ESG resolution round-up: ConocoPhillips says investors don’t really want Scope 3 targets, despite majority vote last year

US fossil fuel giant refuses to set value chain emissions goals as JP Morgan commits to civil rights impact audit following shareholder pressure 

US upstream oil and gas giant ConocoPhillips has stated that investors “overwhelmingly” did not expect it to set Scope 3 emission reduction targets, despite 59 percent of shareholders supporting a proposal last year calling for just that.  

The company, which is facing an even more progressive Paris-aligned targets proposal from Dutch activist Follow This this year, made the claim in its preliminary proxy statement put out earlier this month.  

“In most instances”, it wrote, shareholders that supported the 2021 climate resolution (which requested emissions disclosure across the full value chain) “expressed that the vote was in favour of ConocoPhillips setting Scope 1 and 2 emissions reduction targets, but not in favour of us setting Scope 3 emissions reduction targets”.  

“[M]any expressed conflict in not wanting to vote against setting Scope 1 and 2 targets,” it added, and therefore only “supported the climate resolution with the understanding that the proposal was nonbinding and allowed management and the board discretion on how to implement only the elements of the proposal that would be in the best interest of stockholders.”   

Responsible Investor asked ConocoPhillips for details on how it polled shareholders and which ones expressed such views, but a spokesperson declined to comment.  

While shareholder proposals in the US are typically nonbinding, there is an expectation that companies will respond to a majority vote. However, in this instance, ConocoPhillips stated its plan “does not include a Scope 3 (end-use) emissions target”.  

The company said that asking an upstream oil and gas firm to reduce its Scope 3 emissions puts the focus on the wrong place – supply and production – when the appropriate place for such targets is on the demand side.  

“Placing a requirement on efficient, ESG-focused, upstream companies like ConocoPhillips to meet a Scope 3 emissions reduction target could have the effect of shifting capital away from responsible operators, toward less-accountable producers and jurisdictions. Therefore, ConocoPhillips setting a Scope 3 target would not reduce global emissions,” it wrote.   

Whether investors see ConocoPhillips’ position as a rejection of their voting demands will depend on how accurately the company has gauged their views. There is some precedent for thinking that it has: BlackRock recommended in a 2020 voting bulletin, which outlined its decision to oppose an emissions targets proposal at Australian oil and gas giant Santos, that “any future proposals [on Paris aligned targets] be structured to provide shareholders with the opportunity to vote on each class of emissions separately”. 

One investor, who did not wish to be named, told RI that they expected that many large managers who supported the proposal were less focused on Scope 3; but added that ConocoPhillips’ position “may well alienate some investors who don’t appreciate such a rigid stance”.  

If ConocoPhillips has judged the mood of its shareholders correctly, what does it mean for climate votes? Are investors supporting proposals in public but telling companies privately not to fulfil the most ambitious elements?  

EOS, the stewardship arm of Federated Hermes, leads engagement on ConocoPhillips with Wellington Management as part of engagement initiative Climate Action 100+. Miguel Cuunjieng, an engager at EOS, told RI that, while he couldn’t comment on the wishes of other investors, EOS expects the company to outline reduction goals for Scopes 1,2 and 3 given that this is what shareholders have asked for.   

“We will continue to engage with the company and if necessary, will consider escalating measures, such as filing an exempt solicitation, should we believe that ConocoPhillips is failing to make progress in addressing this issue,” he said.  

Wellington Management has not commented on ConocoPhillips’ statements at the time of writing. 

JPMorgan commits to civil rights audit following shareholder pressure 

JPMorgan Chase has become the latest US financial heavyweight to commit to undertake an independent audit into its civil rights impacts, following in the footsteps of BlackRock and Citigroup who were also hit with racial justice audit proposals last year.  

Nearly 40 percent of shareholders backed calls for an independent racial equity audit at JPMorgan in 2021. That proposal was filed by union-backed SOC Investment Group, formerly CtW Investment Group, who along with SEIU Capital Stewardship Program and Trillium Asset Management were behind most of the racial equity/civil rights audit proposals last year, including eight at US financial giants.      

The bank’s decision comes just three weeks after the majority of shareholders in Apple supported a similar proposal, also led by SOC. But that record tally was surpassed just a few days later when 63 percent of shareholders supported a racial equity audit proposal at US government services firm Maximus.   

Racial justice/civil rights audit proposals burst onto the scene last year amid growing awareness of the Black Lives Matter movement and drew significant support in their maiden outings. That momentum looks set to continue to build this year with over 40 audit proposals filed this season at a broad range of US firms.   

“As support for civil rights and racial equity audits swells across the business world, shareowners expect the nation’s most powerful corporations and financial institutions to engage in open and honest assessments of how racism impacts their product and services, not only to protect their long-term interests but to identify new growth areas,” said SOC’s executive director Dieter Waizenegger. 

SEC rejects Chubb’s bid to exclude pioneering net zero-aligned underwriting proposal  

US insurer Chubb’s bid to exclude a shareholder proposal asking it to align with the International Energy Agency’s net zero scenario and cease underwriting new fossil fuel projects has failed. 

The company unsuccessfully sought the permission of the US Securities and Exchange Commission to block the resolution – the first of its kind to be put to an insurer in the US – citing rules around substantial implementation, micromanagement and vagueness.  

The proposal is one of three filed at US insurers this year by US-based Green Century Capital Management. Given its ruling on Chubb, it is likely that Travelers and Hartford, who have both appealed to the same rules in their ‘no action’ letters, will also be unsuccessful in avoiding the resolution.  

“I can’t overstate the importance of today’s SEC ruling,” said Andrea Ranger, shareholder advocate with Green Century. “We can now ask insurance companies to adopt policies that align with the IEA report findings, which we believe makes clear that fossil fuel expansion has no place in a net zero by 2050 future.”  

US nonprofit the Interfaith Center on Corporate Responsibility has revealed that similar proposals on aligning with the IEA’s 2050 net zero scenario will go to the vote this year at six of the US’ biggest banks and two Canadian ones. 

Citigroup, JPMorgan Chase and Morgan Stanley all unsuccessfully sought to exclude the proposals via the SEC, meaning that they will be put to shareholders along with those filed at Goldman Sachs, Bank of America and Wells Fargo. Proposals in Canada were filed at Bank of Montreal and TD Bank. 

“In underwriting projects that are inconsistent with the IEA and UNEP FI guidance, the banks run a risk of loading potential stranded assets onto their clients’ balance sheets – potentially leading to litigation risk. We should know whether the banks’ lending and underwriting policies are consistent with their net zero commitments,” said Kate Monahan, director of shareholder advocacy at Trillium Asset Management, filer of the proposal at Bank of America. 

Up next week… 

Next week sees a ‘Say on Climate’ vote take place at Anglo-Australian miner Rio Tinto on 8 April. The vote on its rival BHP’s climate plan last November was one of the lowest-supported management proposals put forward with 84.9 percent support – most European corporate climate plans saw support in the high nineties.