| ● | Barbara
M. Baumann, Chair of the Board (Item 1.1), and |
| ● | Kelt
Kindick, Lead Director and Chair of the Governance, Environmental and Public Policy
Committee (Item 1.5) |
The
physical and financial risks posed by climate change to long-term investors are systemic, portfolio-wide, unhedgeable and undiversifiable.
Therefore, the actions of companies that
fail to align to limiting warming to 1.5°C pose risks to the financial system as a whole, and to investors’ entire portfolios.
See www.proxyvoting.majorityaction.us for more information regarding Majority Action’s
Proxy Voting for a 1.5°C World initiative and the transformation required in key industries.
Devon
Energy Corp (“Devon”) is one of the largest independent U.S. shale producers following its merger with WPX Energy
in January 2021.1 It is among
the 166 focus companies named by Climate Action 100+ as one of the largest global emitters and “key to driving the global
net zero emissions transition.”2
Petroleum
and fossil gas products, including those used in transportation, buildings, industrial processes, and electricity production,
account for nearly 80% of carbon emissions from the U.S. energy system.3 In
2021, the International Energy Agency (IEA) released its Net Zero Emissions by 2050 Scenario (NZE), which sets out a pathway to
reduce emissions from the global energy system aligned with limiting warming to 1.5°C. Under the NZE, fossil fuel use falls
dramatically in the next decade, and remaining fossil fuel demand can be met through existing supplies and infrastructure. Approving
new oil and gas fields is incompatible with this pathway.
Failure
to set ambitious decarbonization targets in line with 1.5°C pathways, and to
align companies’ business plans and policy influence to those targets, is a failure of strategy and corporate governance,
for which long-term investors should hold directors accountable. At
companies where the production, processing, sale, and/or consumption of fossil fuels is central to their core business, GHG emissions
reductions have profound strategic implications. The board chair, lead independent director where the position exists, and other
board members with climate-related oversight responsibilities should be held accountable for oversight failures related to decarbonization.
In
2023, we have updated our metrics to more closely align with the Climate Action 100+ Net Zero Benchmark Indicators
for the oil and gas sector, while still focusing on
the three core pillars of target setting, capital allocation, and policy influence. This allows for a more standardized assessment
across companies that is broadly accepted by investors.
Target
setting
Climate
Action 100+ Net Zero Benchmark Indicators |
|
Disclosure
Indicator 1.1 |
The company has set an ambition to achieve net zero GHG emissions by 2050 or sooner.
|
- |
|
Disclosure
Indicator 1.1A |
The company has made a qualitative net zero GHG emissions ambition statement that explicitly includes at least 95% of its scope 1 and 2 emissions.
|
✓ |
|
Disclosure
Indicator 1.1B |
The
company’s net zero GHG emissions ambition covers the most relevant scope 3 GHG emissions categories for the company’s
sector, where applicable. |
X |
Disclosure
Indicator 3.1 |
The company has set a target for reducing its GHG emissions by between 2026 and 2035 on a clearly defined scope of emissions.
|
✓ |
Disclosure
Indicator 3.2 |
The medium-term (2026 to 2035) GHG reduction target covers at least 95% of scope 1 & 2 emissions and the most relevant scope 3 emissions (where applicable).
|
- |
|
Disclosure
Indicator 3.2A |
The company has specified that this target covers at least 95% of its total scope 1 and 2 emissions.
|
✓ |
|
Disclosure
Indicator 3.2B |
If the company has set a scope 3 GHG emissions target, it covers the most relevant scope 3 emissions categories for the company’s sector (for applicable sectors), and the company has published the methodology used to establish any scope 3 target.
|
X |
Disclosure
Indicator 3.3 |
The target (or, in the absence of a target, the company’s latest disclosed GHG emissions intensity) is aligned with the goal of limiting global warming to 1.5°C.
|
X |
Devon
has set a target to achieve net zero GHG emissions by 2050, but this is limited to scope 1 and 2 emissions and excludes scope
3 emissions.4 The company has set an interim target to reduce scope 1 and 2 greenhouse gas emissions intensity by
50 percent by 2030, but that target also excludes scope 3 emissions.5 These are also intensity only targets, which
provides no guarantee that the company’s emissions will fall in absolute terms.6 According to the Climate Action
100+ Net Zero Company Benchmark, the company’s targets are not aligned with the goal of limiting warming to 1.5°C.7
Capital
allocation
Climate
Action 100+ Net Zero Benchmark Indicators |
Disclosure
Indicator 6.1 |
The company is working to decarbonize its capital expenditures.
