtail its impact on climate change from its own venting and flaring and from upstream venting and flaring that are attributable to or influenced by Targa’s midstream activities.”

Carbon offsets: Three proposals (one not yet public) ask companies to explain how they use carbon offsets in their emissions reporting. As You Sow wants CarMax to disclose “if and how carbon offsets are used to achieve Company emissions reduction goals, describing all criteria used for offset purchases, and disclosing the type and quality of offsets purchased.” Williams-Sonoma provided such information last year, and John Chevedden withdrew at AECOM this year after it provided information, so it is not clear any of these proposals will see a vote.

Emissions calculations: Andrew Behar and As You Sow are pressing the point about accurate emissions accounting in a new proposal at the two biggest U.S. oil and gas companies. As You Sow asks Chevron and Behar asks ExxonMobil to “disclose a recalculated emissions baseline that excludes the aggregated GHG emissions from material asset divestitures occurring since 2016,” the year each uses for a baseline against which it figures emissions reductions. The proposals argue that divesting high-carbon assets and operations, and then reporting them as GHG reductions, makes company progress on emissions reductions appear more substantial than they are, while not addressing the continued carbon impact of those divested assets.

SEC—ExxonMobil has challenged the Behar proposal at the SEC alleging that it violates the 14a-8 prohibition against a proponent submitting more than one proposal. Exxon argues that, as CEO and an employee, Behar is the functional equivalent of As You Sow. Behar has responded that as a long time Exxon shareholder he has the right to individually submit a shareholder proposal; the SEC has yet to respond.

NEW STANDARDS CAN HELP COMPANIES AVOID CARBON OFFSET GREENWASHING

DIANA MYERS
Say On Climate Sr. Associate,As You Sow

Shareholder scrutiny of corporate offsetting strategies is growing as the voluntary carbon market (VCM) grows, with projections it may be worth $50 billion annually by 2030. Carbon offset advocates believe the VCM incentivizes critical investments in mitigation and adaptation, even as global efforts fail to deliver on emission reduction targets. Yet companies can face reputational and litigation risks for participating in the VCM given credibility questions. Companies can reduce the risks associated with purchasing voluntary credits by aligning their strategies with best practices and procuring third-party verified high-quality credits.

Targets

Paris-compliant strategy for emission cuts: Seventeen proposals (three at undisclosed companies) are nearly identical, asking companies to “issue near and longterm science-based GHG reduction targets aligned with the Paris Agreement’s ambition of maintaining global temperature rise to 1.5 degrees Celsius and summarize plans to achieve them. The targets should cover the Company’s full range of operational and supply chain emissions.”

Four recipients have never received a climate proposal—Air Transport Services Group, Kadant, OraSure Technologies and Quest Diagnostics. Previous climate change votes at some others have been high—76 percent in 2021 for a deforestation proposal at Bloomin Brands, 76 percent in 2021 at Norfolk Southern on climate change advocacy and 60 percent at Kinder Morgan in 2018 when it was asked to produce a report about how it would adapt to climate change.

Withdrawals—Proponents have withdrawn five proposals (two at undisclosed companies) so far, with agreements at Wabtec (also known as Westinghouse Air Brake) and XPO Logistics. The withdrawal at Norfolk Southern came after it agreed to publish a climate transition plan in 2023 with near-term targets that cover GHG emissions, governance and lobbying. Norfolk Southern also will make a public statement about joining SBTi or explain why it will not. (A first-time proposal asking for disclosure about the company’s climate change advocacy earned 76.4 percent support in 2021.)

SEC action—American Tower and ON Semiconductor are contending at the SEC that their current reports and policies make the resolution moot but the SEC has yet to respond.

Scope 3 goals: Proponents want targets for indirect emissions from utilities and fuel combustion from energy companies long targeted for their GHG emissions. At Ameren and Southern, As You Sow asks simply for “short and long-term targets aligned with the Paris Agreement’s 1.5-degree Celsius goal requiring Net Zero emissions by 2050 for the full range of its Scope 3 value chain GHG emissions.” At CenterPoint Energy, the proposal is for disclosure of “all Scope 3 emissions” and “Paris-aligned, 1.5-degree Celsius, Scope 3 targets” in the full value chain for the “short, medium, and long-term.” A slight variation asks mining company Freeport McMoRan how it “intends to reduce the full range of its Scope 3 value chain” to hit the 1.5-degree Celsius net-zero Paris Agreement goal.

