JPMorgan, Exxon, Chevron and Goldman Sachs this year have won shareholder support to keep using greenhouse gas emissions calculations that activists say are murky and misleading, as the SEC looks to make public companies boost climate data transparency.
Investors at the big banks and oil companies rejected activist shareholders’ proposals pushing them toward more rigid absolute emissions metrics for their climate goals and away from the more flexible greenhouse gas intensity measurements that companies say better fit their business priorities while helping fight climate change. 6.5mm Spc Flooring
The resolutions included proposals that priortized absolute emissions reductions for fuel consumption and oil financing that shareholder activists say pose significant corporate risks. Exxon Mobil Corp., Chevron Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc. currently provide limited snapshots of the absolute emissions data needed to track the reduction goals activists proposed, if the companies give the data at all.
But the companies can’t dismiss absolute emissions despite their proxy season wins. The Securities and Exchange Commission wants to require the numbers, despite objections from corporate interests. Absolute emissions disclosures will help investors measure risks that companies face from litigation and other business hazards tied to climate change, said Laura Peterson, corporate analyst and advocate at the Union of Concerned Scientists, a science advocacy organization.
“They just have to buckle down and do it,” Peterson said.
Carbon intensity is a metric that sets or measures an organization’s greenhouse gas emissions relative to an economic or operational variable, according to the Environmental Protection Agency. In contrast, absolute metrics measure emissions or base targets by a set amount.
Many companies in the banking and oil sectors and elsewhere disclose emissions intensity information. The formulas they use to calculate the data vary greatly and can include carbon offsets.
The SEC this fall is expected to finalize rules that would require companies to disclose both absolute and intensity numbers for their emissions in annual 10-Ks reports, within certain parameters. Companies would have to report intensity in terms of the metric tons of emissions per unit of total revenue and per unit of production. The American Petroleum Institute, an oil industry trade group, has told the SEC the potential requirements are problematic and hurt comparability across companies.
The absolute and intensity data would cover total Scope 1 and 2 emissions from companies’ direct operations and power usage in their past fiscal year and in prior years. Big companies also would have to report recent and historical Scope 3 emissions from their financing, products’ usage and other indirect sources, if the data is relevant to climate goals or is useful to a reasonable investor under the agency’s materiality standard.
But the SEC still would let companies decide whether they use absolute or intensity numbers in setting any targets for emissions reduction.
Emissions intensity “shows a kind of make-believe in terms of climate alignment while enabling the production to continue to increase,” said Perrine Toledano, director of research and policy at the Columbia Center on Sustainable Investment at Columbia University. “You can hide behind this masquerade.”
Absolute emissions disclosures wouldn’t help investors evaluate a company’s commercial performance and greenhouse gas reduction efforts in the oil industry like intensity information would, said Aaron Padilla, American Petroleum Institute’s vice president of corporate policy.
“You don’t know how successful that company is in producing products that the marketplace demands, its profitability that’s associated with that and its ability to decarbonize within that,” Padilla said.
Banks and oil companies are particularly worried about potential Scope 3 reporting requirements, even though the agency would provide a safe harbor from SEC enforcement for the disclosures if they’re made in good faith. The business community has long argued it’s challenging and costly to calculate Scope 3 emissions, which usually make up a majority of a company’s carbon footprint.
Chevron has pushed the SEC for more leniency with Scope 3 reporting, while Exxon and the American Petroleum Institute have told the agency it should stay voluntary, according to letters to the commission. JPMorgan and Goldman Sachs haven’t weighed in on the proposal with formal comment letters to the SEC, though the Bank Policy Institute advocacy group has told the agency to curtail its Scope 3 disclosure plans.
JPMorgan, Exxon, Chevron and Goldman Sachs don’t put any annual emissions data in their 10-Ks, which face greater legal liability than sustainability reports and other company documents.
Chevron and Exxon provide some absolute emissions data on the tailpipe emissions from the fuel they sell in their climate and sustainability reports. But neither company gives a clear-cut total of the Scope 3 emissions for a year. They instead use various methods to calculate the emissions, giving different totals that focus on considerations like sales or production.
Exxon disclosed several numbers for the 2022 Scope 3 emissions from the use of the natural gas and crude oil it produces in its most recent greenhouse gas statistics. But the company included only one year of data on Scope 3 emissions. Its Scope 1 and 2 emissions information dates to 2016.
Chevron also reported multiple Scope 3 emissions statistics for its products sold since 2018 in its most recent sustainability report for 2022.
Follow This, a climate activist, submitted proposals that would have pushed Exxon and Chevron to set an emissions reduction target for the fuel they sell. Follow This criticized a Chevron carbon intensity goal, which it said would do little to lower absolute emissions.
Chevron told its shareholders before the proposal failed that the resolution would force it to adopt absolute emission targets that would shrink its business.
“Your Board does not believe that committing to reduce Chevron’s absolute Scope 3 GHG emissions is in stockholders’ interests, nor should it be Chevron’s responsibility,” the company said in its proxy statement this year.
A Chevron representative didn’t respond to requests for comment.
Exxon also uses emissions intensity for greenhouse gas reduction targets, but told its shareholders any Scope 3 goals like Follow This wanted disincentivize companies from providing products that can displace higher-emitting alternatives. Responding to another failed shareholder proposal on greenhouse gas reduction targets from As You Sow CEO Andrew Behar, Exxon told investors in its 2023 proxy statement that absolute emissions “should not be used to evaluate a company’s commitment to improving global emissions.”
“Focusing only on absolute greenhouse gas emissions is insufficient to fully assess an individual company’s progress to help reduce emissions while producing goods that society needs,” Exxon spokesperson Emily Mir said in a statement.
JPMorgan and Goldman Sachs investors rejected shareholder proposals from New York City Comptroller Brad Lander who unsuccessfully tried to get the banks to set absolute emissions reduction targets for their lending and underwriting for the oil and gas industry. The banks only have intensity goals for the sector and don’t report any related absolute emissions data in their most recent climate reports.
A Goldman Sachs spokesperson directed Bloomberg Law to the company’s climate report. Intensity metrics let Goldman Sachs effectively manage and support its clients by normalizing for company size, allowing for emissions-efficient business growth and reducing volatility, according to the climate document.
A JPMorgan spokesperson referred Bloomberg Law to the bank’s 2023 proxy statement. The bank encouraged its shareholders to reject Lander’s proposal, but said it planned to “share more details in 2023 on our approach to absolute-based metrics, including disclosure of absolute financed emissions in key sectors of our financing portfolio.”
Companies are running out of time to get ahead of the SEC as it moves closer to requiring the emissions disclosures, Peterson said.
“You’re going to have to do it eventually so you may as well start now,” she said. “Save yourself the extra money of being a late adopter.”
To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com
To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; Michael Ferullo at mferullo@bloomberglaw.com
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