Chevron faces two climate change shareholder proposals

Apr 01, 2021
Measures are filed as investor interest in climate crisis intensifies

Chevron Corporation shareholders are set to vote on two climate change-related proposals after the SEC rejected efforts to exclude them – although it gave no-action relief for excluding two similarly themed proposals.

The proposals come as investor interest in climate change issues has ramped up over the past year and as the topic is gaining renewed attention from US regulators. The Biden administration has made the climate crisis a priority and there are already signs of potential changes in the making that would impact companies on a governance level.

For example, acting SEC chair Allison Herren Lee has in recent weeks directed the division of corporation finance to review the extent to which public companies are following the agency’s 2010 guidance on climate disclosures, and then update that guidance.

One proposal requests that Chevron ‘substantially reduce the greenhouse gas (GHG) emissions of [its] energy products (Scope 3) in the medium and long-term future, as defined by the company.’ It was brought by Amsterdam-based Follow This, which files climate resolutions with major oil companies.

In a supporting statement, the group says: ‘[S]hareholders support oil and gas companies to change course, to substantially reduce emissions… As shareholders, we understand this support to be part of our fiduciary duty to protect all assets in the global economy from devastating climate change. Climate-related risks are a source of financial risk, and therefore limiting global warming is essential to risk management and responsible stewardship of the economy.’

Chevron asked the SEC for no-action relief if the company excluded the proposal. It points to Rule 14a-8(i)(7), arguing that the proposal deals with matters relating to the company’s ordinary business operations, ‘as it impermissibly seeks to impose prescriptive methods for implementing complex policies related to the company’s strategy for addressing [GHG] emissions.’

The company also argues that the proposal could be excluded under Rule 14a-8(i)(11) because it is substantially similar to another proposal.

The SEC responded on its website this week that it was unable to agree with excluding the measure on either of these bases.

The other proposal set for the proxy statement, which was filed by As You Sow, requests that Chevron’s board ‘issue an audited report to shareholders on whether and how a significant reduction in fossil fuel demand, envisioned in [the International Energy Agency’s (IEA)] Net Zero 2050 scenario, would affect its financial position and underlying assumptions.’

In a supporting statement, As You Sow says many Chevron peers have committed to major GHG reductions, including setting net-zero emission goals by 2050. It adds that investors are calling for ‘high-emitting companies to test their financial assumptions and [resilience] against substantial reduced-demand climate scenarios, and to provide investors [with] insights about the potential impact on their financial statements.’

It states that, as of December 2020, Chevron had neither committed to net-zero emissions by 2050 across its value chain, nor disclosed how its financial assumptions would change from doing so.

The company requested no-action relief for excluding the measure, arguing that:

  • The proposal is ‘materially false and misleading’ in that it ‘falsely presumes that an audited report can be provided to stockholders on ‘whether and how a significant reduction in fossil fuel demand, envisioned in the IEA Net Zero 2050 scenario, would affect its financial position and underlying assumptions’
  • Chevron’s board was planning to issue a report that would essentially be the one requested in the proposal in February
  • The proposal ‘substantially duplicates’ two other proposals, including the one from Follow This.

The SEC on Tuesday posted its decision online that it was unable to concur with excluding the proposal on any of the bases asserted.

Exclusions

The agency agreed, however, that Chevron could exclude two other climate change-related proposals.

One, filed by Stewart Taggart, requests a report on ‘the Scope 3 emissions from Chevron’s liquid natural gas operations and how the company plans to offset, pay carbon taxes on or eliminate via technology these emissions to meet post-2050 Paris Accord carbon-emissions reduction goals to which Chevron is publicly committed and fellow oil major [BP] has pledged to meet.’

The SEC agrees that the measure may be excluded under Rule 14a-8(i)(10) on the basis that the proposal is ‘substantially implemented’ because Chevron planned to publish on its website the requested report on Scope 3 emissions from its liquid natural gas operations and ‘its plans to offset, pay carbon taxes on or eliminate via technology these emissions.’

A further proposal requests that the company ‘address the risks and opportunities presented by the global transition toward a lower-emissions energy system by devising a method to set emissions-reduction targets covering the [GHG] emissions of the company’s operations as well as [its] energy products (Scope 1, 2, and 3).’

Chevron argues that the measure may be excluded on the basis of Rule 14a-8(i)(7), because it deals with matters relating to the company’s ‘ordinary business operations, as it impermissibly seeks to impose prescriptive methods for implementing complex policies related to the company’s strategy for addressing [GHG] emissions.’

The SEC agrees with the company’s second argument that the proposal may be excluded under Rule 14a-8(i)(11) because it substantially duplicates the Follow This and Taggart proposals.

‘We value our engagement with shareholders and will continue to meet with them throughout the year,’ Mary Francis, corporate secretary and chief governance officer for Chevron, tells IR Magazine sister publication Corporate Secretary when asked about the Follow This and As You Sow proposals.

In relation to the As You Sow and Taggart proposals seeking reports, Francis says the company in February provided additional details on its website and in March published its climate resilience report with further information.

The company has not yet issued this year’s proxy statement or announced a date for its AGM. The meeting took place last year on May 27 after the company filed its 2020 proxy statement in early April.

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