Overall investor support for climate-related shareholder proposals dropped substantially between 2021 and 2023, even as the number of resolutions surged and proportionally more went to votes. Key reasons for these shifts can be attributed to a pullback in support from the biggest mutual funds at least partially prompted by political attacks about their statements about climate risk. First, some proposals went outside the traditionally targeted high-carbon energy and utility sectors, though, and some investors may question the relevance of climate action for them. Second, threats from state attorneys general about proxy voting just as the 2023 proxy season began may have had some impact, too. Third, uncertainty continued about what will be included in the new SEC climate disclosure rule. Finally, surging energy prices that pushed up profits and investor returns also may have caused some investors to shelve criticism for the short-term in their voting decisions.
WILL NEW WAVE OF NATURAL GAS PLANTS BE STRANDED ASSETS?
KELLY POOLE
Climate and Energy Coordinator, As You Sow
Natural gas proponents have long framed it as a “bridge fuel” for meeting rising energy demands, while decreasing utilities’ dependence on carbon-intensive coal. Unfortunately, the power sector is now more focused on extending the natural gas bridge than crossing it. In the last two years, 27 new natural gas power plants have come online in the United States, deepening our dependence on fossil fuels and jeopardizing the Paris Agreement’s goal of net-zero emissions by 2050.
The main thrust of proponents—that the systemic risks posed by climate change to the natural world, to the economy and to society at large—has remained constant. These threats are only intensifying and eventually will hit all companies hard.
In 2024, proponents in general also are being more reluctant to make public information about what they have filed. The number of challenges to proposals at the SEC is up sharply, possibly from companies emboldended by the drop in support, but few substantive decisions have been issued. Proportionally more proposals went to votes last year by a good stretch and that seems likely to continue in 2024.
Climate proposals in 2024 remain firmly focused on GHG emissions goals, reporting on them and explaining how companies plan to adjust to a much lower carbon economy in the future. As of mid-February, 63 proposals ask about emissions, 29 ask about strategy and risk assessment and just 10 are about forests and water. (Climate policy influence proposals have fallen to 12, down from 17 in 2023—see p. 19.)
Proponents: The Ceres coalition still coordinates most climate change proposals, through its Investor Network on Climate Risk (INCR). Others include many from the Interfaith Center on Corporate Responsibility (ICCR), the New York pension funds, other state pension funds around the country, plus sustainable 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.”
Transition Planning
Just over three dozen proposals use similar approaches to ask companies about their preparations for a transition to a lower- or no-carbon economy, asking them to adopt plans and report on them, with varying degrees of specificity:
Most but not all indicate the types of emissions to include—direct operational GHGs (Scope 1), those from indirect electricity purchases (Scope 2) and other indirect emissions up and down the value chain that include supply chains and products (Scope 3).
In asking for information on strategies, proponents sometimes ask about “science-based” targets to which companies can commit through the Science-Based Targets Initiative (SBTi).
Most invoke the Paris Climate Treaty, with some referencing its aim to limit global temperature increase to no more than 1.5 degrees C (1.5°C) above pre-industrial levels and some saying the goals should be “net-zero.” The two are used interchangeably.
The proposals ask for varying types of time frames for the goals—short, medium and/or long-term.
One of the most expansive proposals incorporating all the elements noted above uses language seen in most of the resolutions. It seeks an action plan and report from Archer-Daniels-Midland (ADM), asking that it:
in addition to its existing targets and related disclosures, set and disclose long-term GHG reduction targets aligned with achieving science-based 1.5-degree C or net-zero emissions by 2050 at the latest, alongside the strategies to achieve these targets. Disclosure should cover the Company’s full range of operational and value chain emissions. Shareholders should receive regular updates on implementation against this strategic goal. The report may be stand-alone or incorporated into existing reporting, be prepared at a reasonable cost, and omit proprietary information.
The other transition planning proposals mix and match the above elements, seeking commitments and reports on how companies plan to measure and manage their emissions and explain what they are doing to address climate change.
