Chevron. Sustainable. Really?

It’s not every day that one of the world’s biggest corporations files an ethics complaint against a little-known government official–in fact, if it’s happened before, I missed it–but that’s exactly what Chevron did last week in the state of New York.

The company accused Thomas DiNapoli, the state comptroller, who oversees the state’s pension fund, of accepting about $60,000 in campaign contributions from lawyers and supporters of people who are suing Chevron in Ecuador. The campaign donations, it is alleged, influenced DiNapoli to use his power as the trustee of  the pension fund, which owns Chevron stock, to push Chevron to settle the long-running, bitterly-fought lawsuit.

Imagine. Politicians being influenced by campaign donations.

Chevron would know about that. Last month, the company donated $2.5 million to the Congressional Leadership Fund, a super PAC that supported House Republican candidates. The donation “appears to be the largest contribution from a publicly traded corporation to a political group” since the Supreme Court’s Citizen United ruling, The Washington Post reported. Chevron also spent nearly $15 million on Washington lobbying since the start of 2011, the Post said.

So…evidently, it’s fine for Chevron to lavish money on politicians but unethical for its opponents to do so.

As it happens, Chevron’s complaint against DiNapoli was not even the most surprising news about the company to surface last week. Even more unexpected was the announcement that Chevron was being added to the holdings of the NASDAQ OMX CRD Global Sustainability Index, a “benchmark for stocks of companies that are taking a leadership role in sustainability performance reporting.”

The NASDAQ CRD Index helps guide investors seeking companies that are more sustainable.  Just a few months ago, at the Rio + 20 confab, NASDAQ  and several other stock exchanges promised, along with the UN Global Compact, to “promote long-term, sustainable investment in their markets.”

But what does that mean when an index includes Chevron, America’s second-biggest oil company?

Oil  and natural gas companies, it turns out, are routinely included in sustainability indexes, especially those that take a “best-in-class” approach to their portfolios in order to gain exposure to all sectors of the economy, including energy. Shares in fossil fuel companies are also held by many funds that describe themselves as socially-responsible, or say they are concerned about climate change–including such well-known names as Calvert, Domini and Parnassus. (See my story about this in The Guardian.)

Chevron has particularly unseemly record when it comes to the environment, and not just because of the lawsuit in Ecuador, which is about as tangled an affair as you can imagine. [If you want to read both sides of the lawsuit story, along with thousands of pages of documents, visit The Amazon Post, which is Chevron's website arguing that the lawsuit is a fraud, and ChevronToxico, the critics' website. Here's the latest on the case from Roger Parloff of Fortune, a respected legal journalist.] A court in Ecuador last year awarded plaintiffs suing Chevron over environmental damages an $18 billion judgment, but a US federal judge has called the verdict tainted.

Set the lawsuit aside for now. There are other good reasons to ask why Chevron would be included in a sustainability index. Among them:

  1. Chevron has been operating in the tar sands of Alberta since 2006, digging up some of the dirtiest oil to be found on the planet.
  2. Chevron’s huge Richmond, CA, oil refinery caught fire last summer, sending 15,000 people for treatment for respiratory problems. It’s had a history of air pollution violations.
  3. Chevron’s investments in alternative energy have been touted in advertising (“Human Energy”) but they represent a small fraction of the the money the company spends exploring for oil and gas.
  4. Chevron’s climate change policy is weak. The company has opposed, through trade organizations like the American Petroleum Institute, pricing carbon emissions.
  5. Finally, and most importantly, Chevron is a fossil fuel company. Don’t you get it, people?  Burning fossil fuels is not sustainable. In fact, if you believe the numbers compiled by Bill McKibben and the Carbon Tracker Initiative, which remain unchallenged by the oil industry, the global economy can burn no more than about 565 more gigatons of carbon dioxide and stay below 2°C of warming, an climate target agreed-upon by nearly all the world’s nations. But fossil fuel corporations already now have 2,795 gigatons in their reported reserves–five times the safe amount. Exploring for more fossil fuels is folly if you believe McKibben. [See my blogpost, Do the math: Bill McKibben takes on Big Oil.]

There’s much more to say, enough to fill a 64-page alternative annual report produced by environmental groups that oppose Chevron.

Cary Krosinsky, a founder of the Carbon Tracker Initiative who has just been named executive director of the Network for Sustainable Financial Markets (NSFM), says:

Chevron seems to be a company deeply mired in sustainability controversies around the world from the larger carbon bubble to Ecuador and much more.  I wouldn’t want to own a sustainability focused fund that held Chevron without a proper explanation.
Nell Greenberg of the Rainforest Action Network, which ran a three-year campaign against Chevron, says:
Chevron likely puts out lots of data and checks all the right sustainability boxes to boost its sustainability rankings according to this methodology. However, unless a “data-driven” sustainability ranking builds in careful, qualitative judgments about a company’s overall social and environmental record, it will continue to miss the forest for the trees–vacuously patting company’s like oil giant Chevron on the back without taking into account reality on the ground or in our air and water.

I emailed Michael Muyot, president and founder of CRD Analytics, which develops the index for NASDAQ, thinking perhaps that Chevron was included because the index focuses only on disclosure, not performance. No, he told me, the index

is powered by a rules based methodology that takes into account both disclosure and relative performance. It employs 141 environmental, social and governance performance metrics…

I understand how some companies like Chevron are very controversial due to News headlines and public statements but we have always looked at sustainable development and investing from a much broader and more holistic perspective.

Hmm. It’s hard for me to imagine how a “broader and more holistic perspective” can ignore the threat that companies like Chevron pose to the planet. The oil industry isn’t moving away from fossil fuels fast enough, and with the occasional exception (Shell), the industry fights government policies, like a price on carbon or an end to their subsidies, that would make it easier for them to change. There’s nothing sustainable about that.

