When corporates go all anti-net zero: The art of defence

The Sicilian Defence is an iconic defensive move on the chess board. Played in response to the white’s 1.e4 opening, the manoeuvre invites fervent and complex contestation. 

The Sicilian Defence has three distinct characteristics: it is aggressively defensive, far from the best and adept at judging the adversary’s skill.

During this year's ongoing proxy season, more and more companies are playing a Sicilian Defence against climate resolutions. 

Mounting green pressure from investors has been met by opposition from boards that run some of the world’s biggest polluters. Their line of defence bears resemblance to the Sicilian’s characteristics. Just how the play holds up will determine the trajectory of this year’s proxy season.

The two pillars of corporate Sicilian Defence comprises of two main pillars.

'Been There, Done That'

Firstly, a common denominator in boards that recommend voting against climate resolutions is the tendency to revert to previous responses. This in turn, questions the utility of reviving a concern through investor engagement.

At Marathon Petroleum, the International Brotherhood of Teamsters General Fund has asked the company to publish a just transition report. The board hit back saying that the company has already done so, referring to a previous report published after last year’s AGM.

“Our Just Transition report was the first to be published by a company in the oil and gas sector and one of the few to be published across any sector”, the board said.

Investors seemed to be aware of this. In the resolution’s supporting statement, they acknowledged the document but noted that “this report offers no meaningful metrics for investors to measure the success of Marathon’s strategy or map against the Company’s climate scenario analysis and goals”.

Meanwhile, over at Westlake Corporation, the American petrochemical manufacturer, investors are gunning for a stronger 2030 emissions reduction target. In response the board has labelled the request as “unnecessary” and against shareholder interests.

While stressing the company’s 14% carbon intensity reduction compared to a 2016 baseline, the board said, “we ask that you consider and weigh the substantive actions we have taken to date and the plan we have laid out for the foreseeable future”.

In another example, a resolution filed at power company Ameren urged the company to clarify its alignment with the Paris Agreement. The board said alignment has been a point of focus since 2017. The company’s existing public reports form the crux of the board’s defence.

“The company has already reported its Scope 1 and 2 carbon emissions reduction targets, as well as its comprehensive plans to meet them and its actual annual carbon emissions, in multiple public reports”, the board stated.

'Not My Problem'

In addition, several companies have deflected their duty to act. They claim that while the issue under question is worth investigating, it falls outside the company’s realm of responsibility.

For instance, earlier this month investors urged the Royal Bank of Canada to examine the concern over “brown spinning”, the tendency of publicly owned companies to sell carbon-intensive assets to their less regulated, private counterparts.

The board advised shareholders to vote against the resolution.

“The bank does not believe that the financial industry is positioned to regulate board governance matters or bridge the disclosure gap between public and private entities”. 

Nearly 93% of shareholders sided with the board.

Further south, in the U.S., the American restaurant chain Texas Roadhouse is also facing investor pressure to disclose and reduce its environmental footprint. 

In response, the board said: “Given that many climate targets are beyond the scope or control of the company, we believe it is not in the best interest of the company or our shareholders to set target-based commitments."

This defence card is a familiar sight to investors advocating for scope 3 disclosures. Their demands have been met by resistance in board rooms, often on the grounds of indirect emissions falling outside the purview of the company.

The scope 3 debate has resurfaced this season. The board at Westlake has said “scope 3 emissions are indirect emissions from sources neither owned nor operated by Westlake”.

Similarly, ExxonMobil’s argument against indirect emissions disclosure is “in the first case, the greenhouse gas emissions still occur but are no longer attributable to the original asset owner.

Viewed together, the two tactics represent a sizeable majority of board recommendations against climate related shareholder resolutions. 

Like in chess, the Sicilian Defence by corporate boards this proxy season is aggressively defensive, far from the best and will put to test the investor’s ability to respond.