Pending—As of this writing, 32 proposals are pending (see table); three firms have yet to be announced publicly. Only five of the proposals are resubmissions, but four of these earned substantial support last year—37.8 percent at RTX (the former Raytheon), 31.2 percent at Constellation Brands, 35.4 percent at Lockheed Martin and 40.4 percent at Texas Roadhouse.
Withdrawals—Arjuna Capital and co-filer Follow This, a Dutch shareholder collaborative, filed but withdrew a new proposal to Chevron and ExxonMobil asking each “to go beyond current plans, further accelerating the pace of emission reductions in the medium-term for its greenhouse gas (GHG) emissions across Scope 1, 2, and 3, and to summarize new plans, targets, and timetables.” Exxon filed a potentially momentous lawsuit against the two investors and they withdrew, but the case may continue (see Introduction and [sidebar], p. 13).
Otherwise, there have been six more withdrawals following agreements, at one undisclosed company and also at ADM, Broadcom, Constellation Energy, C.H. Robinson and Mosaic.
SEC action—Chevron argued that the Arjuna proposal could be omitted because it missed the 15 percent resubmission threshold last year. The proposal asks for more action on medium-term goals for all three scopes, but the company argued this was the same as 2023’s more specific proposal only about Scope 3 emissions, (which earned 9.6 percent) and a 2022 request that asked for goals on all three emission scopes (32.6 percent).
The only other challenge to these proposals at the SEC remains to be decided at TJX. The company is arguing the proposal is an ordinary business matter since it is too specific, but the SEC staff has disagreed with such arguments in the past.
SMALL CAP COMPANIES HAVE A ROLE TO PLAY ON CLIMATE
SAMANTHA BURKE
Senior ESG Analyst, Boston Trust Walden
JARED FERNANDEZ
Manager, Proxy Voting & Senior ESG Analyst, Boston Trust Walden
In 2023, average global temperatures reached the critical breaking point of 1.5˚ C above preindustrial levels for the first time in recorded human history. In the United States alone, 23 different billion-dollar weather and climate disasters occurred, incurring more than $90 billion in damages in just the first eight months of the year. With these impacts cascading through corporate value chains, the business case for action on climate risk has never been clearer.
Emissions and Target Reporting
A smaller group of proposals ask only for setting GHG targets and reporting on them. As of this writing, most are still pending.
Adopting reduction targets: The biggest group of eight resolutions asks companies to set net-zero GHG reduction targets. Four of the recipients have yet to be made public. The resolutions vary, seeking “all non-de minimus emission categories” at Boeing, “interim and long-term targets” at CenterPoint (where a more specific proposal last year earned 18.3 percent) and Old Dominion Freight, but “short- and long-term” goals for all three scopes at Public Storage (where a similar resolution earned 34.7 percent last year). Back in 2022, Boeing management supported a call for a climate transition plan and the vote was 91.4 percent; the proponents this year argue goals are needed to give the plan teeth.
Valero has a new proposal from As You Sow that seeks a commitment to a “near-term emissions reduction target that does not include the use of carbon offsets and avoided emissions.” Carbon offsets remain a key point of contention in calculating future emissions from individual companies. The company has challenged it at the SEC, as noted below. Earlier, a 2023 proposal seeking a report on the company’s climate transition plan earned 33.1 percent support, after a 47.1 percent vote in 2022 supporting a report on GHG targets.
UNRAVELLING CARBON OFFSETS AND “AVOIDED EMISSIONS”
DIANA MYERS
Say On Climate Sr. Associate, As You Sow
Between now and 2030, companies must reduce greenhouse gas (GHG) emissions to minimize the risk of exceeding a 1.5°C global temperature increase. Investors want corporate climate transition strategies that deliver tangible emissions reductions and scalable net-zero solutions.
Understanding responsible corporate carbon offsetting strategies and emissions accounting is essential for accurate portfolio company evaluation. In the last year, companies have notably shifted away from using offsets.
