Greenhouse Gas Emissions Management

Shareholder resolutions about tracking, managing and reducing GHG emissions—a critical step if companies are to effectively address climate risks and seize related opportunities—remain under threat by a key no-action letter the SEC staff issued Feb. 28, 2018, at EOG Resources, which came too late to affect last year’s proposals. Companies earlier had been successful in knocking out relatively new requests to set net-zero emissions goals, but the EOG decision was much broader, suggesting that proposals about GHG goals in general amounted to “micromanagement,” a long-established matter of ordinary business that companies can cite to exclude a resolution from the proxy statement. This year, proponents are trying several new approaches in the hopes they will thread the SEC’s needle of acceptability.

Greenhouse Gas Emissions Management

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Michael Garland
Assistant Comptroller, Corporate Governance and Responsible Investment Office of New York City Comptroller

New York City Comptroller Scott Stringer, on behalf of the New York City pension funds (the “NYC Funds”), submitted a shareowner proposal to TransDigm Group on September 19, 2019, requesting that the company adopt a policy with time-bound, quantitative, company-wide goals for managing greenhouse gas (GHG) emissions, taking into account the objectives of the Paris Climate Agreement, and report on its plans to achieve these targets.

It may be that the courts will decide, however. In December, the New York City Comptroller’s office sued TransDigm in federal court, in the Southern District of New York, seeking a preliminary injunction to force the company to include a proposal asking it to adopt GHG reduction targets. Ultimately, the company agreed to include the proposal before a court decision so no legal precedent has been set, but the comptroller has set down a clear marker that the city pension funds will sue again if a company excludes a similar proposal— possibly preemptively, before any SEC no-action letter. Whether a company will take up this gauntlet remains to be seen, but several challenges to the proposals using arguments similar to those employed by TransDigm are pending at the SEC, as noted below.

Time-bound quantitative targets: Eleven of the resolutions reiterate previous GHG goals proposals, with slightly different language, all invoking the 2015 Paris Climate Treaty.

Managing—Resolutions at, Home Depot, TransDigm and Vertex Pharmaceuticals ask each to “adopt a policy with quantitative, company-wide goals for managing greenhouse gas (GHG) emissions, considering the objectives and timelines of the Paris Climate Agreement, and report...on its plans to achieve these targets.” investors last voted on a climate-related proposal in 2012, giving 21.1 percent support to a report request about climate change impacts.

Reducing—Similar proposals include requests for a report at C.H. Robinson (where a similar resolution earned 37.8 percent last year), Emerson Electric (39 percent) and Flowserve (22.1 percent) and asks for “the adoption of time-bound, quantitative, company-wide, science-based targets for reducing total greenhouse gas (GHG) emissions, taking into account the goals of the Paris Climate Agreement” and report on “plans to achieve these goals.” This is very close to the proposal from New York State Common Retirement Fund (NYSCRF) pending at Fluor (in its fourth year, with 41.6 percent last year) and Vistra Energy (new) which specifies the report should be by December 2019.

Trillium Asset Management is slightly more prescriptive, asking Illinois Tool Works (24.6 percent last year) and J.B. Hunt Transport Services (21.4 percent last year) to adopt “quantitative, company-wide targets for reducing greenhouse gas (GHG) emissions, consistent with the goals of the Paris Climate Agreement,” with annual reports on “plans and progress towards achieving these targets.”

Reporting on targets: A reformulated proposal at Chevron, Devon Energy and ExxonMobil seeks

annual reporting from 2020, include disclosure of short-, medium- and long-term greenhouse gas targets aligned with the greenhouse gas reduction goals established by the Paris Climate Agreement to keep the increase in global average temperature to well below 2 Degrees C and to pursue efforts to limit the increase to 1.5 Degrees C.

Devon investors have not seen a GHG goals proposal before but gave a request for a climate change scenario report 41 percent support in 2017; in 2018, proponents withdrew there after Devon agreed to produce the report. Earlier proposals at ExxonMobil asking it to adopt GHG goals earned in the 20-percent range each year from 2010 to 2014, then missed the resubmission threshold in 2015 with a vote of only 9.6 percent. Proponents shifted tactics and asked for a climate change scenario analysis and received unprecedented 62 percent support in 2017, prompting further disclosures from the company but still no pledge to set reduction targets.