The Dutch collaborative Follow This wants emissions goals from oil and gas majors. It asks Chevron, ConocoPhillips and ExxonMobil each “to set a medium-term reduction target” for “emissions of the use of its energy products” consistent with the Paris goals. Support at these companies for more aggressive action to curb emissions has grown over time, with four majority votes on climate change since 2021 and four more above 40 percent. More general proposals from Follow This about all scopes of emissions last year earned 32.6 percent at Chevron, 41.8 percent at ConocoPhillips and 27.1 percent at ExxonMobil.

COMPANIES CLAIM TRANSFERRED EMISSIONS REDUCE GHG, BUT ALL IT DOES IS MOVE POLLUTION ELSEWHERE

THOMAS PETERSON
Say on Climate Coordinator, As You Sow

To address growing climate-related portfolio risk, investors increasingly expect companies to set greenhouse gas emissions reduction targets aligned with the Paris Agreement’s 1.5o goal and to report their reduction progress. Fundamental to target setting and reporting, however, is accuracy. Reported progress must reflect real-world emissions cuts. Unfortunately, this isn’t always the case.
When polluting assets are transferred from one company to another but continue operating, their emissions should not be counted toward the selling company’s emissions reduction goals. To do so would be to take credit for climate progress where none has occurred.

Net-zero goals: Green Century and As You Sow want overall net-zero GHG targets at four more companies. Builders FirstSource saw the same proposal receive 87.6 percent last year and Costco reached an agreement this year. The proposal asks that each “adopt short, medium, and long-term science-based greenhouse gas emissions reduction targets, inclusive of emissions from its full value chain…to achieve net-zero emissions by 2050 or sooner and to effectuate appropriate emissions reductions prior to 2030.”

The repeat request is slightly more specific at United Parcel Service, also a long-time recipient of climate proposals; seeking “independently verified short and long-term science-based” GHG targets for net zero by 2050 and interim cuts by 2030. The vote last year was 28 percent.

At Public Storage, the proposal seeks “short and long-term Scope 1-3 greenhouse net-zero goals.” Two years ago, As You Sow withdrew a proposal about cutting emissions after the company agreed to consider new emissions and energy use goals and said it would work with SBTi.

Strategy & Risk Assessment

The third major group of climate change resolutions takes on strategic questions about how banks and insurers finance and underwrite the fossil fuel economy (22 resolutions), what companies reveal about climate-related impacts created and experienced by stakeholders (13 proposals), and preparation for a shift to a greener economy (seven proposals).

INSURERS FAILING TO REFLECT CLIMATE RISK IN UNDERWRITING AND INVESTMENTS

DANIELLE FUGERE
President & Chief Counsel, As You Sow

ANDREA RANGER
Shareholder Advocate, Green Century Capital Management

For a second year in a row, As You Sow filed climate-related proposals with three insurers – Chubb, Traveler’s, and Berkshire Hathaway – asking the companies to measure, disclose, and set net-zero targets for their underwriting and investing activities. The proposals last year earned majority votes – 72 percent and 56 percent, respectively at Chubb and Travelers, and a vote at Berkshire garnered 46 percent of independent voters supporting the proposal (25 percent overall vote).

Emissions Financing & Underwriting

Set limits: Once just a small slice of proxy season, climate finance has grown in importance but investor support has been uneven. In 2022, median support at the nine companies which again face similar resolutions was only 11 percent for proposals that would end financing and insuring for new fossil fuel projects. Rejiggered proposals this year at 10 companies—all still pending (see table, p. 24)—have more wiggle-room and ask recipients to “adopt and disclose a policy for the time-bound phase out” of either financing or underwriting “new fossil fuel exploration and development projects” in a 1.5-degree Celsius warming limit. Four of the proposals were filed by the Sierra Club Foundation.

More specifically, Domini Impact Investments LLC wants Huntington Bancshares, a regional bank in the heart of Appalachia, to “adopt a policy to reduce or eliminate risks associated with financing thermal coal above and beyond any existing policies.