SEC action—Valero says the proposal is moot because it has set GHG targets, and would micromanage. The SEC staff has yet to respond.
Reporting on emissions: Two of the proposals simply seek emissions reporting, at retailers Ross Stores (“measure and publicly disclose all material value chain GHG emissions”) and Skechers U.S.A. (“publicly disclose a timeline for measuring and disclosing its value chain emissions.”) Ross currently reports on Scopes 1 and 2 but not Scope 3 and its most recent climate change proposal earned 40.9 percent in 2019. At Skechers, earlier resolutions about GHG goals earned 12.7 percent in 2023 and 25 percent in 2022.
Scope 3 reporting: A key flashpoint in the debate over the new SEC climate disclosure rule is whether companies can and should report on emissions over which they have less control—the Scope 3 impacts that among other things come from their supply chains and products. Information on three of at least five proposals is public, with a new proposal from Green Century at Amazon.com that asks simply that it “disclose all material Scope 3 greenhouse gas emissions.” The proposal is slightly more specific at Tractor Supply and Walmart, seeking data on “emissions from Use of Sold Products, including a breakdown of emissions by product category.”
SEC action—Tractor Supply and Walmart have lodged challenges at the SEC, arguing the resolution raises ordinary business. A detailed proposal seeking disclosure of emissions by specific types of Scope 3 categories was omitted last year at Amazon for this reason, but so far it has not challenged the 2024 version, in contrast to the other two. In addition to its ordinary business argument, Tractor Supply also contends the proposal is moot since it already has set GHG goals for most of its emissions scopes, including Scope 3.
Methane and flaring: Investors have filed at least five resolutions seeking company action to curb methane emissions and set targets to do so, or to address emissions from flaring—but so far none of these proposals have been announced publicly.
Impact Disclosure
Outside longstanding requests for more disclosure and action to curb emissions and report on reduction efforts, proponents have filed proposals seeking information about more specific types of climate change impacts.
COMPANIES NEED TO ADDRESS EXISTENTAL AND FINANCIAL RISK OF BIODIVERSITY LOSS
ANNIE SANDERS
Director of Shareholder Advocacy, Green Century Capital Management
Biodiversity loss is a global systemic risk. Wildlife populations have declined by an average of 69 percent since 1970, with an estimated one million plant and animal species at risk of extinction by 2050 – approximately 25 percent of all species on Earth. More than half of the world’s GDP is either moderately or highly reliant on nature’s services, and by some estimates tens of billions of dollars in assets could be at risk of stranding over the next five to 10 years if companies continue to produce commodities that drive deforestation. Companies must meaningfully assess and address their nature-related impacts, dependencies, risks, and opportunities to avoid the near- and long-term risks of global biodiversity loss.
Biodiversity and deforestation: The largest tranche addresses the linked issues of biodiversity and deforestation. Proposals that invoke a new set of accountability metrics based on the Task Force on Nature-Related Financial Disclosures have multiplied. The TFNFD in September 2023 issued recommendations for corporate disclosures based on a two-year consultation effort with many stakeholders. Three proposals are not yet public but one from Domini Social Investments to Home Depot and International Paper asks each to “conduct and disclose a biodiversity impact and dependency assessment.” It asks Home Depot to include “the full value chain and use of sold products, to inform its strategy to prevent negative impacts on biodiversity.” At IP, it also specifies the report should cover “the degradation of high-integrity forests.”
Three of four more proposals more specifically on deforestation are public. One from the asset management arm of the French bank BNP Paribas asks Target to investigate and report on “allegations that Target suppliers may be contributing to illegal deforestation, and, if true, outlining steps Target is taking to address the root causes of these violations.”
Otherwise, a resolution went to a vote on February 8 at Tyson Foods asking it to adopt a supply chain deforestation policy. It asked that the company “accelerate its efforts to eliminate deforestation, native vegetation conversion, and primary forest degradation from its supply chains to achieve independently verified deforestation-free supply chains by 2025.” The vote was a scant 3.3 percent, not enough to qualify for resubmission. (The Tyson family controls much of the stock at this dual-class stock firm so votes are always low.)
