Chevron fails against proposal for higher dividends rather than ‘risky and costly projects’

SEC rules in favour of As You Sow, clearing the way for its proposal to be voted on at Chevron’s AGM

US oil and gas giant Chevron has failed to stop a novel shareholder proposal requiring it to return more capital to shareholders in the form of dividends instead of allocating the money to projects which, the proposal’s filers say, are expensive and potentially unviable due to the risk of ‘stranded assets.’
In a no-action request, Chevron had asked the Securities and Exchange Commission (SEC) for permission to exclude the proposal from its proxy materials on the basis that as it was vague and misleading, it violated SEC rule 14a-8(i)(3). The SEC disagreed, clearing the way for the proposal to be voted on at its annual meeting on May 27 in San Ramon, California.
The proposal originates from As You Sow, an advocacy for corporate social responsibility, and was co-sponsored by sustainable asset managers Arjuna Capital and Zevin Asset Management. Last year, Chevron beat back a shareholder proposal from As You Sow seeking to further the stranded assets argument (see earlier report) that a combination of tighter regulation and decreasing demand for fossil fuels will lead to overcapacity at companies like Chevron.
Danielle Fugere, As You Sow’s President, said: “Given historically high capital expenditures, decreasing oil prices, competition from low-cost alternatives and global climate change – Chevron’s continuing to pourshareholder capital into high cost, high carbon projects creates significant risk of unsaleable and stranded assets.” According to Fugere, examples of such high-cost, high-carbon projects are drilling for oil in the Artic region or extracting the fuel from tar sands. As You Sow’s proposal seeks to curtail such spending by forcing Chevron to issue a dividend policy increasing the amount authorised for capital distribution to shareholders. The motion does not specify what sort of dividend should be paid to the company’s shareholders. Natasha Lamb of Arjuna Capital, the proposal’s co-sponsor, says that’s because US proxy rules forbid shareholders from suggesting the dividend. “The purpose of the proposal is to send a signal to management and the board that the current strategy does not take material climate change risks into account and that capital is better returned to shareholders,” Lamb, who is Arjuna’s Director of Research and Engagement, told Responsible Investor.
In its no-action request to the SEC, Chevron argued that the motion “was so inherently vague and indefinite that neither the shareholders voting on the proposal, nor the company in implementing it, would be able to determine with any reasonable certainly exactly what actions or measures the proposal requires.” The SEC rejected this view.