Boston Common Asset Management would like PNC Financial to “set near and long-term greenhouse gas emission reduction targets” aligned with the 1.5-degree Celsius Paris Treaty goal and “address the bank’s operational and most climate-critical financed emissions, including those associated with the lending and investment activities for its highest-emitting sectors.”

Reporting: Investors gave more support last year for disclosure about fossil fuel financing reports. This year these are back, with a few variants:

• At Bank of America, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, the proposal seeks “a transition plan” on how each “intends to align its financing activities with its 2030 sectoral greenhouse gas emissions reduction targets,” with specifics on policies, reductions and timelines.

• For Berkshire Hathaway and Travelers, the requested report should address “if and how” each will “measure, disclose, and reduce the GHG emissions associated with its underwriting, insuring, and investment activities” to achieve net-zero emissions. Both had the same resolved clause last year; support was 26.5 percent at Berkshire and 55.8 percent at Travelers.

• At Bank of America, Goldman Sachs and JPMorgan Chase, in addition to the proposal noted above, the New York City Comptroller is more specific, asking each to issue a report that

discloses 2030 absolute greenhouse gas (“GHG”) emissions reduction targets covering both lending and underwriting for two high emitting sectors: Oil and Gas and Power Generation. These targets should be aligned with a science-based net zero pathway and in addition to any emission intensity targets for these sectors that [the company] has or will set.

• Chubb is being asked to report on its “1.5 degree Celsius aligned medium and long-term GHG targets for its underwriting, insuring, and investment activities.” A similar proposal last year received 72.2 percent.

• Green Century has withdrawn a proposal about financing and deforestation at Morgan Stanley. (More on deforestation is below on p. 29.)

SEC action—Although the SEC rejected all the company challenges to climate finance proposals in 2022, two companies are trying again. Chubb is reprising its 2022 argument that the proposal is an ordinary business matter and also moot given its current reporting, but it seems unlikely to succeed given the SEC’s current orientation. Travelers again says the proposal is moot given its extensive climate-related reporting using TCFD guidelines, and—in a new argument—that it is ordinary business since it is too complex a proposition. It says if it were to set net-zero goals for portfolio of customers, it would have to exit wide swaths of the currently insured market. Other U.S.-based insurers including American International Group and Hartford Financial Services has adopted net-zero goals, however. Thirty global insurers have joined a group called the Net Zero Insurance Alliance.

Impact Disclosure

Just transition: Two labor unions and Domini Investments want more information about how companies will help workers and other affected by economic disruption in our warming world.

Communities, stakeholders and layoffs—The most specific is a resubmission from the Teamsters, which last year earned 16.2 percent; it asks Marathon Petroleum to explain how it “is responding to the social impact of Marathon’s climate change strategy on workers and communities, consistent with the “Just Transition” guidelines of the International Labor Organization (“ILO”).” It says in the resolved clause that the report should include:

- Marathon’s commitment to providing a just transition for its workforce and communities in its plans to address its climate-related risks and opportunities;
- Marathon’s plans to address the impacts of its climate change strategy on workers and communities;
- The integration of these concerns into the governance structure, including executive compensation, stakeholder and workforce engagement processes, and Board oversight.

At BorgWarner and Wabtec, the resolution is similar but omits the list of actions, seeking

a just transition report, disclosing how [the company] is assessing, consulting on, and addressing, the impact of its climate change-related strategy on relevant stakeholders, including but not limited to its employees, workers in its supply chain, and communities in which it operates, consistent with the ILO’s “just transition” guidelines. The report should be updated annually…

Layoffs and facilities closures—The United Steelworkers at Chevron and ExxonMobil concentrates on layoffs, asking each to report before the 2024 annual meeting on “the social impact on workers and communities from closure or energy transition of the Company’s facilities, and alternatives that can be developed to help mitigate the social impact of such closures or energy transitions.” The proposal emphasizes the companies’ stated commitment to employees and the ILO’s guidance that suggests employers can play a “pivotal role” to address job losses and displacement, among other issues, as the economy changes. Key to success will be “understanding and mitigating the impact of future plant closings and transition on workers and communities.”