Withdrawals—Domini withdrew a proposal at WestRock after it filed an SEC challenge arguing a similar deforestation proposal was moot because of a new report from the company. The resolution has asked for an update to the policy that would “include a commitment to eliminate deforestation and the degradation of primary forests in operations and procurement of wood fiber and to prevent negative impacts on Indigenous Peoples.”
SEC action—Target is arguing at the SEC that its proposal concerns ordinary business since it is about supplier relationships and legal compliance.
Water: Two proposals ask for curbs on water use and reports on related risks. At McDonald’s and Monster Beverage, the Dutch pension fund PGGM and Mercy Investments ask for reports “assessing the feasibility and practicality of establishing time-bound, quantitative goals to reduce supply chain water usage to mitigate value chain risks related to global water scarcity in high-risk areas.” Both raise concerns about agricultural products sourced from water-stressed regions, noting McDonald’s is one of the biggest global purchasers of beef and pork and the water-heavy footprint of both, while Monster is reliant on water from the arid Colorado River Basin.
Just Transition: Proponents for a few years have been asking companies to explain how their responses to climate change exigencies will affect communities and workers. Ten companies (eight which have been announced) face proposals, including three resubmissions:
The United Steelworkers has returned to Chevron (where the vote last year was 18.6 percent) and ExxonMobil (16.6 percent) asking for a report by the 2025 annual meeting, “regarding 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.”
At Goldman Sachs, the Sierra Club Foundation’s proposal is sector-specific, asking for a report following a “rigorous assessment of material risks and opportunities related to the environmental justice impacts of its energy and power sector financing and underwriting.” This proposal and its focus on energy and power sector financing is new in 2024, although a 2023 proposal asking Goldman to phase out fossil fuel lending and financing earned 6.9 percent support in its second year—not enough to qualify for resubmission.
Kroger has faced labor and human rights proposals for many years but has a new iteration this year, asking for “a just transition report… disclosing how Kroger is assessing and addressing the impacts of climate change and ensuring fundamental labor protections for workers in its agricultural supply chain, consistent with the ILO’s just transition guidelines.”
Another proposal is broader and seeks a report disclosing how each firm “is assessing, consulting on, and addressing the impact of its climate change-related strategies on affected stakeholders, including but not limited to its employees, workers in its supply chain, and communities in which it operates, consistent with” the International Labour Organisation “just transition” guidelines. The proposal earned 24 percent last year at UPS and 35.6 percent at Republic Services and has been resubmitted to both, but is new to Cummins, Union Pacific and two more undisclosed companies.
INVESTORS LEVERAGE SHAREHOLDER PROPOSALS FOR JUST TRANSITION IMPACT
ROB BERRIDGE
Senior Director of Shareholder Engagement, Ceres
AMIT BANDO
Chief Economist and Senior Advisor for Just and Inclusive Economics, Ceres
As thousands of large companies make the transition to a net-zero emissions economy by reducing greenhouse gases, they must not only decarbonize but also consider the real impacts of changes in their operations on their employees and the communities where they operate. Investors are now engaging companies to mitigate the economic risks related to labor costs and morale, reputational damage and social license to operate that could result from the transition.
The concept of a just transition seeks to optimize the benefits of the shift to a clean, regenerative and sustainable global economy, while minimizing associated social challenges.
SEC action—Chevron is arguing the Steelworkers did not prove their stock ownership, while UPS says the Teamsters did not present the resolution in 2023 and that SEC rules mean it can omit it. Republic says the proposal is an ordinary business issue because it is about workforce management, products and services, and supplier relationships—and would micromanage; it also says it is moot given company sustainability goals. The SEC has yet to respond.