Comments

  1. Good piece Marc, thanks. I write a fair few csr reports and also work with the Principles for Responsible Investment so am interested in your piece. You stressed the ‘relative performance’ aspect of CRD Analytics’ methodology. Do they mean that Chevron is improving its performance relative to last year, because surely they cannot be, as you said, performing relatively better than Shell.

    • Marc Gunther says:

      Adam, I believe they compare Chevron to other oil and gas companies. I’m guessing (I haven’t asked) that Shell is in the index, too. Lots of these ratings measure whether companies have a policy on X or Y, or disclose their carbon footprint, safety record, etc. BP was highly rated by CRD and other sustainability/social responsibility firms…..until the Gulf of Mexico oil spill.

  2. Ed Maibach says:

    Thanks for this thoughtful piece. It is especially interesting in light of David Brook’s funny yet insightful column yesterday:
    http://www.nytimes.com/2012/11/27/opinion/brooks-how-people-change.html?_r=0

    I’d be very interested to learn any reactions you may have.

  3. Marc – as you state above, to consider Chevron a “sustainability leader” requires a stretching of even the most precocious imagination. And this problem is not limited to Chevron. Many industries and companies tout their green credentials with suspect supporting evidence. And even more important, all of these “leader” claims lack credibility if – as often is the case – they fail to take a context-based sustainability reporting approach.

    Sustainability reporting exists today in a vacuum. A company’s environmental leadership (and environmental liabilities) cannot be assessed by comparing a company to its peers. It can only adequately be assessed relative to the societal and environmental problems it is trying to solve. A slightly more enlightened lemming running towards a cliff is still a lemming about to run off a cliff.

    Context-based reporting posits that we should first define where the cliff is – and then evaluate companies based on whether or not they are decelerating/changing direction quickly enough to avoid catastrophe. If our metrics are not doing exactly that – what good are they are?

    To use climate change as an example – science clearly states the scope and scale of the challenge businesses need to meet – an 80% reduction in GHG emissions by 2050 using 2000 as a baseline year. Context-based sustainability reporting would evaluate companies based on their performance relative to meeting this challenge, not whether their 2% reduction in per revenue GHG emissions is better than their competitor’s 1%.

    Sustainability professionals and sustainability reporting as a discipline desperately needs to stop gazing at their own navels and remember that we have real environmental milestones that we need to meet in order to maintain some semblance of a stable economy and social structures. It is the only way investors and civil society can be sure to not confuse the enlightened but nonetheless airborne lemming with a true sustainability leader.

    • “To use climate change as an example – science clearly states the scope and scale of the challenge businesses need to meet – an 80% reduction in GHG emissions by 2050 using 2000 as a baseline year.”

      Where is it written?

      • Great question – peer reviewed scientific literature. Specifically, the Intergovernmental Panel on Climate Change (IPCC) 4th Assessment Synthesis Report Table 5.1. In order to keep GHG ppm in the range of 350-400 (a range that scientists predict would help prevent the most disruptive impacts from anthropogenic climate change, and a goal that on our current trajectory is likely unattainable), a reduction of between 50-85% in global CO2 emissions using 2000 as a baseline is necessary, with emissions peaking between 2000-2015. If you or anyone else reading this discussion has not read the Synthesis Report – or the Summary for Policymakers for each of the 3 major subgroups of the IPCC Assessment processes – here’s a link. http://www.ipcc.ch/publications_and_data/publications_and_data_reports.shtml#1

        • Jeremy Mohr says:

          Very good discussion, and Dan’s direction to the IPCC Working Group III effort is a great start. I think it’s worthy to note that this stabilization scenario is based on a warming range that begins at 2 degrees C. Although a failure in many aspects, one of the great outcomes of COP15 in Copenhagen was the aspirational goal to limit warming to 1.5 degrees (as an acknowledgement to the Small Island States that they will cease to have a home with warming above that threshold).

        • An emissions peak in 2015 does not leave the nations of Asia much time to halt their current rapid rate of increase of carbon emissions, absent which there would be no peak.

    • Nate Young says:

      I couldn’t agree more, Dan. Unfortunately, the reporting ‘industry’ consistently undermines their own credibility by lauding companies like BP, Philip Morris, and yes – Chevron. When the elephant in the room goes unremarked – that these supposed leaders continue to lobby against climate change, for instance – the ranking loses any worth it might otherwise have had. (See more here: http://sloanreview.mit.edu/the-magazine/2011-fall/53104/the-factor-environmental-ratings-miss/ ) And yet, Sustainability Rankings continue to proliferate, and not-so-great corporate actors continue to make and top the list.

      To get out of this rut, we must necessarily acknowledge how truly far we are from a “sustainable” economy. In some areas, we have clear boundaries against which we should measure corporations and individuals. Climate change, as you mention, is one such example. But on a broader array of metrics, what are we shooting for? Should we rate against net-zero energy and water consumption? Has science clearly demarcated the line beyond which we are using ‘more than our fair share’ of energy and water? Let’s agree on such a line and from there measure how much progress we have made – and not made – in achieving that threshold.

      In the world of baseball, players of questionable integrity have asterisks next to their achievements. (and perhaps more tellingly, don’t get invited to Cooperstown.) Could the reporting ‘industry’ similarly acknowledge that the story is more complicated than these rankings are trying to convince us?

    • Chris Sequeira says:

      I agree with Dan. We have to realize that in a sustainable world, not all of today’s industry sectors will exist. Science-based assessments are important in helping us illuminate which sectors have a chance and which need to reinvent themselves. The oil and has sector is particularly in a tough spot because so much of their impact is due to the usage of their product.

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