|
X |
Disclosure
Indicator 6.1A |
The company explicitly commits to align its capital expenditure plans with its long-term GHG reduction target OR to phase out planned expenditure in unabated carbon intensive assets or products.
|
X |
Disclosure
Indicator 6.1B |
The company explicitly commits to align its capital expenditure plans with the Paris Agreement’s objective of limiting global warming to 1.5° C AND to phase out investment in unabated carbon intensive assets or products.
|
X |
Capital
Allocation Alignment Assessment (Carbon Tracker) 1: Company’s Recent Actions |
In the most recent full year (2021), were all the company’s upstream oil and gas CAPEX projects consistent with the IEA’s Beyond 2°C Scenario (B2DS)?
|
✓ |
Capital
Allocation Alignment Assessment (Carbon Tracker) 2: Capex Analysis |
What percentage of the company’s potential future (2022-2030) unsanctioned oil and gas CAPEX is inconsistent with the IEA’s B2DS?
|
87% |
Capital
Allocation Alignment Assessment (Carbon Tracker) 4: Net Zero Analysis |
What is the company’s oil and gas production level in the 2030s (against a 2022 baseline) assuming no new oil and gas projects are sanctioned as stated by the IEA’s NZE?
|
-85% |
According
to the Climate Action 100+ Net Zero Company Benchmark, Devon has met none of the disclosure indicators for capital allocation.8
In order to fully meet the criteria of the Benchmark disclosure indicators for capital allocation, the company would need
to commit to aligning future capital expenditures with its long-term GHG reduction target(s) and the Paris Agreement’s objective
of limiting global warming to 1.5°C, and disclose the methodology it uses for such alignment.9
According
to Carbon Tracker data provided through the Climate Action 100+ Net Zero Benchmark, Devon’s oil and gas production must
fall by 85% from its 2022 level to be aligned with the IEA NZE.10 Despite this, Carbon Tracker finds that 87% of
Devon’s future potential capex between 2022 and 2030 is outside of the IEA’s Beyond 2°C Scenario (limiting warming
to 1.75°C, net zero by 2060), let alone the NZE.11 Climate Action 100+ rates Devon’s future capex as among
the 10 most misaligned with the Paris Agreement of the U.S.-based oil and gas producers it assessed.12
Devon
ranked among the top 10 U.S. oil and gas producers for resources under development and field evaluation as of November 2022 (with
99.4% of that in unconventional sources), and ranked 11th amongst U.S. oil and gas producers for exploration capex between 2020
to 2022.13
Policy
influence
Climate
Action 100+ Net Zero Benchmark Indicators |
Climate
Policy Engagement Alignment (InfluenceMap) 1: Organization Score |
The level of company support for (or opposition to) Paris Agreement-aligned climate policy.14
|
46% |
Climate
Policy Engagement Alignment (InfluenceMap) 2: Relationship Score |
The level of a company’s industry associations’ support for (or opposition to) Paris Agreement-aligned climate policy.
|
27% |
Devon
has not met all the requirements of the Climate Action 100+ Net-Zero Company Benchmark for disclosure indicators for climate policy
engagement. Though it does disclose its trade association memberships,15 Devon does not have a Paris Agreement-aligned
climate lobbying position, Paris Agreement-aligned lobbying expectations for the trade associations to which it belongs, or a
commitment to ensure that those trade associations lobby in line with the goals of the Paris Agreement.16
According
to InfluenceMap, the company receives a near-failing “D-” for its obstructive policy engagement.17 Devon
holds memberships in several trade associations to which InfluenceMap has assigned “E-” or “F” grades
for negative engagement on U.S. climate policy, including the American Petroleum Institute (“API”)18,
National Association of Manufacturers19, and the U.S. Chamber of Commerce20.
In
June of 2022, the company submitted a comment letter to the Securities and Exchange Commission (SEC) requesting the agency omit
any requirements of companies to disclose scope 3 emissions.21 The company also generally supported the comment letters
submitted by API and American Exploration and Production Council (AXPC).22 In API’s comment letter, the association
advocated against the disclosure of the financial impacts of climate related activities, the reporting and disclosure of scope
3 emissions and climate disclosure within 10-K reports.23
Conclusion:
Devon has failed to set a robust net zero emissions by 2050 target that includes scope 3 emissions in its long and medium term
targets. The company also must align its future capital allocation and policy influence to limit warming to 1.5°C. Therefore,
we recommend that shareholders vote AGAINST Barbara M. Baumann, Chair of the Board (Item 1.1) and Kelt Kindick, Lead Director
and Chair of the Governance, Environmental and Public Policy Committee (Item 1.5), both facing re-election at the company’s
annual meeting on June 7, 2023.