Offshore oil: Mercy Investments has returned to ExxonMobil to ask for a report on the potentially catastrophic impacts of an oil spill in the Gulf of Mexico. The resolution last year earned 13.3 percent support and asks for 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.”
Financial impact of climate mitigation fees: Eko, the former SumOfUs, has withdrawn a new proposal after reaching an agreement with United Airlines. It sought a report
assessing whether there may be material impacts on the company’s finances or operations from any aviation fees related to the global Loss and Damages Fund, in consideration of the Company’s potential proportional share of aviation related impacts on developing nations and any company plans for participation in related mitigation and remediation efforts as well as the ongoing process for determining contributions by other parties to the Loss and Damages Fund.
Supply chain: A new proposal from The Accountability Board questions the climate-related assumptions of the Mid-Atlantic grocery store chain Weis Markets and asks it to publish a report
explaining: (1) whether and how the company affirmatively concluded it faces no material supply chain risks from climate change, (2) whether and how its conclusions on that topic impact its approach to addressing climate change, and (3) how the Board is overseeing the company’s management of, and reporting on, climate change-related risks.
Carbon Finance
Banks and insurers are linchpins in the global financial system and key financiers of our current fossil fuel-based economy. Proponents therefore have been trying to curb these firms’ willingness to underwrite new oil and gas exploration projects and to insure these expensive projects. More stringent resolutions seeking to end these practices have earned only limited investor support during proxy season for several years, but proposals to report on such financial backing have done far better.
CLEAN ENERGY RATIO HELPS MEET NET-ZERO GOALS
MICHAEL GARLAND
Assistant Comptroller, Corporate Governance and Responsible Investment Office of New York City Comptroller
New York City Comptroller Brad Lander, on behalf of the New York City Employees’ Retirement System, Teachers’ Retirement System, and Board of Education Retirement System (the NYC Retirement Systems), submitted shareholder proposals to six major North American Banks—Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Royal Bank of Canada—requesting that they disclose annually their Clean Energy Supply Financing Ratio (the Clean Energy Ratio).
The Clean Energy Ratio is defined as a bank’s total financing through equity and debt underwriting and project finance, in low-carbon energy supply relative to that in fossil-fuel energy supply. The requested disclosure should describe the company’s methodology, including what it classifies as “low carbon” or “fossil fuel.”
Financing ratio: The New York City Comptroller’s Office has filed a new proposal at five of the largest U.S. banks (see table), asking each to
disclose annually its Clean Energy Supply Financing Ratio (“Ratio”), defined as its total financing through equity and debt underwriting, and project finance, in low-carbon energy supply as a proportion of that in fossil-fuel energy supply. The disclosure, prepared at reasonable expense and excluding confidential information, shall describe the Company’s methodology, including what it classifies as “low carbon” or “fossil fuel.”
Comptroller Brad Lander joins many other institutional investors concerned about climate risk to say the finance sector must invest more to finance the transition away from fossil fuels. A Jan. 31 article in Pensions & Investments discusses the proposals.
SEC action—JPMorgan Chase is arguing that the proposal concerns ordinary business because it concerns the types of services the company offers and would micromanage; there is no response yet.
Net-zero financing: As You Sow has filed two proposals at six companies seeking reports and all are pending so far, with a sector-specific focus:
Alignment: At Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, the proposal asks for annual reports on “sectors with a Net Zero-aligned 2030 target” to “annually disclose the proportion of sector emissions attributable to clients that are not aligned with a credible Net Zero pathway, whether this proportion of unaligned clients will prevent [the company] from meeting its 2030 targets, and actions it proposes to address any such emissions reduction shortfalls.” (Previous proposals at Goldman and Wells Fargo about decarbonizing their portfolios both earned about 30 percent support, and 35 percent at JPMorgan Chase.)
Specific sectors: At Bank of America, the resolution focuses on just three high-carbon sectors but asks for a report, as above, on how emissions from automakers, energy and power sectors that are not aligned with a 1.5-degree reduction goal will prevent the bank from meeting its target. A more general proposal about carbon finance last year earned 28.5 percent support.
