National Legal and Policy Center presented a “Revisit Executive Pay Incentives for Greenhouse Gas Emission Reductions” proposal at the ConocoPhillips Company‘s 2024 annual meeting of shareholders today.
The proposal asked the company to revisit its executive pay incentives and consider removing those tied to greenhouse gas emissions reductions. The company has only two paths to reducing such emissions: either by reducing oil and gas production, or investing in carbon capture and storage, an industry that relies on subsidies and where ConocoPhillips has no experience.
The company’s board of directors opposed our proposal, as explained on page 128 of its 2024 proxy statement. NLPC’s response to the board’s opposition statement was filed with the Securities and Exchange Commission last month.
Presenting the proposal at the meeting was Luke Perlot, associate director of NLPC’s Corporate Integrity Project. His three-minute remarks can be heard here, and a transcript follows:
Good morning,
At its core, ConocoPhillips is an oil and gas company.
While the company has made promises to diversify its operations into lower carbon energy initiatives, hydrocarbon energy production has always been its bread and butter. The modern ConocoPhillips traces its corporate lineage through Standard Oil to the “Continental Oil and Transportation Company,” abbreviated as Conoco, which was founded almost 150 years. And the company’s “Our History” webpage is literally subtitled “a long and proud history of finding and producing oil and gas.”
Further, the company almost exclusively derives its revenue from oil and gas production. Yet its current executive compensation structure includes incentives tied to aggressive greenhouse gas emission reductions. This misalignment not only strays from ConocoPhillips’ core competencies but risks prioritizing unattainable environmental benchmarks over shareholder value. Shareholders should question whether anchoring compensation policies to greenhouse gas emissions reduction targets aligns with the long-term interests of the Company.
ConocoPhillips carbon emissions reduction goals are based on a faulty understanding of climate science. The apocalyptic scenarios used to justify a rapid energy transition are pushed by politicians, not scientists, and they are increasingly unlikely, yet the media portrays them as the default scenario. Moreover, climate models used to predict the impacts of greenhouse gas emissions have been incorrect time and time again. The company should not capitulate to activist pressure to reduce greenhouse gas emissions.
Additionally, ConocoPhillips cannot reduce its greenhouse gas emissions without destroying shareholder value. The company has two paths to reducing greenhouse gas emissions – either by reducing hydrocarbon production, or by investing in carbon capture and storage or other projects that offset its carbon emissions. Both run contrary to the firm’s long-term interests.
Reducing hydrocarbon production directly contradicts the growing global demand for oil and gas, which remains robust and is projected to continue growing in the coming decades. This demand, driven by emerging economies and global industrialization, represents an opportunity for ConocoPhillips to leverage its expertise and resources in the oil and gas sector to generate shareholder value. By cutting production, the company would be ignoring its competitive strengths and failing to capitalize on this demand. Its international competitors are unlikely to be so noble.
On the other hand, investing heavily in carbon capture and storage technologies presents a significant financial risk. These technologies are still in the early stages of development and require substantial investment with uncertain returns. Additionally, they rely heavily on government subsidies and regulatory support, which may not be sustainable or reliable over the long term. And finally, ConocoPhillips has no competitive advantage in low carbon technology. Such investments could divert critical resources away from its core business and undermine its financial stability.
Either way, aligning executive compensation with aggressive greenhouse gas reduction targets creates perverse incentive that endangers the company’s core business objectives. It risks prioritizing unattainable or misguided environmental benchmarks over shareholder value and strategic business growth.
Our proposal, Item 5, seeks to address this misalignment by urging the Board’s Human Resources and Compensation Committee to revisit executive pay incentives and eliminate or reevaluate greenhouse gas reduction targets that do not align with legitimate fiduciary goals. This approach will help ensure that ConocoPhillips remains focused on its core competencies and maintains its position as a leading energy producer, while also acknowledging the broader environmental and economic impacts of its operations.
For these reasons, we encourage shareholders to remove these misguided incentives and vote FOR Item 5.
Read NLPC’s shareholder proposal for the ConocoPhillips annual meeting here.
Listen to Luke Perlot’s presentation of the proposal at the meeting here.
Read NLPC’s response, filed with the SEC, to the company’s opposition to our shareholder proposal, here.