Water: Just one of two proposals filed on water management remains pending. Mercy Investments wants Kraft Heinz to “report to shareholders, using quantitative indicators where appropriate, an assessment to identify the water risk exposure of its supply chain, and its responsive policies and practices to reduce this risk and prepare for water supply uncertainties associated with climate change.” A similar proposal earned about 6 percent in 2022; it must receive at least 15 percent in 2023 to qualify for resubmission.

Health: At Ameren, the Sierra Club Foundation wants an “audited public report quantifying the rates of illness, mortality, and infant death due to coal-related air and water pollution in communities downwind and adjacent to Ameren’s coal operations, and how the Company intends to address and reduce such community impacts from its operations.” Earlier proposals about coal risks received substantial support, earned 53.2 percent in 2018 and 46.4 percent in 2017.

Communities of color: The Franciscan Sisters of Allegheny, N.Y., have an unusually detailed proposal at Honeywell International about environmental justice, similar to one that received 21.3 percent last year. It asks for “a report on environmental justice, updated annually” that will “identify and reduce heightened environmental and health impacts from its operations on communities of color and low-income communities.” It asserts the report “should consider, at a minimum”:

- Past, present, and future disparate environmental and health impacts from its operations;
- How responsibilities are allocated within the company regarding governance and management of environmental justice issues;
- Quantitative and qualitative metrics on how environmental justice impacts inform business decisions; and
- Whether and how Honeywell intends to improve its policies and practices in the future.

Airlines: One more proposal also concerned with social impact is at Southwest Airlines, where CommonSpirit Health wants a report on how the company identifies and addresses “climate change, greenhouse gas emissions and other pollution resulting from the operation of aircraft.” It says this should:

- Explain the types and extent of stakeholder consultation; and
- Address how Southwest tracks effectiveness of measures to assess, prevent, mitigate, and remedy adverse impacts on the environment and human health.

Three more at ExxonMobil: One of three proposals about climate change impacts has been withdrawn and the other two face SEC challenges, as discussed below.

• A new resolution from Mercy Investments is quite specific about potential pollution off the coast of South America, seeking a report

evaluating the economic, human, and environmental impacts of a worst-case oil spill from its operations offshore of Guyana. The report should… clarify the extent of the Company’s cleanup response commitments given the potential for severe impact on Caribbean economies.

The resolution notes a large offshore oil play discovered in 2015 is now producing large quantities of oil. The project has prompted concern about safety and the specter of another disaster like the 2010 BP Macondo spill in the Gulf of Mexico—which would both hurt investors and despoil the Caribbean and livelihood of its residents.

• Another new proposal from Anna Marie Lyles asks for “an actuarial assessment…of the potential cumulative risk to ExxonMobil…from current environment-related litigation against the Company and its affiliates. The proposal foresees significant liabilities connected to climate change and asserts the company’s disclosure is insufficient.

• Green Century has withdrawn the sole proposal about development in the Arctic National Wildlife Refuge. It wants a report on “the benefits and drawbacks of committing to not engage in oil and gas exploration and production” in the refuge and surrounding areas, “as well as the financial and reputational risks to the company associated with such development.”

SEC action—ExxonMobil contends that Anna Marie Lyles has impermissibly submitted the litigation proposal alleging that because since she is on the As You Sow board she is acting under the control of As You Sow. Lyles has responded to the no action request stating that she is an independent shareholder, as volunteer board member she is not under the control of As You Sow, and that the proposal was filed independently from As You Sow. The SEC has yet to respond.

With respect to the offshore oil risk proposal, ExxonMobil says its current reports about climate change make it moot.

Transition Planning & Accounting

Asset retirements and net-zero accounting: The New Jersey Division of Investment, Christian Brothers Investment Services and As You Sow have filed a resolution asking five oil and gas companies (one not yet public) to provide audited reports “disclosing the undiscounted expected value to settle obligations” for asset retirement obligations (AROs). Each asks how AROs affect the company’s net-zero emissions calculations. At ExxonMobil, it adds that the report can be broken out in separate parts. The Phillips 66 proposal says (alone of the proposals) that “nothing in this resolution shall serve to micromanage.” The resolution also is pending at Valero Energy.

