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Shareholders double their efforts to heighten corporate climate disclosures in 2022

16 February 2022 Amena Saiyid

Investors are doubling their efforts in the 2022 proxy voting season to force companies to not only set science-based GHG reduction targets, but also disclose whether their lobbying actions are indeed aligning with their publicly stated net-zero goals.

Of the 436 resolutions that the shareholder advocacy Interfaith Center on Corporate Responsibility (ICCR) has filed directly or acted as co-filer for at some 246 companies, climate resolutions, numbering 103, are dominating the roster for the voting season starting this spring, nearly a double from the 54 filed a year ago.

These resolutions reflect the concerns of ICCR members who recognize that heat waves, droughts, and sea-level rise affected every single continent in the past year, spokeswoman Julie Wokaty said in a 16 February preview of the 2022 proxy voting season guide.

ICCR members represent more than $4 trillion in assets under management for faith institutions, labor unions, pension funds, asset managers, foundations, and other institutional investors.

So far, 2022 is shaping up to be busy as well.

A Trump administration revision to a shareholder rule, which ICCR and others are currently challenging, made it difficult for shareholders to file resolutions by raising eligibility requirements. That too did not dampen the enthusiasm of ICCR members from filing even more climate-centered resolutions in 2022 than they did a year ago.

The push for resolutions seeking greater accountability of climate targets is the result of what investors are calling an "unprecedented year" in 2021 when 15 climate-related proposals won majority votes at the annual meetings of corporations, Mary Minette, shareholder advocacy director for ICCR member Mercy Investment Services, said during the preview call. These include the success investor Engine No. 1 had in winning three seats on ExxonMobil's Board of Directors, and the 61% shareholder vote to force Chevron to reduce "Scope 3" GHG emissions generated by the use of its carbon-intensive products.

Among the 103 climate proposals, 20 are calling for corporations to disclose that their lobbying activities are indeed aligned with the 2015 Paris Agreement goal to limit global warming to 1.5 degrees Celsius. This number is more than doubled from last year.

"Given the market success of these proposals last proxy season, this is a clear signal from the investment community that lobbying against climate forward policies will be challenged," Wokaty said.

Lobbying aligned with climate goals

A year ago, six of the 15 successful climate resolutions called on corporations to manage their climate lobbying activities either directly or through trade associations, Minette said.

This year, 20 companies, including Alphabet, Amazon, ExxonMobil, JPMorgan Chase, Meta (formerly known as Facebook), and Uber, have been asked to disclose their lobbying activities.

Minette said the vote most likely to occur is the one aimed at UPS, which has a carbon neutrality goal for 2050.

The UPS board, Minette said, has revealed few details about how it is involved in membership decisions or how it may act if one of its trade associations decide to lobby against the Paris Agreement goals.

This year's ICCR resolutions also include resolutions asking companies to set short-, medium-, and long-term science-based targets; release audited reports revealing the impact of the International Energy Agency (IEA) net-zero emissions by 2050 scenario; show financing is commensurate with the IEA scenario, and to set net-zero targets.

To Minette, the science-based target resolution is a clear indication that investors are focused on long-term corporate plans to control climate risk.

One such proposal was filed with Texas-based refiner Valero Energy to report its direct, or Scope 1, emissions from their operations; the Scope 2 emissions from the electricity that they purchase; along with the Scope 3 emissions from the use of their fossil fuel products. It also asks Valero to set short, medium, and long-term science-based targets.

As a result of shareholder resolutions introduced a year ago, Phillips 66, Chevron, and ConocoPhillips all agreed to disclose their Scope 3 emissions from the use of their carbon-intensive fossil fuel projects.

A week earlier, Marathon Oil revealed its Scope 3 emissions, Minette said.

However, Dutch-based investor group Follow This, which persuaded Chevron shareholders to require GHG emissions disclosure, warned that oil and gas companies are falling short of their climate disclosure mandates through loopholes. For instance, a fortnight ago, Follow This Shell said is counting its claims about investment in renewable energy and marketing expenditures as one figure, thereby preventing investors from knowing exactly how much the company is spending on renewables in comparison to its core fossil fuel business.