SEC action—The recipients of the first proposal all have told the SEC the resolution is both too specific and thus ordinary business, but also too vague; the SEC has yet to respond.
Berkshire Hathaway: A resubmission that earned 22.8 percent last year and 26.5 percent in 2022 is pending, asking the company to report “addressing if and how it intends to measure, disclose, and reduce the GHG emissions associated with its underwriting, insuring, and investment activities in alignment with the Paris Agreement’s 1.5°C goal, requiring net zero emissions.” It must earn at least 25 percent support this year to qualify for resubmission.
Capital One: The New York State Common Retirement Fund (NYSCRF) seeks from the company on “near- and long-term greenhouse gas emission reduction targets aligned with the Paris Agreement’s ambition to limit warming to 1.5 degrees Celsius for its lending and investment activities.” This is Capital One’s first climate change proposal.
Insurers: As You Sow is asking for a report on emissions at two insurance firms:
At Chubb it seeks a report “disclosing the GHG emissions from its underwriting, insuring, and investment activities.” The resolution is less specific than a similar resolution that earned 28.9 percent in 2023, down from 72.2 percent in 2022. But the SEC agreed last year that a second proposal that sought an end to fossil fuel project underwriting was ordinary business, in an apparent about-face from recent trends.
As You Sow wants Travelers to “measure and disclose the greenhouse gas emissions associated with its underwriting and insuring activities in high-carbon sectors, including oil and gas.” A more general request seeking a report from Travelers about how it would “measure, disclose, and reduce” GHGs at firms in its portfolios to align with the Paris Agreement earned 14.7 percent last year, down from 55.8 percent in 2022 and below the 15 percent needed for resubmission.
SEC action—Chubb says this year’s iteration is ordinary business and moot given current reporting.
Climate change investment strategy: Amalgamated Bank has a new resolution at General Electric, asking it to assess “the risks and opportunity costs of continued capital investment into high-carbon energy products as compared to renewable energy products.” A more specific proposal at GE in 2023 sought an audited report on the company’s climate transition plan and earned 9.9 percent support, after a management-backed proposal sought information on GE’s net-zero goals in 2022 earned majority support.
Divested assets: As You Sow has one more new idea at the two biggest U.S. oil and gas companies, asking Chevron and ExxonMobil to provide annual reports “on divestitures of assets with material climate impact, including whether each asset purchaser discloses its GHG emissions and has 1.5-degree C-aligned or other greenhouse gas reduction targets.” The proposal articulates a concern that the sale of high-carbon assets to others can hide the ultimate impact, if those assets still operate with other owners, noting a warning on the subject from the Glasgow Financial Alliance for Net Zero about “the unintended consequence of prolonging the life of high-emitting assets and even worsen emissions profiles.” Last year, a somewhat similar proposal about divested assets and carbon impacts earned about 18 percent at both companies.
DO OIL AND GAS INDUSTRY DIVESTMENTS RESULT IN EMISSIONS INCREASES?
PARKER CASWELL
Climate and Energy Associate, As You Sow
As governments worldwide struggle to keep the Paris agreement’s goal of limiting global average temperature rise to 1.5°C within reach, pressure on oil and gas companies is reaching an all-time high. Global bodies such as the Intergovernmental Panel on Climate Change and International Energy Agency are emphatic about the urgent need for transparent, immediate, and ambitious decarbonization in the oil and gas industry. This year’s COP 28 negotiations, hosted by Abu Dhabi National Oil Company chief Sultan Al-Jaber in the United Arab Emirates and notably attended for the first time by ExxonMobil CEO Darren Woods, have finally included language about “transitioning away from fossil fuels.”
SEC action—Exxon has told the SEC the resolution can be omitted because As You Sow is the same proponent as another completely separate organization filing on a different issue. The SEC rejected a similar argument last year. The company also is arguing the resolution is too specific and therefore ordinary business.
