US-based oil and gas major Chevron has attempted to undercut a shareholder rebellion by announcing plans to align its business strategy with the Paris Climate Agreement, vowing to cut greenhouse gas emissions by 25% to 30%. However, the company’s promises do not fully meet investor demands.
Chevron published an update last Thursday to its 2019 Climate Change Resilience: A Framework for Decision Making report which outlines the company’s approach to mitigating climate change risks in its business and the company’s resilience under a low-carbon scenario. The crux of the company’s update is twofold, including an increase in voluntary disclosure on the company’s governance related to climate change issues, and further efforts to decrease its greenhouse gas emissions.
Specifically, Chevron announced two equity-based greenhouse gas intensity reduction performance measures to reduce the company’s emissions intensity by decreasing flaring intensity by 25% to 30% and methane emissions intensity by 20% to 25%. Chevron’s timeline for these targets is set from 2016 to 2023 — aligning itself with when the Paris Agreement was first signed (in 2016) and when the first global emissions “stocktake” outlined in the Agreement was called for (and every five years thereafter). Chevron will apply these performance measures not only on their own operations but on all its equity ownership of oil and gas assets and will tie a portion of the employee bonuses into greenhouse gas reductions.
“This update highlights work we are doing to address climate change risks to our business and new opportunities we’re pursuing,” said Michael Wirth, Chevron’s chairman and chief executive officer. “It incorporates responses to some of the thoughtful insights stockholders have shared with us during our engagements. We look forward to ongoing conversations on how we are managing climate risks to our business and taking on new opportunities to reduce greenhouse gas emissions and develop lower carbon energy.”
However, the company’s greenhouse gas reduction measures will not take into consideration emissions created by consumers of its product. Further, according to Lila Holzman, Energy Program Manager for As You Sow, “Chevron has pledged to reduce only a fraction of a very small fraction of its total greenhouse gas emissions. Chevron’s own report acknowledges ‘methane accounts for about 5% of Chevron’s total greenhouse gas emissions.'”
“The report fails to address if and how the company plans to align with Paris in terms of reducing its full carbon footprint,” added As You Sow’s President, Danielle Fugere. “Half measures such as operational methane reductions, while an important step, will not achieve the reductions needed to stabilize the climate and reduce growing economy wide and thus portfolio wide risk to investors. Chevron, which has contributed substantially to the global climate problem must affirmatively do its part and take responsibility for reducing the full range of emissions it is causing.”
Pressure has been mounting on oil and gas majors around the world — highlighted in part by a similar announcement made last week by BP which revealed it would support a shareholder resolution calling for the company to align its business strategy with the goals of the Paris Agreement; and further highlighted by a December announcement by British-Dutch oil and gas company Royal Dutch Shell which included new climate targets developed in partnership with institutional investors on behalf of Climate Action 100+. Chevron, specifically, was facing a similar shareholder resolution put forward by As You Sow and Arjuna Capital which called on the company to adopt the Paris Agreement targets for all its emissions — including those created by consumers. It is unclear as of yet whether this proposal will remain to be voted on at the company’s Annual General Meeting — though, As You Sow’s comments above, provided to me via email, would suggest that they will proceed with their proposed resolutions. In fact, according to As You Sow, there are three shareholder resolutions pending for 2019 with Chevron in regards to climate change:
- Aligning the company’s business plan with the Paris Agreement
- Disclosing Paris compliant emissions targets
- Chartering a new Board Committee on Climate Change to evaluate Chevron’s strategic vision and responses to climate change
Chevron’s announcement, in the end, seems relatively inconsequential and is likely to only result in increased investor pressure.
“Clearly, setting ambitions to lower pollution and linking them to management pay are welcome,” said Andrew Grant, a Senior Analyst with the Carbon Tracker initiative, who also spoke to me via email. “However, Chevron executives are simultaneously incentivised to continue growing oil and gas production despite the “carbon budget” of emissions that can be released under the Paris Agreement being finite and shrinking.
“We would agree with Chevron that even against a need to lower oil and gas use in absolute terms, theoretically the very lowest cost producers may be able to keep output flat or even increase it – however this is likely to be a select band, and at the moment every company seems to think it will be able to grab the last chair when the music stops. Chevron has implied it has already invested in assets which are not economic in a 2 degree world. The past is the past, but the onus is on companies to justify how their investments will fit into our environmental limits in future.”
Chevron’s announcement comes several months after it joined the Oil and Gas Climate Initiative at the same time as ExxonMobil and Occidental Petroleum, an initiative which is designed to foster collaboration in the oil and gas industry towards taking practical actions on climate change. Each new member also committed $100 million to the OGCI Climate Investments fund.
“We take our corporate responsibility seriously,” added Dr. Ronald Sugar, lead independent director for Chevron’s Board of Directors. “I am pleased that Chevron is providing this update to its previous reports on climate risks. In prior engagements with stockholders, I have reinforced the important role the Board plays in overseeing Chevron’s management of climate change risks and its assessment of opportunities.”
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