Exxon, Chevron Shareholders Reject Scope 3 Targets

Shareholders of Exxon Mobil and Chevron on Wednesday voted overwhelmingly against a resolution demanding strict medium-term Scope 3 (end-use) emissions targets for the US majors. The move is the latest sign that the realities of persistent oil and natural gas demand growth are buffering against calls to start winding down production.

The measure, introduced at the majors’ annual general meetings (AGMs) by activist investor Follow This, garnered just 11% of the vote at Exxon and 10% at Chevron, according to preliminary results.

A similar proposal last year that demanded both medium- and long-term Scope 3 targets consistent with 1.5°C scenarios under the Paris climate agreement took 28% of the vote at Exxon and 33% at Chevron.

The dramatic drop in support comes amid a broader shift emerging among US investors, particularly in the US, regarding the perceived efficacy of strategies that require sharp declines in corporate-level Scope 3 emissions — at least over the next several years.

Such strategies — as Chevron noted in its recommendation that shareholders vote against the proposal — would require oil and gas production to fall materially, since it is the emissions created at the time of combustion that account for the overwhelming majority of an oil and gas company’s lifecycle emissions.

Scope 3 emissions were a rising pressure point earlier this decade, as climate-minded groups found audience with broader investors at a time when the pandemic-led downturn raised uncertainty about oil and gas’ future demand path and energy availability and affordability were commonplace. In fact, AGMs held in 2021 witnessed a board coup at Exxon and majority support for Scope 3 targets of some form at Chevron.

But last year’s energy crisis, expected record (and still rising) global demand for oil, and soaring profits from conventional oil and gas businesses have dampened the appetite for more restrictive demands.

Notably, Chevron’s response to the successful Scope 3 vote two years ago was to adopt a carbon intensity reduction target that does not constrain its ability to grow production.
 
‘Deeply Flawed’ or ‘Incomprehensible’?

Wednesday’s votes represented the most dismal showing the proposal received across the Western majors: 17% of BP’s shareholders were in favor, while it won 20% of the votes at Shell and 30% at TotalEnergies.

“It’s incomprehensible that most investors still accept the US supermajors' refusal to cut emissions this decade,” Follow This founder Mark van Baal said after the latest AGMs. “They all know the science: to avoid climate disaster, global emissions must almost halve by 2030. Chevron has no serious target (an intensity target of 5.2% by 2028) and Exxon Mobil has no Scope 3 target at all.”

The science may be clear, but the world’s energy consumption patterns remain far off track the 1.5°C path, creating a conundrum for investors.

In urging shareholders to vote against the proposal, Exxon reiterated its view that Scope 3 figures offer useful insights into the macro areas of the economy where decarbonization efforts and alternatives should focus, but are “deeply flawed” when applied to directing individual corporate strategies.

“If an energy company discontinues operations to meet Scope 3 targets while the demand for energy remains … consumers can be forced to make do with less energy, pay significantly higher prices, or turn to higher-emitting sources,” Exxon CEO Darren Woods argued Wednesday.

Energy Intelligence understands that broader conversations between investors and US oil and gas executives have shifted away from Scope 3 considerations over the past year or so, with institutional investors expressing more interest in topics like the potential returns from nascent businesses such as hydrogen and carbon capture as a service, and corporate progress on reducing operational emissions.

Limits at Both Ends

Still, investors also signaled firmly on Wednesday that their acceptance of continued oil and gas development is not a blank check, and that the emissions profile of oil and gas production should continue to fall.

A counterproposal at Chevron advocating the rescinding of its Scope 3 carbon intensity metric adopted after the 2021 AGM received support from less than 2% of shareholders.

In its proxy, Chevron argued against the proposal, noting that investors have shown support for the so-called PCI metric and crediting its adoption for limiting the supportive votes for enhanced Scope 3 targets at last year’s AGM.

“The understanding of the best ways to address [greenhouse gas] emissions continues to evolve,” Chevron said. “Asking stockholders to ‘rescind’ a nonbinding proposal from two years ago does not represent good governance.”