In preparation for its annual shareholders’ meeting next month, Chevron Corporation has issued its 2017 Proxy Statement. Unfortunately for investors concerned about climate change, this major oil and gas company continues to downplay the profound risks its product poses to Earth’s climate.
In a new report cited in the proxy statement, Chevron insists that its risk exposure in a carbon-constrained world is minimal, although it acknowledged in annual financial filings the increased possibility of climate-related investigations and litigation. In the proxy statement, the company’s Board attempts to convince shareholders that Chevron’s political activities—which include support for groups that spread climate disinformation—are in shareholders’ long-term interests.
Pressure continues to mount on major fossil fuel companies like Chevron to renounce disinformation on climate science and policy and begin to plan for a world free from carbon pollution. Here’s a preview of some of the key climate-related issues on the agenda at Chevron’s annual meeting on May 31 in Midland, Texas.
Systemic economic risks
There is substantial backing in the business and investor communities for strengthening and harmonizing climate-related financial disclosures by companies in all sectors. The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. Recognizing the potential systemic risks posed by climate change to the global economy and economic system, the FSB set up a Task Force on Climate-Related Financial Disclosures (TCFD) chaired by former New York City mayor Michael Bloomberg.
In December 2016, the TCFD released its Recommendations Report. The TCFD recommended disclosure of climate-related financial risks in mainstream (i.e., public) financial filings. Specifically, the TCFD recommended that companies disclose what a 2° Celsius scenario would mean for their businesses, strategies, and financial planning.
The Union of Concerned Scientists and other stakeholders have provided comments on the TCFD’s Recommendations Report, which is expected to be taken up by the leaders of G20 countries this year.
Now is a good time to consider how Chevron’s 2017 financial filings measure up to these mainstream recommendations and expectations.
2°C scenario planning
Increasingly, shareowners of major fossil energy companies are calling for annual reporting on how climate policies may affect their business in light of the globally agreed target to limit global warming to 2°C above pre-industrial levels. This year, Chevron shareholders have put forward a resolution calling for annual planning on 2°C scenarios, along with a proposal on transition to a low-carbon economy. In 2016, the 2°C scenario planning resolution won the support of more than 40% of Chevron shareholders.
In our inaugural Climate Accountability Scorecard released last October, UCS assessed how Chevron is planning for a world free from carbon pollution—and scored the company “poor.” We recommended that Chevron:
- Publicly acknowledge the Paris climate agreement’s long-term goal and its implications for the swift transition to global net-zero emissions;
- Disclose emissions resulting from the company’s operations and the use of its products;
- Set and disclose initial near-term company-wide targets to reduce emissions from its operations and the use of its products;
- Develop and publicly communicate a clear plan and timeline to deepen emissions reductions consistent with the Paris agreement’s long-term goal.
In the 2017 proxy statement, Chevron’s board recommends a “no” vote on both the 2°C scenario planning and transition to a low-carbon economy proposals. The Board asserts that Chevron’s report “Managing Climate Change Risks: A Perspective for Investors,” released last month, substantially addresses the issues raised by its shareowners in these resolutions, despite a lack of such disclosures in the company’s U.S. Securities and Exchange Commission (SEC) reporting.
This report comes to some extraordinary conclusions, including:
- “…Chevron’s current risk management and business planning processes are sufficient to mitigate the risks associated with climate change.”
- “…the current risk exposure to the Company even in a restricted GHG [greenhouse gas] scenario is minimal.”
Yet “Managing Climate Change Risks” is not a robust analysis of the potential business, strategic, and financial implications of climate-related risks and opportunities for Chevron. It fails to meet the expectations of shareholders or align with the TCFD recommendations. Among its shortcomings, the report:
- Provides no description of how 2°C scenario analysis is integrated into Chevron’s investment decision making or strategic business planning;
- Includes limited discussion of market and technological risks to Chevron’s business model and provides no detail on its current or projected low-carbon investments;
- Does not acknowledge climate-related risks to Chevron’s reputation;
- Provides some information about Chevron’s assessment of climate-related physical risks, but does not disclose how it determines their materiality or how it plans to manage these risks in the future.
Potential investigations and litigation
In contrast to the rosy outlook presented in “Managing Climate Change Risks,” Chevron’s annual 10-K report for 2016 (filed in February 2017) acknowledged that “Increasing attention to climate change risks has resulted in an increased possibility of governmental investigations and, potentially, private litigation against the company.” This is an extraordinary admission, for several reasons:
- Companies only have to disclose to investors risks that could have a “material adverse effect” on them—that is, risks to their bottom lines. Most companies resist identifying a risk as material until they have no choice but to do so.
- To date, only ExxonMobil is known to be under investigation by governmental authorities—specifically, the attorneys general of New York and Massachusetts and the SEC. Chevron is apparently concerned that it, too, could face scrutiny for misleading investors and consumers about climate change.
- Up until recently, Chevron has been limited in its climate-related risk disclosure to the SEC. After pressure from UCS and investors, the company did expand its disclosure of physical risk at its refineries, but didn’t explicitly mention climate change like this year’s disclosure does.
In last year’s Climate Accountability Scorecard, Chevron scored only “fair” on fully disclosing climate risks to its shareholders. It remains to be seen whether these additional disclosures will improve Chevron’s score in this area.
Direct and indirect lobbying
Growing numbers of investors are also seeking more information to assess whether lobbying by major oil and gas companies is consistent with the companies’ expressed goals and in the best interests of shareholders. Chevron again faces a proposal from shareholders requesting annual reporting on direct and indirect lobbying activities and expenditures.
In 2016, 27% of Chevron shareholders voted for such a proposal, and the company has not taken any steps that are likely to reduce shareholder concerns in this area.
This year’s resolution cites Chevron’s lack of transparency about its membership in and contributions to trade associations and industry groups such as the American Petroleum Institute (API), Western States Petroleum Association (WSPA), Business Roundtable, US Chamber of Commerce (US Chamber), and American Legislative Exchange Council (ALEC).
UCS’s Climate Accountability Scorecard rated Chevron “egregious” in the area of Renouncing disinformation on climate science and policy, due largely to its affiliation with groups like API, WSPA, the US Chamber, and ALEC that spread disinformation on climate science and policy.
Shareholders should not tolerate Chevron’s efforts to dismiss and deny the very real risks posed by climate change to our planet, to the company’s business model, and to their investments. They can send a strong message to the company’s management and board by voting in favor of climate-related shareholder proposals at next month’s annual meeting.
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