1
Verity Ratcliffe, “Shale Producers Devon Energy and WPX Merge in All-Stock Deal,”
World Oil, September 28, 2020, https://www.worldoil.com/news/2020/9/28/shale-producers-devon-energy-and-wpx-merge-in-all-stock-deal
2
Climate Action 100+, “Companies” (website), https://www.climateaction100.org/whos-involved/companies/page/4,
accessed April 22, 2023
3
U.S. Energy Information Administration, “Total Energy,” (data browser), https://www.eia.gov/totalenergy/data/browser/index.php?tbl=T11.01#/?f=A&start=1973&end=2019&charted=0-1-13,
accessed April 22, 2023
4
Devon, 2022 Sustainability Report, November 2022, https://dvnweb.azureedge.net/assets/documents/Sustainability/DVN_2022_SustainabilityReport.pdf,
p. 9
5
Devon, 2022 Sustainability Report, p. 9
6
Jack Arnold and Perrine Toledano, “Corporate Net-Zero Pledges: The Bad and the
Ugly,” Columbia Center on Sustainable Investment, December 1, 2021, https://ccsi.columbia.edu/news/corporate-net-zero-pledges-bad-and-ugly
7
Climate Action 100+, “Devon Energy Corp.,” Company Assessment, https://www.climateaction100.org/company/devon-energy-corporation,
accessed April 22, 2023
8
Climate Action 100+, “Devon Energy Corp.,” Company Assessment
9
Climate Action 100+, “Devon Energy Corp.,” Company Assessment
10
Climate Action 100+, Climate Action 100+ Net Zero Company Benchmark, Carbon Tracker data, October 2022, https://www.climateaction100.org/wp-content/uploads/2022/12/Downloadable-Excel_CA100-Benchmark_Dec-2022_CAAA-scores-v1.1.xlsx
11
Climate Action 100+, Climate Action 100+ Net Zero Company Benchmark, Carbon Tracker data
12
Climate Action 100+, Climate Action 100+ Net Zero Company Benchmark, Carbon Tracker data
13
Urgewald, “Global Oil & Gas Exit List (Gogel),” (analysis using GOGEL data), https://gogel.org/ (Expenditure
is a 3-year average from 2020-2022)
14
InfluenceMap, “About Our Scores,” LobbyMap, https://lobbymap.org/page/About-our-Scores, accessed April 10, 2023
(According to InfluenceMap’s methodology “Organisation Score” and “Relationship Score” (expressed
as a percentage from 0 to 100) is a measure of how supportive or obstructive the company’s or its industry associations’
engagement is with climate policy aligned with the Paris Agreement, with 0% being fully opposed and 100% being fully supportive.)
15
Climate Action 100+, “Devon Energy Corp.,” Company Assessment
16
Climate Action 100+, “Devon Energy Corp.,” Company Assessment
17
InfluenceMap, “Devon Energy,” LobbyMap, https://lobbymap.org/company/Devon-Energy-fac60f4e6a741eb74d01405dd722234b,
accessed April 22, 2023
18
InfluenceMap, “American Petroleum Institute,” LobbyMap, https://lobbymap.org/influencer/American-Petroleum-Institute-API,
accessed April 22, 2023
19
InfluenceMap, “National Association of Manufacturers,” LobbyMap, https://lobbymap.org/influencer/National-Association-of-Manufacturing-NAM,
accessed April 22, 2023
20
InfluenceMap, “US Chamber of Commerce,” LobbyMap, https://lobbymap.org/influencer/US-Chamber-of-Commerce, accessed
April 22, 2023
21
Devon, “Re: Comments of Devon Energy Corporation on the Proposed Rule “The Enhancement and Standardization of Climate-Related
Disclosures for Investors,” SEC File No. S7-10-22.,” (letter), June 17, 2022, https://www.sec.gov/comments/s7-10-22/s71022-20131942-302395.pdf,
p. 3
22
Devon, “Re: Comments of Devon Energy Corporation,” p. 2
23
API, RE: Comments of the American Petroleum Institute on the Proposed Rule “The Enhancement and Standardization of Climate-Related
Disclosures for Investors,” SEC File No. S7-10-22.,” (letter), June 17, 2022, https://www.api.org/~/media/Files/misc/API-Comments-SEC-Climate-Disclosure-Rule-6-17-2022?_gl=1*uf15k7*_ga*Mzg3NTk4Mjk4LjE2ODIyMjMyMTc.*_ga_4GE2RKSLYW*MTY4MjIyMzIxNi4xLjAuMTY4MjIyMzIxNi42MC4wLjA.