As You Sow so shall ye reap rewards

Climate Finance

As You Sow so shall ye reap rewards

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A veteran shareholder stands up to an ESG inquisition

Hundreds of American CEOs are preparing to travel later this month to Dubai for COP28, the United Nations’ annual climate conference. They don’t have a very good climate story to tell, according to a newly published report by the shareholder activist As You Sow. Nearly two-thirds of the 100 companies reviewed fail to match earlier commitments to reduce greenhouse gasses (GHG) in line with the Paris Climate Agreement. Together, the companies represent a $21 trillion market capitalization across all 11 sectors of the economy. 

Slow progress 

The report assesses 55 companies, the five largest in the 11 chosen sectors, against 18 indicators divided across three pillars: GHG disclosures, GHG reduction targets, and actual GHG reductions. The third pillar was weighted most heavily, at 45%, because real reductions are vital for reaching net zero.

As You Sow CEO Andrew Behar says the study’s findings show that “climate-related impacts are quickly making significant parts of the U.S. un-insurable…. Corporations are responsible for a significant percentage of the greenhouse gas emissions leading to these harms and must take responsible action.”

U.S. House Judiciary Committee and As You Sow

Or should they? Not according to failed Speaker of the House candidate Jim Jordan (R-Ohio). He is using his powers as chair of the U.S. House Judiciary Committee to investigate whether Behar and As You Sow are violating U.S. antitrust laws by colluding with other organizations to pressure companies to adopt “imposing left-wing environmental, social, and governance (ESG)-related goals”, including efforts to reduce greenhouse gas emissions. 

Earlier this month, the committee subpoenaed As You Sow, demanding hundreds of documents that the committee claims will support its case that investors and their representatives were entering into agreements to “decarbonize” corporations and reduce emissions to net zero—with potentially harmful effects on “Americans’ freedom and economic well-being.” (Carbon neutrality refers to balancing the total amount of carbon emissions, while net zero means no carbon is emitted, so it does not need to be captured or offset.)

The subpoena came after Behar refused to comply with a letter the committee sent in August to seven organizations, including As You Sow, Engine No. 1 (the fund behind the election of ExxonMobil’s climate savvy directors), the proxy voting service Institutional Shareholder Services (ISS), as well as a group of sustainable investment firms. 

The committee’s request, says As You Sow, has no legal basis. “Contrary to the allegations in the subpoena, reducing climate emissions is critical to protecting American freedom and economic well-being,” says Behar

“Our work to address climate change helps ensure that companies remain competitive in a global economy that is transitioning to low carbon. Investing capital in efficiency measures and low carbon technology innovations is a win-win for companies, shareholders, and the American economy,” continues Behar.  

The battle of disclosures

The report and the dispute get at the heart of the increasingly bitter fight between conservative legislators and climate activists over carbon emissions disclosures by companies. The committee accuses investors like BlackRock of forcing companies to adopt policies that would lead to “draconian declines in the use of coal, oil, and gas,” it says. 

The committee’s primary target is the giant institutional shareholder proxy group Glass Lewis Inc., which has warned that companies must address material environmental, social, and governance (ESG) issues to be successful, including climate change. Glass Lewis, the committee says, has, for example, recommended voting against incumbent directors if companies do not “provide clear and comprehensive . . . climate-related disclosures,” including “the impact of a lower carbon future on the company’s operations.”

Should shareholders succeed, warned the committee, it would “force” America’s companies to “decarbonize,” and “reduce their emissions to net zero.” This, in turn, would lead to “radical steps such as halting sales of new internal combustion engine passenger cars by 2035 and phasing out all unabated coal and oil power plants by 2040” and “that no new oil and gas fields must be developed.” 

Much of that is true, say activists. But far from imperiling American well-being or being an antitrust issue, they argue moving to a green, carbon-free, electric economy will propel America into a new era of economic prosperity while mitigating the escalating climate crisis. 

