Energy transition

US Investors Poised for Bigger Role in Emission-Reduction Plans

Recent decisions by US market regulators reflect growing pressure on the largest US oil producers to back up emissions targets with more detailed strategies through disclosures.

Aerial - Cars and Gas Station
A gas station in Iceland. Oil and gas companies are increasingly being challenged to account for the Scope 3 emissions that are generated by end users of oil and gas products.
Source: Getty Images.

Investors may soon gain greater influence over how publicly traded US oil and gas companies reign in greenhouse-gas emissions after a series of decisions by the US Securities and Exchange Commission (SEC).

Over the weekend, ConocoPhillips and Occidental Petroleum (Oxy) were both denied an application to dismiss shareholder motions to reveal new details on their plans to reduce or offset their emissions.

In denying the requests, which was first reported by the Financial Times on Saturday, the market regulator has instructed both companies to hold shareholder votes to decide whether the plans are shared.

The report highlights that this is the first time the SEC has denied operators the ability to exclude investors from steering decisions specifically on Scope 3 emissions, which account for the combustion of energy products by end users—thus, they are the most difficult to address.

Investors are seeking more data through corporate disclosures, especially as large investment funds face pressure of their own to better understand how environmental, social, and governance (ESG) criteria are shaping the value of companies with large carbon footprints.

ConocoPhillips’ activist investor proposal calls on the company to “address the risks and opportunities presented by the global transition towards a lower- emissions energy system by setting emission-reduction targets.”

The company adopted an emissions-reduction plan last year that it said was aligned with the Paris Agreement; however, it prefers to support the implementation of a US carbon tax over setting a Scope 3 emissions target.

The proposal from Oxy’s investor group includes a demand that the oil company prove how its emission targets will “lead to absolute emissions reductions.” In November, Oxy announced its ambition to achieve a net-zero emissions status by 2050. To offset its Scope 3 emissions, Oxy will rely mainly on carbon-capture technologies.

Both Houston-based oil companies had sought to dismiss the motions on the grounds that they constituted “micromanagement” and overly “prescriptive” impositions from investors. In what is considered a break with precedent, the SEC said it is “unable to concur” that current rules exclude the matter of emissions when it comes to valid investor proposals.

On a similar front, the SEC denied a request by ExxonMobil last month to block a motion from one of its investors to report its political lobbying in regard to climate change.

Paris-based BNP Paribas Asset Management said it is seeking to find where those efforts “align with the Paris Agreement’s goals, and how misalignments are addressed.” The investment firm issued a similar motion last year with Chevron investors, a majority of which approved the measure.

The recent developments affecting some of the largest US oil companies have a good analogy across the Atlantic where detailed disclosures of emissions data has in recent years become routine. Prompted by investors, more than a dozen European oil companies, including Shell, BP, and Equinor, also now disclose their lobbying interests and have in some cases left industry trade groups over the issue of climate change.

The decisions by the SEC come less than 3 months into the new administration of US President Joe Biden who has made addressing climate change a top priority. So far, that has meant wielding a tighter grip on the US oil and gas industry than did his predecessor, President Donald Trump.

Earlier this month, the SEC signaled that it was embracing a more interventionist approach on the investor-led ESG movement when it announced a new task force that will review corporate disclosures on climate change for “material gaps” and “potential violations” as they relate to existing rules.