2023 Proxy Vote Alerts

Net Zero Steel – Deforestation – Transferred Emissions – Carbon Offsets

Welcome to week 7 of Proxy Preview’s ESG proxy vote alerts.

Shareholder advocacy is about engaging companies to improve company policies and practices. Shareholders often highlight best practices, guidelines, standards and principles that can help guide companies to become industry leaders.

Some companies recognize engagement as a useful process that helps make the company better and it is very productive. Others are less responsive, which can prompt shareholders to file a resolution. Many companies then revisit the issue and respond. Proponents and companies reach agreements about half the time and the proposal is withdrawn.

This week we look at withdrawn proposals, where investors asked companies to follow industry /investor initiatives. Two of these – net-zero steel and sustainable forestry – show how companies are trying to transition to a low carbon economy. Two others – carbon offsets and transferred emissions – highlight new industry principles that aim to address corporate greenwashing that has little impact on climate change impacts.

Net-Zero Steel

Metal production is very carbon intensive and the steel industry is under pressure to reduce its GHG footprint. General Motors, Ford Motor and Volvo have begun to purchase low-carbon steel and metal producers including U.S. Steel and Nucor have made net-zero commitments. Industry coalitions such as the Net-Zero Steel Initiative, Steel Zero and Responsible Steel aim to help companies.  This year, shareholder resolutions asked metal industry companies to publish a climate transition plan and set GHG emission reduction goals.  Four withdrawal agreements resulted from the engagements.

Deforestation

One of the leading drivers of both climate change and biodiversity loss is deforestation. Agricultural expansion and livestock grazing drives almost 90% of deforestation. Resolutions asked companies to consider using guidelines set by the Science Based Target initiative (SBTi) to set GHG reduction targets and a no-deforestation policy for all forest risk commodities in the company’s supply chain.

Transferred Emissions

Accountability through GHG reporting become problematic when companies sell off polluting assets, but these assets still operate and continue to pollute;  the selling company reports them as reduced emissions although there is no actual GHG reduction. In order to ensure an accurate picture of emission reductions, the Greenhouse Gas Protocol calls for adjusting emission baselines to exclude transferred assets, and The Climate Principles for Oil and Gas Mergers were designed to help companies address this. New shareholder resolutions at Chevron and ExxonMobil asked the companies to “disclose a recalculated emissions baseline that excludes the aggregated GHG emissions from material asset divestitures.”

Carbon Offsets

Many companies have rushed to incorporate carbon offsets into their GHG reduction goals. The idea is that removing carbon from one source compensates for emissions elsewhere. Yet the problem with offsets is twofold: a company does not reduce GHG emissions (and consequently, SBTi does not consider it as part of an emission reduction target), and secondly, there is no recognized standard and little oversight.  As a result, many reports occur for projects that do not actually reduce carbon. The World Bank, SEC, state and federal governments and NGOs such as the Gold Standard are all looking to set standards and verification for this “wild west” voluntary carbon market.  A resolution at CarMax asked it to report on the type and quality of carbon offsets purchased and how they were used to reach GHG emissions reduction goals.