In a surprising move, Calgary-based oil and gas company Cenovus Energy (CVE) has asked that shareholders vote in favour of a shareholder proposal that asks that the company produce a report outlining whether and how it is aligning its direct and indirect lobbying and public policy advocacy with its net zero goal. Companies usually recommend shareholders vote against shareholder proposals, and proposals supported by the board usually pass with ease.
“A company's board may recommend that shareholders support a shareholder proposal if they believe it is in the interests of the company and its investors to implement the resolution. That said, this happens rarely -- in the U.S., company boards supported less than 1.5% of shareholder resolutions in the last three years,” Lindsey Stewart, director of investment stewardship research at Morningstar Research Services said.
Investors for Paris Compliance filed the proposal, on which shareholders can vote at its April 26th annual general meeting.
“Of course, that's not the end of the matter. The company would still need to implement the request, and the filer may yet demand further action if they aren't satisfied with the implementation,” Stewart points out.
"We're pleasantly surprised that Cenovus recommended voting in favour of the resolution and look forward to working with the company to follow through on improving its lobbying disclosure, including regarding its membership industry associations like Canadian Association of Petroleum Producers (CAPP) that routinely lobby against climate action. We believe this puts more pressure on other companies like Enbridge (ENB) to also come clean on their lobbying practices and political donations that cause controversy, increase business risk, and are misaligned with net zero," said Matt Price, Director of Corporate Engagement Investors for Paris Compliance.
Cenovus’ Current Lobbying Disclosures Are Opaque…
In its supporting statements, Investors for Paris Compliance point out that more than twenty shareholder resolutions were filed last year seeking disclosure that a corporation’s climate lobbying is aligned with the Paris Agreement. It said that while Cenovus’ statement on Advocacy and memberships says that the company does not make political contributions and that it complies with lobbying disclosure laws, but it also discloses membership in advocacy organizations like CAPP, Canada Action, and the Pathways Alliance.
“Cenovus has spoken out against the Canadian Government’s plans to reduce emissions with an oil and gas emissions cap. CAPP, Canada Action/Oilsands Action and the Pathways Alliance have all made public efforts to oppose the federal government’s cap on oil and gas emissions.
“Cenovus’ direct and indirect lobbying – through membership in CAPP, the Pathways Alliance and Canada Action – is opaque and may be inconsistent with its net zero commitment and its stated support of Canada’s commitments under the Paris Agreement. This lack of disclosure and potential inconsistency is a governance risk that merits due consideration and oversight by the Cenovus Board,” the statement says.
…But Cenovus Doesn’t Agree
“What's interesting about the Cenovus proposal is that even though the board agrees with the need for a report on net-zero aligned lobbying, it doesn't agree with the filer's rationale for requesting it, i.e., the filer's assertion that Cenovus' lobbying on climate is opaque and potentially misaligned,” Stewart says.
Cenovus said that it has carefully considered the proposal and constructively engaged with the proponent, and since receiving the proposal, it has committed to making the following enhancements to its disclosure:
Detailing its positions on key issues related to our policy engagement, including climate policy.
Providing the principles guiding its assessment of trade association memberships and its approach to misalignments.
Amended its SSR Committee Mandate to formalize its oversight of lobbying and public advocacy.
Updating its Code of Business Conduct & Ethics (Code) to clarify that its lobbying and public advocacy must align with its corporate objectives, strategy, targets and ambition, which includes its 2035 climate and GHG emissions target and its 2050 net zero ambition.
It added that, “The Board and management believe that the clarity provided on current lobbying and public policy advocacy practices, and regulated and enhanced voluntary disclosures will provide shareholders with sufficient reported information to understand how Cenovus’s direct and indirect lobbying and public policy advocacy activities are aligned with its 2050 net zero ambition. Accordingly, the Board and management recommend voting in favour of the shareholder proposed resolution.”
Despite recommending a ‘For’ vote, however, Cenovus does not agree that its current disclosures are opaque and potentially misaligned.
“The proponent’s supporting statement assumes that all lobbying in respect to climate-related policies, including the Canadian government’s proposed cap on oil and gas emissions, is antagonistic and inconsistent with Cenovus’s public support of climate and emissions reduction objectives. We disagree with this assertion,” it says.
Morningstar equity analysts do not cover Cenovus Energy.