At Ross Stores, the request is for “a climate change November...that describes how the Company is aligning its long-term business strategy with the projected long-term constraints posed by climate change, and describing medium- and long- term goals for GHG reduction.”

Paris-compliant transition—In new variants on GHG emissions reporting, As You Sow is asking five energy companies about any plans to lighten their carbon footprints. At Anadarko Petroleum, the request is for a report “describing if, and how, it plans to reduce its total contribution to climate change and align its operations and investments with the Paris Agreement’s goal of maintaining global temperatures well below 2 degrees Celsius.” It suggests the requested report should explain the pros and cons of low-carbon energy investments, reduced investment in high-carbon resource development and operational diversification to cut carbon emissions. In similar language, at Chevron, ExxonMobil (both of which also have quantitative goals resolutions, as discussed above), as well as at Hess, the proposal seeks a report “on how the company can reduce its carbon footprint in alignment with greenhouse gas reductions necessary to achieve the Paris Agreement’s goal of maintaining global warming well below 2 degrees Celsius.” The proposal at Cooper Cos. says the report should evaluate “the feasibility of the Company achieving greenhouse gas emissions reductions in line with Paris climate change goals for those parts of the business directly owned and operated by the Company.”


Danielle Fugere
President, As You Sow

Climate change poses growing risk to the
individual companies in which shareholders invest and, significantly, to shareholders’ broader portfolios. As climate-related harm accelerates, economy-wide losses are increasing and hurting portfolios. A 2018 analysis in Nature suggests that keeping global temperature rise below 1.5 degrees instead of 2 degrees can prevent over $30 trillion in economic damage.

Previous resolutions about climate scenario analysis earned majorities at Anadarko Petroleum (53 percent in 2018) and ExxonMobil (62 percent in 2017), and 30 percent at Hess in 2017. At Chevron, a proposal in 2017 asking for a report on company options for a reduced carbon asset mix received 25.6 percent. At Cooper, a proposal seeking net-zero GHG goals earned 32.8 percent in 2018. This year’s resolution is broader and Amalgamated Bank, last year’s proponent, is a co-filer.

High carbon financing: As You Sow is asking three major banks—Goldman Sachs, JPMorgan Chase and Wells Fargo—to each “adopt a policy to reduce the carbon footprint of its loan and investment portfolios in alignment with the 2015 Paris goal of maintaining global warming well below 2 degrees, and issue annual reports...describing targets, plans, and progress under this policy.” The proposal recommends the report include information on cutting the firms’ exposure to “extreme fossil fuel projects such as coal, Arctic oil and gas, and tar sands.”

Both Goldman and Wells Fargo have challenged the proposal so far at the SEC, as described below.

SEC action: Three companies contend the GHG goals resolutions are ordinary business, citing the SEC Staff Legal Bulletins of the last two years and the 2018 EOG Resources precedent discussed above:

  • Anadarko Petroleum contends that the Paris-compliant goals proposal amounts to “micromanagement,” setting out the EOG precedent and the October 2017 SEC Staff Legal Bulletin clarifying when a company can omit a proposal on ordinary business grounds of “micromanagement.” (See p. 14-15 for a fuller discussion of the bulletin.) It says the proposal is both “extremely broad and extremely particular” and fails to consider its 2018 climate risk report, which set out its approach to climate resilience and explained what it has done to reduce emissions. Further, it offers a point-by-point comparison of the current resolution with the excluded EOG Resources proposal—while also contending it is similar to SEC- excluded 2018 requests for reporting on how net-zero GHG emissions might be achieved, at, Deere and Apple.

    Implementing the resolution would require a reduction in its oil and gas development and an increase in renewable energy development, Anadarko asserts. The proposal would force it to change its entire business strategy to become “a completely different business,” which is impermissible.