Targeting banks, insurers

According to the guide, investors also have filed nine proposals at top US banks and seven with major insurance companies to push for greater accountability in climate lending and to reduce financing and underwriting of new fossil fuel exploration and development projects.

Investors have asked Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo to pursue financing in line with the IEAs net-zero emissions scenario,

which called for a halt to all new fossil fuel exploration and development to limit global warming to 1.5 degrees C.

Mercy and other investors especially asked JPMorgan Chase, the world's largest financier of fossil fuel projects to adopt a "no fossil fuels policy." The ICCR members were alluding to a March 2021 report that revealed that JP Morgan Chase's lending and underwriting activities between 2016 and 2020 provided nearly $317 billion to fossil fuels. Financing by Citigroup, which the report described as "the next worst fossil bank during this period," was 33% below JPMorgan Chase.

According to the ICCR guide, Bank of America and Citigroup also received resolutions requesting an audited report on impact of IEA net-zero emissions by 2050 scenario. Several Canadian banks, including Bank of Montreal, Royal Bank of Canada, and Toronto Dominion, also received similar resolutions.

Seeking audits

Mercy and other ICCR members, including the non profit As You Sow, are also backing resolutions that call on corporations to issue an audit to shareholders that reveals how a significant GHG reduction is affecting their financial position and underlying assumptions like commodity pricing and asset valuation.

This proposal was introduced for the first time in 2021 to the boards at ExxonMobil and Chevron, where they received near majority votes. This year, the resolution will be refiled at ExxonMobil as well as other oil and gas companies and major US power utilities such as Duke Energy, Dominion Energy, DTE, and Southern Company.

Virginia-based Dominion Energy and North Carolina-based Duke Energy, which are in the business of supplying natural gas and generating power across southern US, announced plans to target and reduce GHGs from its upstream and downstream operations. But Minette said Duke has not disclosed details of how the utility's net-zero plans will affect its underlying financial position, especially those related to its natural gas business.

Holding the company's 'feet to fire'

Responding to a question during the call about quality of disclosures, Minette acknowledged that the investors are looking to the US Securities and Exchange Commission (SEC) to provide clarity about the nature of climate risk disclosures through its rulemaking. The SEC is expected to issue a proposal any day now.

"I think once we get some ground rules then it will easier to make sure that there is that accountability," she said, noting that ICCR members are encouraging companies to use target-setting criteria outlined by the nonprofit Science-Based Targets Initiative. Science-based targets provide companies with a clearly-defined path to reduce emissions in line with the Paris Agreement goals.

"We have to hold their feet to the fire over time," she said.

Not all resolutions up for a vote

Not all of ICCR resolutions will be voted at the company shareholder meetings; some may be withdrawn, the group said, and still others may be challenged. The majority of them will receive a vote starting this spring.

At least 15 of the climate proposals already have been challenged by companies, and their outcome depends on whether the SEC finds them germane to a company's financial underpinnings. For instance, Amazon, American International Group and the American Airlines Group are challenging the resolution on Paris Agreement-aligned lobbying requirement, while JPMorgan Chase is challenging the resolution requiring it to evaluate whether its financing matches up with IEA's net-zero emissions scenario.

ICCR attributed the success with climate resolutions in part to increased awareness about global warming and in part to the proxy support it has received from advisory firms and investment funds like global asset managers BlackRock and State Street.

In 2021, BlackRock held the largest share in green bonds among asset managers that companies, banks, and sovereign governments issued in 2021 to finance climate risk-reduction and clean technology projects, according to IHS Markit's analysis of the bond market.

A year ago, BlackRock CEO Larry Fink acknowledged the systemic risk that climate change poses and later that year the firm supported eight of the 19 ICCR-led resolutions in which climate was a primary issue.

This year, Fink reminded investors that "few things will impact capital allocation decisions—and thereby the long-term value of your company—more than how effectively you navigate the global energy transition in the years ahead."

Posted 16 February 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

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