The more specific scrutiny about what goes into GHG emissions reduction calculations, evinced by this proposal, follows substantial investor enthusiasm in the recent past for setting goals—80 percent at Phillips in 2021 and 47 percent at Valero in 2022. Auditing that would ensure more accurate climate reporting is also gaining investor support, giving just over 51 percent support to a request for an audited emissions report at ExxonMobil last year.

SEC action and a withdrawal— Proponents have withdrawn at Kinder Morgan given a procedural problem, but Phillips 66 and Valero both are contending at the SEC that the resolution would micromanage and is ordinary business.

Transition plans: The California Public Employees’ Retirement System (CalPERS) wants Berkshire Hathaway to “publish an annual assessment addressing how the Company manages physical and transitional climate-related risks and opportunities.” The proposal is similar to a resolution that earned 26.5 percent in 2022 and 28.2 percent in 2021. CalPERS wants the report to

include a summary of risks and opportunities at the parent Company level and for only those Company subsidiaries and investee organizations that the board believes could be materially impacted by climate change and the energy transition, disclosed in accordance with the Taskforce on Climate-related Financial Disclosure (TCFD) recommendations.

The assessment may be a stand-alone report or incorporated into existing reporting, be prepared at a reasonable cost, and omit proprietary information.

General Electric supported a 2022 proposal asking for a report on net-zero GHG goals and it earned nearly 98 percent support, but this year As You Sow wants it to produce an audited report that will:

address how application of the International Energy Agency’s Net Zero Emissions by 2050 pathway would affect the assumptions and estimates that underlie GE’s valuation and expected cash flow assessments. The report should address GE’s existing assets as well as planned investments in renewable energy, nuclear, and thermal power; and include asset lives, asset retirement obligations, and capital expenditures (including new material capital expenditures), as well as potential impairments.

The final transition plan proposal at NextEra Energy seeks a report on “how it is responding to the risk of stranded assets of planned natural gas-based infrastructure and assets as the global response to climate change intensifies.” But the company is contending at the SEC that the proponent failed to prove her stock ownership, so a vote is unlikely.

MAJORITY VOTES ON DEFORESTATION PUT PRESSURE ON INDUSTRY LAGGARDS

ANNIE SANDERS
Director of Shareholder Advocacy, Green Century Capital Management

Shareholder concern about deforestation speaks for itself. Four majority votes on Green Century proposals in the last three years – Bunge, 99 percent; Bloomin’ Brands, 76 percent; Procter & Gamble, 67.6 percent; and Home Depot, 64.6 percent – build upon dozens of no-deforestation agreements that shareholders have won and have helped curb climate change and preserve endangered species around the world.
In recent years, deforestation has become widely recognized by companies and governments alike as an urgent problem for both the climate and global biodiversity.

Deforestation

Proponents and companies seem able to come to agreements on the persistent challenge of deforestation and its contribution to climate change, with proposals at home improvement and food companies, plus a few banks. Last year, proponents withdrew five of six shareholder proposals and the sole vote at Home Depot was nearly 65 percent. This year, all are at seven companies that have not seen such proposals recently and two already have been withdrawn (one more is on deforestation financing—see p. 85). The focus remains on commodity supply chains. Green Century and As You Sow are the proponents.

At four companies—Papa John’s International, Pilgrim’s Pride, Texas Roadhouse and Cheesecake Factory, the proposal asks for a report “disclosing how it can achieve deforestation-free commodity supply chains by 2025.” At Pilgrim’s Pride, it adds that it seeks independent verification. The proposal is new to these companies, but they have received sustainability or climate change proposals in the past, with agreements to act in a few cases—so withdrawals this year seem possible.

A more specific resolution new this year remains pending at Kraft Heinz but was withdrawn at Hormel Foods and United Natural Foods. The proposal asks that each “accelerate its efforts to eliminate deforestation, native vegetation conversion, and primary forest degradation from its supply chains, so as to achieve independently-verified deforestation-free supply chains by 2025.”

The final proposal on forests came from the Vancouver, Canada, pension fund. It withdrew a new proposal at Costco Wholesale to “complete a material biodiversity dependency and impact assessment and prepare a report to identify the extent to which the company’s supply chains and operations are vulnerable to risks associated with biodiversity and nature loss.” It is the first to invoke the new Task Force for Nature Related Financial Disclosures Framework.