  • J.B. Hunt also says the resolution is ordinary business. It contends “transportation equipment, cost and analysis of fuel, and system logistics directly impact GHG emissions” that it already considers because they are intrinsic to its transportation business. Like Anadarko, it cites the 2018 SEC Staff Legal Bulletin’s criteria for ordinary business, saying investors are not very worried about its emissions because votes on earlier proposals were 21.4 percent in 2017 and 16.8 percent in 2015—and that it has not received a resolution since. (In fact, the 21.4 percent vote occurred in 2018.)

    The company further says it has addressed climate-related concerns by offering intermodal transportation containers that can be carried by rail, not trucks (thus reducing emissions); by emphasizing energy efficient options for its customers; and by a long list of other initiatives to cut emissions. It notes its participation in multi-stakeholder efforts such as the Sustainability Accounting Standards Board, work with the Environmental Protection Agency and CDP reporting. Finally, the company cites the EOG Resources precedent and contends setting goals would subject it to “arbitrary emissions targets” that would interfere with complicated management decisions that depend on a multitude of factors aside from emissions reductions priorities.

  • Ross Stores, which has never received a climate change proposal before, adds another objection about “micromanagement” based on the EOG precedent. It argues that while proposals about GHG goals may transcend ordinary business for energy companies, they do not in its case as a retailer because of its more limited emissions.

    Echoing the other objections, Goldman Sachs also argues the carbon financing proposal concerns ordinary business by dint of “micromanagement,” but also says As You Sow did not offer sufficient proof of stock ownership. Wells Fargo makes the same micromanagement contention. A similar financing proposal was omitted on ordinary business grounds in 2018 at JPMorgan Chase, but no similar challenge has surfaced to the version offered this year so far.

    Two more companies argue the GHG goals resolutions are duplicative of other resolutions already filed for their annual meetings this year. (The shareholder proposal rule allows companies to omit the second of two similar proposals.) has told the SEC the request about emissions management is similar to one it received first that seeks a report on its plans for handling climate-related business disruptions and reducing dependence on fossil fuels. Likewise, Chevron says the GHG targets proposal from Arjuna Capital duplicates the one from As You Sow about a Paris-compliant footprint, which it received first.

Withdrawals: Proponents have withdrawn four of the goals proposals so fa rafter reaching agreements with the companies:

  • At Cooper, As You Sow and Amalgamated Bank will continue discussions with the company’s new Director of Corporate

    Sustainability to evaluate possible GHG goals, as noted in the withdrawal letter.

  • Walden Asset Management withdrew after Emerson Electric agreed to set GHG targets; this year’s proposal was

    a resubmission and had earned 39.0 percent in 2018, 33.9 percent in 2017, and 36.8 percent in 2016.

  • Boston Common Asset Management also withdrew after Home Depot agreed to release its 2030 and 2035 GHG emissions reduction targets early in 2019.

  • NYSCRF withdrew at Vistra Energy after a company commitment; Vistra owns TXU Energy, the largest retail electricity provider in Texas. This was its first climate-related shareholder proposal, but in 2018 it acquired Dynegy, where a GHG goals request in 2011 earned 8.5 percent support.

Methane: Investors concerned about the impact methane emissions have on climate change, an issue elevated by the boom in U.S. oil and gas production made possible by hydraulic fracturing, have achieved some success in persuading companies to work on eliminating leaks and addressing methane, although critics remain. Fewer shareholder resolutions now are raising concerns on this issue, and just three proposals filed this year address methane, two of which have been withdrawn. On February 6, Investors gave 34.8 percent support to a request asking Atmos Energy for a report on its “actions beyond regulatory requirements to reduce its greenhouse gas emissions and associated climate risk by monitoring and minimizing its methane emissions.” The proponent, As You Sow, withdrew the same proposal at UGI after the company agreed to provide information about its methane emissions.

At EOG Resources, Trillium Asset Management reached an accord and withdrew a proposal that asked it to “adopt quantitative targets for reducing methane emissions, and issue a report...discussing its plans and progress towards achieving these targets.” The company agreed to set qualitative and quantitative targets and Trillium says, “This agreement represents steady progress with EOG achieved over five years of dialogue and shareholder proposals.”