Is Chevron's Plan to Reduce Scope 3 Emissions Feasible?

Approximately 61% of votes cast supported a shareholder proposal for Chevron CVX to reduce Scope 3 emissions of its energy products in the medium- and long-term future, as defined by the company. The proposal neither defined precise timelines nor imposed methods for doing so. Chevron already has in place Scope 1 and 2 reduction targets for 2028. Scope 3 emissions present a different challenge, however, given their relative amount and the fact they occur during use or combustion of oil and natural gas that takes place outside the company's control. In 2019, Chevon's Scope 3 emissions composed 91% of its emissions from total products sold. Our research suggests the only currently feasible, scalable method to reduce Scope 3 emissions is through reduction in production through decline or divestment. Otherwise most any use of oil and natural gas, except as chemical feedstock, will produce Scope 3 emissions. Carbon capture could potentially do so for natural gas when used for power generation but currently lacks the scale and economic viability. Otherwise, new and emerging technologies would need to be developed. Given the proposal calls for a reduction in Scope 3 emissions, not a reduction in Chevron's emissions intensity, investment in renewable power would not suffice, either. Divestment, however, only reduces the company's emissions and does nothing to address global net emissions. Given the lack of specifics related to the proposal or how Chevron would implement it, we are maintaining our fair value estimate and moat rating. A proposal for Chevron to produce a report on whether and how a significant reduction in fossil fuel demand, envisioned in the IEA Net Zero 2050 scenario, would affect its financial position and underlying assumptions just failed to pass, garnering 48% of votes cast.

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