A large slice – though not a majority – of Chevron shareholders have backed a proposal seeking a look into the impact on the energy company of getting to net-zero greenhouse gas emissions.
According to an SEC filing, almost 39 percent of votes cast at Chevron’s May 25 AGM backed the proposal, which was filed by As You Sow. Governance professionals widely view that level of support as significant.
Specifically, the proposal asks Chevron’s board to release ‘an audited report addressing how application of the assumptions of the [International Energy Agency’s (IEA)] net-zero by 2050 pathway would affect the assumptions and estimates underlying its financial statements, including its long-term commodity and carbon prices, remaining asset lives, existing and future asset retirement obligations, capital expenditures and asset valuations (impairments).’
In its support materials, As You Sow writes that accounting and auditing standard setters have stated that material climate-related risks should be accounted for in company financial statements and audits, and that large investor groups have urged companies and auditors to reflect climate risks in companies’ financial results.
The proponent says the IEA’s net-zero scenario describes an energy sector pathway to achieve net-zero emissions that does not require new investment in fossil fuel supply projects and falling oil prices. ‘Given these global climate imperatives, to best allocate investments, investors are calling for information to assess the financial impacts of climate-related physical and transition risks on companies and identify companies best positioned to thrive in a low-carbon economy,’ As You Sow writes.
It argues that Chevron continues to develop new fossil fuel resources while acknowledging climate-related risks and its audited annual disclosures do not ‘provide investors with sufficient insight into assumptions used to assess productive assets for impairment and stranded asset risk.’ Peer companies have made more transparent disclosures in their audited financial statements, according to As You Sow.
‘Accurate accounting assists investors in understanding the drivers of risk and return. Investors seek additional information from Chevron to understand the impact of climate-related factors on its business model and current financial reporting,’ it adds.
As You Sow president Danielle Fugere says in a statement following the AGM: ‘With this strong vote, investors have made it clear that companies must fully address how the global transition away from fossil fuels will affect their companies’ bottom line and future success. As demonstrated by the IEA net-zero by 2050 scenario, a clear pathway to achieving net-zero emissions exists – and it requires a rapid movement away from fossil fuel-based energy.
‘The impact and risk of a business-as-usual business plan to an oil company is therefore fundamentally material, requires analysis and disclosure and the same auditing assurance as financial disclosures.’
Chevron’s board had urged shareholders to vote against the proposal, arguing that the company has ‘substantially addressed the request.’
The board wrote in the company’s proxy statement that it ‘appreciates the focus of our investors and stakeholders on achieving the goals of the Paris Agreement. Chevron supports the goals of the Paris Agreement and is committed to lowering our portfolio carbon intensity, on a full-cycle basis, and to being transparent about our progress.’
According to the board, Chevron received a similar proposal last year, after which it tested the company’s portfolio using the IEA’s net-zero by 2050 scenario’s demand and commodity price predictions. It then reported the results of this test in its climate change resilience report in October 2021, the board wrote.
‘Chevron’s corporate audit department… conducted a non-rated assurance review of the [net-zero by 2050] scenario analysis and determined that the analysis was conducted in accordance with established internal process and emerging external guidance,’ the board said.
It continued: ‘We consider the likelihood of the IEA’s [net-zero by 2050 scenario] to be remote and do not rely on [it] for our business planning. Your board believes it would not be a responsible use of company resources to produce a further report to address a speculative scenario, as the proposal requests.’
A Chevron spokesperson says in a statement: ‘As stated on page 93 of our 2022 proxy statement, [Chevron’s] board appreciates the focus of our investors and stakeholders on achieving the goals of the Paris Agreement. Chevron supports the goals of the Paris Agreement and is committed to lowering our portfolio carbon intensity, on a full-cycle basis, and to being transparent about our progress. We have engaged extensively with the proponents and expect to continue to do so.
‘In response to a similar proposal last year, we tested our portfolio using [net-zero by 2050 scenario’s] demand and commodity price projections and reported on the results of this scenario test in our updated climate change resilience report in October 2021.’