Environmental "E" Proposals
One of the most common “E” proposals called on companies to reduce their carbon emissions, often asking the companies to include both the company’s own emissions and its “Scope 3” emissions—that is, those of third parties within their value chain. For example, emissions generated from transportation, distribution, and use of a company’s product are classified as Scope 3.
While activist shareholders sometimes claim such proposals mitigate the risk of future climate-related policy restrictions that may adversely affect company operations, many of the organizations behind such proposals, such as Climate Action 100+, openly acknowledge that their goal is to push companies to meet Paris Agreement-aligned climate targets to stave off climate change, not improve the company’s financial performance.[75] And in many cases, the only meaningful way for a company to substantially lower its Scope 3 emissions would be to reduce its overall sales. In Strive’s view, a company’s fiduciary obligation is to maximize financial value, not shackle itself with self-imposed climate-driven constraints.
“Climate change shareholder proposals generally take one of two forms: 1) requesting a report on a company’s plans to cut greenhouse gas emissions to net-zero, or 2) directly mandating a net-zero emissions goal. These proposals are transparently motivated by environmental concerns, not financial ones. The speculative cost estimates of inaction are incomplete, the costs of achieving any such targets are not considered, and the cost-benefit analysis of alternative action is ignored. Further, these proposals do not advance any direct shareholder-value creation, and instead risk reducing shareholder value.”[76]
“One might wonder where the Paris Agreement’s 1.5-degree target comes from. The answer is that a coalition of small island nations concerned by rising sea levels successfully negotiated for it. Net-zero shareholder proposals meant to implement the Paris Agreement using the private sector are motivated by the belief that the broader world should halt all fossil fuel use as soon as possible to mitigate the effects of rising sea levels on these islands. Nothing in American companies’ missions requires them to impose these sacrifices on themselves or the world.”[77]
Because Strive believes requiring companies to cut their carbon emissions in the name of environmental goals fails to promote long-term shareholder value, we voted against all Scope 3 emissions reduction proposals.
On September 6, 2022, Strive wrote a letter to Chevron, Inc. in response to a 2021 environmental activist shareholder proposal that demanded the company reduce its Scope 3 emissions.[78] The passage of this proposal, mostly attributed to the votes of large asset managers, threatened Chevron’s role as a fiduciary. Our letter urged the company to take a series of actions to liberate itself from the constraints imposed by its ESG-promoting “shareholders.”
Valero received a shareholder proposal that requested the company to set Scope 3 emissions reduction targets. The Board opposed the proposal, explaining, “Valero has not issued a Scope 3 target because the methodology is riddled with duplication and other challenges, and we do not have a clear line of sight to the use of our products by third parties. We only make commitments if we have clear plans on how we will achieve them.”[79] Given the challenges and expense associated with attempting to calculate (and reduce) emissions by third parties outside of Valero’s control, and given the unlikelihood of any such reductions improving Valero’s long-term financial health in any event, Strive sided with Valero’s management in voting against the proposal. As fuel producers, Valero and its industry peers have a fiduciary duty to prioritize shareholder value over costly and imprecise environmental tracking initiatives.
Martin Marietta Materials, a supplier of construction materials, faced a Climate Action 100+ supported shareholder proposal set short, medium, and long-term “GHG reduction targets aligned with the Paris Agreement’s ambition” to limit global warming.[80] The proposal was transparently aimed to advance environmental, rather than financial, goals and force Martin Marietta to take action to “address[] the climate crisis.” Further, Martin Marietta’s board persuasively explained that the proposal was “unrealistic” because there are “unavoidable process emissions inherent to cement production” that cannot be mitigated by existing technology, meaning the only way Martin Marietta could cut its emissions would be to make less cement and sell less of the aggregates that go into those products. Because this proposal appeared likely to harm shareholder value, Strive voted against it.
