DTE investors voted down an activist shareholder proposal to more fully report on greenhouse gas emissions at an annual meeting of common stock shareholders last week.
The proposal, filed by lead filer As You Sow and cofilers Grand Rapids Dominican Sisters and Mercy Investment Services, asked DTE to include carbon emissions from stoves, furnaces and other user-end natural gas consumption into its climate targets.
The proposal was rejected by a wide margin, with 72% voting no. It was the first outright rejection in a series of similar proposals approved by Consumers Energy and other utilities in recent months.
The initiative targeted so-called “Scope 3” emissions, which the U.S. Environmental Protection Agency defines as “the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain.”
DTE Energy has committed to achieving net-zero emissions by 2050 in its gas business via reductions in supplier production, storage, and transmission. However, it does not propose a net-zero goal for downstream Scope 3 emissions such as end-user consumption of fossil gas, purchased electricity, and upstream production emissions from gas used in power generation.
Those emissions likely account for 43% of the company’s overall greenhouse gas emissions, according to As You Sow, noting that investor benchmark coalition Climate Action 100+ calls for companies to report on their “most relevant” Scope 3 emissions, while the Science Based Targets initiative advises reporting on any category comprising more than 40% of a company’s emissions.
“By failing to acknowledge nearly half of the GHG emissions associated with its business, DTE cannot be considered on a path to achieving net-zero emissions,” the proposal states. “Failure to account for substantial Scope 3 emissions creates the potential for reputational risk associated with greenwashing. This flawed methodology also prevents investors from accurately comparing DTE’s company risk and climate contributions against other utilities.”
DTE Energy’s board of advisors counseled shareholders to vote against the proposal in a March 17 proxy statement in advance of the meeting, arguing that the proposal would “divert resources from our existing climate strategy and expose the Company to unnecessary legal risk to achieve a target without a clear path to accomplishing.”
The vote came after a year of engagement between DTE management and advocates, according to Daniel Richards, a senior attorney for DTE Energy.
“While there were many areas of agreement, there were others where we differed. After careful consideration, DTE’s board of directors recommended that shareholders vote against As You Sow’s proposal,” Richards said in an emailed statement.
Unsettled science?
One reason against the proposal cited by DTE Energy is that it has “limited influence in household and business customer behavior” such as heating demands, cooking efficiency, and equipment efficiency.
However, the company has proposed a 35% reduction in customers’ gas consumption. And Richards noted that during the company’s earnings call last week, DTE pushed up the timeframe for meeting that goal by a decade, now aiming to achieve the goal by 2040. “Previously scheduled for 2050, advancements in greener technologies like green hydrogen, carbon capture and sequestration, renewable natural gas and engagement in customer voluntary offset programs will enable the company to accelerate the goal of a 35% reduction in gas customer carbon emissions to 2040,” he said in an emailed statement.
Also in its proxy statement to investors, DTE advised that “the Board considers that the science behind measuring Scope 3 emissions is currently too unsettled for full incorporation into the Company’s emissions reduction goals. Rushing to incorporate firm Scope 3 emissions targets in this unsettled environment will expose the Company to unnecessary risk without adding meaningful value toward addressing climate change.”
But according to University of Michigan economist Thomas P. Lyon, reporting Scope 3 emissions is straightforward. “I would point out that Scope 3 reporting for natural gas should be pretty simple, since it’s basically a ‘methane in/GHG out’ calculation. For combustion, it is pretty accurate to simply convert the number of methane molecules into the number of CO2 molecules emitted via combustion using standard coefficients,” Lyon said in an email. “So at one level, it’s hardly even necessary. But I am sure DTE didn’t support this reporting because it could be used to make them look worse.”
Lyon added that other utilities who have committed to targets for Scope 3 emissions may be doing so as a result of stakeholder pressure. “My guess is they are being pressured by stakeholders to take responsibility for their CO2 emissions throughout the value chain,” Lyon said in an email. “For example, the CDP (which represents trillions of dollars from institutional investors) presses companies to report their Scope 3 emissions, although not all of them do.”
Other utilities moving ahead
Natural gas represents a substantial portion of DTE Energy’s business; serving 2.2 million electric customers and 1.3 million gas customers in Michigan. The company is actively investing in its future gas business, including building a new natural gas plant to replace a retired coal plant in St. Clair County, investing in new local natural gas distribution infrastructure, and exploring biogas to help fuel its gas infrastructure. It also spun off its natural gas pipeline business into a separate publicly traded entity last year.
Frank Sherman, executive director of Seventh Generation Interfaith Coalition for Responsible Investment, said DTE’s decision not to fully report on Scope 3 emissions undermines the company’s net-zero commitment and places it behind other utilities that are moving forward with incorporating Scope 3 emissions into their GHG accounting methods,
“The fact is that DTE is lagging its peers on setting robust net-zero targets,” Sherman said in his statement during the stakeholder meeting. “Following investor engagements, Xcel, Duke, Dominion, and most recently, Consumers Energy announced that they will expand their net-zero targets to include all material Scope 3 emissions, including in their gas distribution businesses.”
As You Sow and Seventh Generation work via shareholder advocacy across a broad array of industries, typically engaging with companies’ management before bringing shareholder proposals.
“We find where certain companies could be improving and doing better, and we reach out and build relationships with the company to talk about what the companies can be doing to improve,” said Daniel Stewart, energy & climate program manager for As You Sow. “And contrasting them with how the industry is shifting and where leaders within their industry are moving as well. And if we do not see sufficient progress on these topics, we escalate the engagement to filing a shareholder resolution.”
According to Stewart, As You Sow selected DTE Energy for its advocacy “due to its size, climate impact, and lack of a net-zero target for a large portion of its emissions, including those from its sale of natural gas.”
As You Sow and Seventh Generation brought a similar shareholder proposal before Consumers in 2021, but withdrew it after Consumers voluntarily agreed to pursue the proposal’s intent. The company announced in March that it would commit to achieving net-zero emissions across its entire gas value chain by 2050.
“Management had been going down a path of creating a net zero goal that would include scope 2 and scope 3, and so their resolution really coincided with our plan to announce these,” said Melissa Gleespen, vice president, corporate secretary and chief compliance officer for CMS Energy and its principal subsidiary, Consumers Energy. Gleespen noted that all of the details on how to achieve the goal have not been ironed out.
“2050 is a long time away, but we are setting this as the benchmark that we’re going to strive toward,” said Consumers spokesperson Brian Wheeler. “We’re making the commitment because we’re confident we’ll figure out a way to do it.”
As You Sow plans to continue to work with DTE Energy on developing a Scope 3 target.
“I would note that a non-majority vote does not signal that the proposal was a failure,” said Stewart. “There was still a significant show of investor support, upwards of 20%. That is still a strong signal to DTE that a large portion of its ownership views this as a relevant issue to address. With many of DTE’s peers announcing net-zero targets that expand coverage to their natural gas businesses or covering all value-chain emissions, it demonstrates the utility industry is taking better account of its total climate risk. We will continue to work with DTE to ensure it catches up and does the same.”