The Securities and Exchange Commission (SEC) recently responded to shareholder resolutions sent to Chevron and ExxonMobil requesting the oil companies disclose how they plan to align their business models with a low-carbon economy. While the SEC said Exxon could dismiss the proposal, it came to a different conclusion for Chevron, saying Chevron must submit it for consideration at its upcoming shareholder meeting.
As You Sow and Arjuna Capital, groups representing shareholders dedicated to sustainable investing, submitted the proposals to both companies in December. The resolutions propose the companies issue a report describing how they could alter their business models in a decarbonizing economy and reduce dependence on fossil fuels.
The SEC Division of Corporate Finance issued its response to Exxon in March, accepting the company’s argument that it has adequately disclosed steps it is taking to adapt to a low-carbon future. Exxon pointed to recent reports including its “Energy and Carbon Summary” and “2018 Outlook for Energy: A view to 2040” as evidence of these disclosures. “It appears that the Company’s public disclosures compare favorably with the guidelines of the Proposal and that the Company has, therefore, substantially implemented the Proposal,” the SEC wrote.
Those Exxon reports were prepared in response to the first climate-related proposal to succeed after more than two decades of shareholder pressure. In 2017, 62 percent of Exxon shareholders voted to require the company to disclose more about climate risks.
Chevron relied on a different argument than Exxon. It said disclosing how it could adapt its business model could help the plaintiffs in eight climate liability lawsuits against the company. “The Plaintiffs could use the disclosures to their litigation advantage in fact and expert discovery as a source for analogous actions that the Company could have taken,” the company wrote in its no-action request.
The SEC responded on March 28, stating, “We do not believe that the Company may omit the Proposal from its proxy materials.” The SEC also upheld another shareholder proposal asking Chevron to report on its actions to reduce methane emissions. Chevron used the same argument—that the issue is subject in pending litigation—in an attempt to scrap that proposal.
“Chevron argued that our proposals should be banned because this issue, climate change, was being addressed in litigation,” said Danielle Fugere, president of As You Sow. Traditionally, the SEC will allow companies to avoid proposals that deal with a specific issue raised in litigation, she explained. But that was not the case here.
“Chevron’s argument was so broad that had the SEC ruled in Chevron’s favor, pretty much any climate-related issue could be argued would harm their litigation prospects,” she said. “So the SEC, I think, made a correct decision.” She noted that the lawsuits focus on past as well as future behavior, while the shareholder proposal deals with a future transition.
“The clock is ticking on how Big Oil will respond to climate change and Chevron can’t choose to hide behind a stack of litigation,” said Natasha Lamb, managing partner at Arjuna Capital. “Investors have the right to know how the company will adapt its business to climate risks.”
The low-carbon business model resolution and methane resolution are expected to go to a vote at Chevron’s annual meeting in late May.
Exxon, meanwhile, gets to skirt the issue.
“We’re deeply concerned that ExxonMobil has silenced investor voices at a critical time in the company’s evolution,” Lamb said in response to the SEC decision on the Exxon resolution.
It is not the first time the SEC has issued seemingly conflicting decisions to different companies. In 2015, the SEC let Exxon off the hook in considering a shareholder resolution about restricting exploration projects that could be at risk of being stranded in the future. That same year, it forced Chevron to consider a similar proposal.
According to Fugere, Exxon is unlikely to continue to escape shareholder pressure.
“I’m sure shareholders will continue to ask the company to address this issue of how it’s preparing for a low-carbon economy,” she said. “Right now, Exxon’s [Energy and Carbon Summary] report argues there will still be sufficient demand, and the company will continue to provide oil so long as there’s sufficient demand.”