Sobering results

It may relieve Jordan to know that America’s largest corporations are struggling with how to disclose and reduce their carbon emissions. To achieve net zero emissions, or carbon neutrality, by 2050, companies must meet an annual 4.2% percent reduction goal for absolute emissions. But progress is slow. According to the As You Sow report, only six of 12 companies with net zero goals align with this minimum. Only Microsoft and Pepsi received an overall grade of “A” for a combined scorecard tracking carbon disclosures, targets, and reductions. 

Twenty received a “D” grade, including Boeing, Walt Disney, Verizon, Meta, and Bank of America. Twenty-six flunked altogether with an “F” grade, including Tesla, Berkshire Hathaway, ExxonMobil, and Amazon.

Other key findings:

  • While 39 companies have goals to become net zero or carbon neutral by 2050 or sooner, only 12 have established a net zero by 2050 goal that includes all emissions covered in three metrics: Scope 1, Scope 2, and Scope 3. Scope 3 emissions are typically the largest portion — estimated to constitute 75% of companies’ emissions on average.
  • While around 50 companies disclosed Scope 1 and 2 (direct and indirect) emissions, only 20 disclosed all of Scope 3 emissions. Some 46 companies did disclose at least one of the 15 Scope 3 categories, defined as all other emissions sources within the company’s value chain. 
  • America’s top billionaires did not fare as well. Amazon, founded by Jeff Bezos, had emissions that are increasing despite its net zero by 2040 pledge. Warren Buffet’s Berkshire Hathaway and Elon Musk’s Tesla also failed. Tesla, says As You Sow, “represents an interesting case of a company that creates products significant to the energy transition yet displays a serious lack of disclosure related to its emissions.”
  • Not surprisingly, America’s largest fossil fuel companies also failed to meet the most important disclosure — Scope 3 — representing more than 90% of their total emissions. None are even reporting these emissions. Other heavy manufacturers and utilities also had poor records of disclosing financed emissions.

Jordan’s judicial fishing expedition

There are no signs that either side are backing off in this escalating dispute over corporate carbon policies. The committee, Behar said in a recent email requesting help funding a legal defense, is being over zealous in its demand for documents. “Many recipients [of the letter] complied by sending thousands of internal documents that we believe the Committee had no authority to demand. Others may follow suit,” says Behar.

Critics say the scope of the committee’s information is vast. It is requesting “all documents and communications referring or relating to the need for Glass Lewis [or other recipients] to advance decarbonization and net zero emissions goals, agreements and commitments,” including those developed by alliances or initiatives such as Climate Action 100+ and NZAM (Net Zero Asset Managers).

It also wants any document or communication relating to how any of the recipients are advancing decarbonization and net zero emissions goals, including sponsoring stockholder proposals.

In addition to Climate Action 100+ and the Net Zero Asset Managers, House Republicans are seeking information on climate shareholder initiatives from Seventh Generation, Interfaith, GFANZ (Glasgow Financial Advisors for Net Zero), and the Shareholder Association for Research & Education. BlackRock, Vanguard, State Street Global Advisors, Arjuna Capital, Trillium Asset Management, Ceres and the nation’s largest pension fund, CalPERS, received letters from the committee.

That this debate is even happening at all, demonstrates the powerful influence the fossil fuel industry has over Congress. By targeting activist investors, Jordan and his Republican colleagues may be pleasing their fossil fuel supporters, especially in Jordan’s Ohio, a state that is a major oil and gas producer. But, for the climate crisis, the efforts by the committee foreshadow a much bigger problem: The return of potentially catastrophic climate policy should Republicans regain control of the White House and Senate. 

Featured photo: Andrew Behar. Credit: Climate One

Written by

Paul Hodgson

Paul Hodgson has written about ESG issues for nearly 40 years for publications including Thomson Reuters, The Corporate Library, Fortune, Forbes, Bloomberg and Responsible Investor, The Guardian and the Financial Times. He is senior adviser to data house ESGAUGE and writes for Ceres. Capital Monitor and the Interfaith Center for Corporate Responsibility among others.