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Feb 01, 2022

Costco shareholders back net-zero proposal including Scope 3 emissions

Measure seeks targets for emissions from retailer’s full value chain

Shareholders in Costco Wholesale Corporation have voted – against the board’s wishes – in favor of a proposal urging the retail company to set targets for reaching net-zero greenhouse gas (GHG) emissions.

Just under 70 percent of the votes cast at Issaquah, Washington-based Costco’s January 20 AGM backed the proposal brought by Green Century Capital Management requesting that ‘Costco adopt short, medium and long-term science-based [GHG] reduction targets, inclusive of emissions from its full value chain, in order to achieve net-zero emissions by 2050 or sooner and to effectuate appropriate emissions reductions prior to 2030.’

The investor describes the vote as the first on a shareholder proposal ‘directly requesting that a company set targets that include emissions from its full value chain and that are aligned with achieving net-zero emissions by 2050 or sooner.’

Green Century argues in its supporting materials that ‘Costco claims to prioritize ‘the mitigation of Scope 1, [Scope] 2 and [Scope] 3 CO2e emissions’ and to focus on ‘addressing the climate impacts attributed to our global operations and supply chains.’ [But] Costco’s absolute Scope 1 and [Scope] 2 emissions have increased in each reported year since 2016. Worryingly, Costco does not plan to announce Scope 1 and [Scope] 2 emissions reduction targets until December 2022 and has no time-bound plans to measure, disclose or set reduction targets for its Scope 3 emissions.’

The investor states that other major retailers and food companies already measure their Scope 1, Scope 2 and Scope 3 emissions and are seeking science-based emissions reductions in line with the goals of the Paris climate agreement. ‘Failure to keep pace with competitors and anticipate regulatory changes may pose material risks to Costco, including restricted market share, inability to meet government mandates and reputational damage,’ Green Century writes.

‘The substantial show of support for this proposal signals that many investors now expect companies in all sectors to set ambitious climate targets, including goals for their supply chains,’ Green Century shareholder advocate Thomas Peterson says in a statement. ‘The food system represents more than one quarter of all human-caused [GHG] emissions. In order to decarbonize our economy, major food retailers like Costco must work to reduce their supply chains’ impact on our climate, known as Scope 3 emissions.’

Thomas Peterson, Green Century

Peterson welcomes what he describes as recent ‘substantial improvements’ in Costco’s climate policy, including a commitment to developing a Scope 3 action plan and eventual reduction targets and announcing its first reduction targets for its operational and purchased energy emissions (Scope 1 and Scope 2 emissions) a year earlier than planned.

‘We are encouraged by Costco’s progress, but Costco cannot keep falling behind its competitors in this important aspect of its business,’ Peterson says. ‘We hope the company will take shareholder concerns into account and do its part to mitigate its contribution to climate change.’

A Costco spokesperson says: ‘Management has no comment at this time.’

The board had urged shareholders to vote against the proposal, writing in the company’s 2022 proxy statement: ‘Costco Wholesale fully appreciates the risks associated with climate change, not only to its long-term business prospects but also to the global community.’ It states that almost two years ago the company published a climate action plan intended to address the climate impacts attributed to its global operations and supply chains. According to the board, the company met or exceeded all of it 2021 targets and new targets have been set.

The board says ‘the overwhelming bulk of ‘our’ emissions are Scope 3 – those of suppliers with whom we do business. While we seek and will continue to seek to influence our suppliers to reduce their emissions, we cannot directly control their actions.’

It adds that it will announce Scope 1 and Scope 2 CO2e (carbon dioxide equivalent) emissions commitments and reduction targets by the end of 2022 but that before setting Scope 3 reduction targets the company needs to obtain better information about the scope of these emissions.

‘We are committed to meeting the challenges of reducing emissions, as are many of our suppliers,’ the board writes. ‘But until we have more data and more interaction with our suppliers we believe it imprudent to commit now to adopt arbitrary limits and fixed timetables by June 2022, as sought by the proposal. We are committed to disclosing by December 2022 our estimated Scope 3 purchased goods and services emissions and our Scope 3 action plan.’

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...