ESG Update: Pushes for Change From the Inside and Out

As we noted in a previous client alert, the Biden administration has taken significant steps to strengthen enforcement and oversight relating to ESG issues early on in its tenure. In January, the president issued an executive order laying out his administration’s goals for addressing the climate crisis. In March, the U.S. Securities and Exchange Commission (SEC) announced the creation of a new Climate and ESG Task Force in the Division of Enforcement, and that it is evaluating requirements concerning climate change disclosures. As the public comment period for climate change disclosures wraps up (the SEC has requested comments by June 13) and companies reflect on the level of disclosure that might be required by any rule, ESG continued to come to the forefront in other headlines this past week in the corporate arena.

According to Politico, nearly three dozen climate- and sustainability-related shareholder initiatives are on the table at annual meetings this year. This past week, shareholders voted in favor of proposals or candidates supported by ESG advocates at the annual meetings of two major international oil companies. At Chevron’s annual meeting on Wednesday, a shareholder proposal requiring the company to reduce its scope 3 emissions — indirect emissions related to the combustion of gasoline or diesel in cars and natural gas in electricity generation and industrial use — passed with 61% of shareholder votes. Likewise, at Exxon Mobil Corp.’s annual meeting the same day, at least two of the four dissenter candidates backed by activist investor firm, Engine No. 1, were elected to the company’s board.

In other ESG news, a Dutch court ordered Shell to reduce its CO2 emissions, including those from its suppliers and customers, by a net 45% by the end of 2030 (Shell plans to appeal the decision), saying the company’s efforts to reduce its greenhouse gases were too modest. And, a week after announcing its all-electric Ford F-150, Ford announced during an investor presentation on Wednesday that it would add $8 billion to its electric vehicle production over the next four years, and expected electric battery-powered cars to make up 40% of its sales worldwide by 2030.

The SEC has cited as motivation for its ESG initiatives that “investor demand for, and company disclosure of information about, climate change risks, impacts and opportunities has grown dramatically” in the past ten years. The past week’s news lends credence to that statement. Companies and their boards should consider climate-related risks, not just in anticipation of forthcoming SEC climate disclosure rules, but also in response to increased investor and consumer interest in the area.