Strive votes against all shareholder proposals that command lobbying disclosure or corporate climate commitments, as we believe management is generally best equipped to make decisions on behalf of investors. This past proxy season, Strive voted against proposals that urged companies to use lobbying as an avenue to shape corporate environmental policy. Strive believes business leaders can most effectively advocate for corporate interests with its legislative partners; catering this process to accommodate the political agendas of climate activists does not benefit a company’s long-term value.
Amazon.com, Inc., one of the world’s largest e-commerce companies, received a shareholder proposal calling for additional reporting on its climate lobbying.[81] The proposal requested Amazon to “identify and address misalignments” between its policy engagement and ESG commitments. Amazon has a vast range of business interests that include online retail, cloud computing, digital streaming, and more; the company’s lobbying strategy therefore necessitates collaboration with policy agents that represent diverse views and expertise. Because this proposal would have distracted Amazon from fulfilling its corporate mission and delivering value to its shareholders, Strive voted against this politically-driven proposal.
This past year, shareholder activist groups presented a few proposals that called for reports on “climate-related risks” within corporate retirement plans. These proposals are part of a broader push to entrench ESG in the American retirement system. In 2022, the Biden Administration removed the terms “pecuniary” from a Department of Labor rule regarding fiduciary responsibilities under the Employee Retirement Income Security Act of 1974 (ERISA).[82] This altered the rule enacted by the Trump Administration, which restrained ERISA fiduciaries’ ability to weigh ESG factors when choosing retirement plans. Now that the Biden Administration opened the door to mixed motivation- and ESG-driven investment, fund managers may prioritize climate goals over investor return, affecting the retirement accounts of about 152 million Americans. Shareholder activists, in turn, have wasted no time in seizing the opportunity to ask companies to push ESG-focused retirement plans on their employees through various shareholder proposals. Strive opposes forcing all ESG-driven investment strategies on unsuspecting or unwilling investors, especially when doing so robs Americans of dignified retirements, and so we voted against shareholder proposals that would force these plans on hardworking employees.
As You Sow submitted a shareholder proposal at Microsoft requesting a report on how the company’s 401(k) retirement funds contribute to “economic risk” by investing the funds in companies that contribute to climate change.[83] Weaponizing employees’ future financial security to achieve an environmental outcome is not only unethical, but also fails to advance Microsoft’s shareholder value. Strive voted against this fiscally irresponsible proposal that posed no relation to the mission of Microsoft as the world’s largest computer software vendor.
When climate activists fail to compel companies to commit to progressive environmental standards, they often go upstream and target the financial institutions affecting their capital allocation. This past proxy season, several activist shareholders submitted proposals that sought to cut the funding of companies that failed to meet their proposed greenhouse gas emissions reductions goals. This presents obvious and dire threats to capitalism as we know it, as it disempowers both consumers and companies from responding to market demands.
In a 2022 Congressional hearing, CEO of JPMorgan Chase Jamie Dimon warned that cutting the funding for new oil and gas products due to an environmental agenda would be “the road to hell for America.”[84] It also creates material risk for the financial institutions asked to engage in such ESG-based discrimination, particularly given state and federal laws requiring them to make lending decisions based on financial factors alone.[85] Strive voted against all climate financing proposals, as they would fail to enhance shareholder value and disrupt capital markets.
Bank of America received a shareholder proposal calling for a report that discloses 2030 absolute greenhouse gas emissions reduction targets for its energy sector lending and underwriting.[86] Such targets are likely antithetical to Bank of America’s long-run financial interests both because they constrain the universe of Bank of America’s potential customers based on considerations other than financial risk, and because adopting such targets may run afoul of state and federal law requiring banks to lend to all customers on non-discriminatory terms. Strive believes that Bank of America’s role as a fiduciary is to focus on its mission of delivering a broad range of financial services to its customers — not environmental activism. Because this proposal would have required Bank of America to work towards arbitrary emissions reductions targets with no measurable financial benefit, Strive voted against this proposal.
Berkshire Hathaway received a proposal by As You Sow to create a report on its greenhouse gas emissions associated with its underwriting, insuring, and investment activities in alignment with the Paris Agreement.[87] As explained in Berkshire Hathaway’s response opposing the proposal, the company bases its investment decisions on expected economic profit of its insurance customers; this includes assessing “climate-specific risk management procedures” that are economically material to the company. Berkshire Hathaway further stated the “primary business” of the company is to respond to the needs of its customers. Strive agrees with this rationale and believes that companies themselves can best manage their financial risks and opportunities, ultimately maximizing shareholder return by remaining focused on product excellence as opposed to environmental activism.
This year, we saw a number of proposals calling on companies to issue reports that set targets to reduce their plastics use, often in the name of reducing ocean pollution or to meet the goals of certain special interest groups. The proposals sometimes claimed that failure to set such targets presented financial risks to companies, but they failed to support this assertion with any persuasive evidence, much less the type of cost-benefit analysis that Strive looks for when evaluating whether such reports are in the best long-term financial interest of shareholders. Because these proposals ask companies to focus on stakeholders other than shareholders, and are unlikely to generate long-term financial returns, Strive voted against these proposals.
The nonprofit As You Sow submitted a shareholder proposal at Yum! Brands, the parent company of Taco Bell, Pizza Hut, and KFC, asking the company to “reduce its plastics away from single-use packaging in alignment” with an environmental group’s claim that “at least one-third of plastic use” must be eliminated to “reduce ocean pollution.”[88] The proposal argued that companies could face a “$100 billion annual risk” in the hypothetical event that governments someday enact laws that fine or tax companies that use plastic in their business, but the proposal failed to (1) assess the likelihood or unlikelihood that any such measures will pass in the jurisdictions where Yum! operates and on what timeline, (2) what the quantitative impact to Yum! Brands would be under any particular regulatory scenario, and (3) what the cost to Yum! Brands would be to prematurely move away from single-use packaging, particularly when such measures would not yet be offset by any significant regulatory savings or be required to be taken by the other fast food companies with whom Yum! Brands competes. Because the proposal puts environmental goals over long-term financial returns, Strive voted against the proposal.
This year, companies faced a number of proposals asking them to voluntarily adopt agricultural practices aimed at reducing environmental impact and improving animal welfare. Because these proposals were both costly and did not appear likely to increase long-term financial return, Strive generally voted against these proposals.
Dollar General faced a shareholder proposal asking the company to report on its progress towards selling 100 percent cage-free eggs by 2025.[89] The proponent noted that “[t]his is a prominent ESG issue within the food industry and amongst consumers,” and noted that at least one competitor had “already achieved 100% cage-free compliance.” The Board opposed the proposal, explaining that “[m]any of Dollar General’s customers are unable to pay a premium for cage free eggs, the cost of which remains higher than the cost of traditional eggs.” The company further explained that it had conducted a “quantitative propriety study” that showed that “the majority of our customers are either unable or unwilling to pay a higher price for cage-free eggs if there is a lower price alternative.” The company therefore opposed the proposal, stating “our responsibility remains oriented towards our customers and our shareholders.” Because Strive agrees that Dollar General’s focus should remain on customers and shareholders rather than animal welfare activists, and because the proposal appears likely to harm shareholder value, Strive voted against the proposal.
Hormel Foods faced a shareholder proposal asking the company to comply with World Health Organization guidelines on antimicrobial use throughout its supply chain, arguing that its failure to do so “poses a systemic threat to public health and the economy.”[90] Hormel’s board opposed the measure, explaining that the company already complied with FDA industry guidance that prohibits the use of medically-important antibiotics for growth promotion. It also noted that the WHO’s mandate is inconsistent with the company’s animal welfare policy, which allows veterinarians to administer antibiotics to relieve animal suffering. The board concluded by asking shareholders to vote against the proposal because it “would result in unnecessary expense to the Company and divert management’s time and attention from the Company’s current commitments.” Strive agreed with the board’s assessment and, accordingly, voted against the proposal.
