Chevron: Governance Actors &

Sustainability Strategy
Into the fire

“We’re going to fight this until hell freezes over, and then we’ll fight it on the ice,”

– A Chevron attorney on the Ecuador litigation1

In 2001, Chevron Corporation (Chevron) acquired Texaco Inc. (Texaco), an American oil company, and
inherited its liabilities for alleged substandard oil extraction in Ecuador’s rainforest between 1964 and
1992. This included the “Amazon Chernobyl”, a huge environmental disaster in Ecuador which arose
from Texaco’s alleged disregard for the health of the region’s population. 2 In 2011, a decade after its
acquisition of Texaco, Chevron was fined US$18 billion – the largest judgment ever awarded in an
environmental lawsuit – by a court in Ecuador for contamination from oil extraction in the Amazon.

However, Chevron filed an appeal against the court’s decision, saying that it was “illegitimate and
unenforceable”.3 The company also accused the plaintiffs – Ecuadorian villagers and their lawyers – of
having ghost-written an expert environmental opinion. In response, the plaintiffs rebuffed that the expert
opinion was fraudulent and retorted the fine was too low in view of the scale of pollution. The fine was
later reduced to US$9.5 billion by Ecuador’s national court of justice in 2013. Chevron continued to
pursue a multi-year campaign with an aggressive legal strategy against the plaintiffs and even the
country of Ecuador. Five years later, in 2018, an international tribunal found that Ecuador violated a
treaty with the U.S.4 and ordered Ecuador not to enforce the US$9.5 billion judgment on Chevron.5,6

Fuel was added to the fire when Chevron was subsequently scrutinised by the U.S. Securities and
Exchange Commission (SEC) after Trillium Asset Management – a Boston-based sustainable and
responsible investment fund – filed a request to review the company’s shareholder disclosures on the
magnitude of its financial and operational risks. 7 Trillium also sponsored a proposal at the Annual
General Meeting (AGM) asking Chevron to nominate an independent board member with environmental
expertise from an energy perspective. Chevron urged shareholders to reject the proposal, claiming that
its board’s “qualification standards adequately recognise the importance of environmental expertise”.8
It added that “board members and candidates should possess a broad range of skills, qualifications and
attributes rather than a single expertise”.9 Eventually, only about 25% of shareholders supported the
proposal.10

There was a small win for environmentally concerned shareholders in 2013 when a group of
shareholders successfully obtained approval from the SEC to put a key corporate governance proposal
onto the agenda of Chevron’s 2013 AGM. The proposal called for common-sense governance reforms
to improve the company’s accountability, responsiveness, and transparency. 11 More specifically, it
proposed that Chevron amend its bylaws to give shareholders which have a 10% stake in the company
“the power to call special shareholder meetings to allow them to consider important matters that crop
up between AGMs”. The proposal stemmed from the Ecuador litigation and the company’s alleged
“campaign of shareholder intimidation”.12

The Paris Agreement

“We support well-designed climate policies and believe a price on carbon is the most efficient
mechanism to harness market forces to reduce emissions.”

– Chevron Corporation13

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On 12 December 2015, the U.S., along with 195 other countries, adopted a new climate accord, the
Paris Agreement, which covers climate change mitigation, adaptation, and finance.14 The agreement,
which came into effect after 2020, aims to keep global average temperature rise to below two degrees
Celsius compared to pre-industrial levels, and pursue efforts to limit the temperature rise to 1.5°C.
According a 2017 report by the CDP – a not-for-profit charity that runs the global disclosure system for
investors, companies, cities, states and regions to manage their environmental impacts – over half of
worldwide industrial greenhouse gas emissions can be traced to 25 corporate and state producers,
including Chevron.15

As one of the world’s major emitters, Chevron has long been scrutinised by the public for its efforts to
mitigate climate change. The company has been outspoken about its support for the Paris Agreement,
and highlights its climate policy framework as part of its environmental, social and governance (ESG)
efforts on the company website.16 Its stated goal is ultimately to reduce the carbon intensity of its
operations and assets by optimising carbon-reduction opportunities and integrating greenhouse gas
mitigation technologies.17

In June 2017, then U.S. President Donald Trump announced that the U.S. would cease all participation
in the Paris Agreement. The reactions of U.S. corporations were mixed but a large number of
organisations – including Chevron – expressed their opposition to Trump’s decision.18 However,
Chevron’s stance on environmental issues soon took a U-turn and it sought to block climate-related
shareholder proposals in 2017 and 2018, recommending that shareholders vote against all climate-
related resolutions in those years.19 In its public statements and reports on climate change, Chevron
also downplayed the role of human activity and the need to reduce emissions of heat trapping
greenhouse gases. Additionally, between 2010 and 2018, Chevron reportedly dedicated only 0.2% of
its capital expenditure to sources of low-carbon energy. This was despite the fact that Chevron
described itself as a provider of “affordable, reliable, ever-cleaner energy to improve people’s lives and
enable human progress”.20 This has led to Chevron’s critics calling the company out for hypocrisy:
“Chevron’s rhetoric and the public image that they put forward [are] very different from how they’re
actually operating.”21

An attempt to put out the fire

“The great tragedy of the climate crisis is that seven and a half billion people must pay the price – in the
form of a degraded planet – so that a couple of dozen polluting interests can continue to make record
profits.”

– Michael Mann, leading climate scientist22

While Chevron had openly expressed support for the Paris Agreement, the company’s annual
emissions have steadily increased to 672 million metric tonnes of carbon dioxide in 2021,23 solidifying
the company’s status as one of the world’s largest polluters. It was reported in 2019 that Chevron,
together with other fossil fuel companies Exxon, BP and Shell, were behind more than 10% of the
world’s carbon emissions since 1965. Since then, more environmentalists and activists have pushed
for further climate action, especially from players in the oil and gas industry. 24

To quell public anger over its significant contributions to the world’s greenhouse gases, Chevron
announced in October 2019 that it planned to reduce the intensity of greenhouse gas emissions from
its oil production and of its upstream gas by five to ten percent and two to five percent respectively over
a seven-year period ending in 2023. In the company announcement, Michael Wirth, Chevron’s
Chairman and Chief Executive Officer (CEO), reiterated the company’s commitment to reducing its
operations’ environmental impact: “Global demand for energy continues to grow, and we are committed
to delivering more energy with less environmental impact.”25,26

In the same month, it was reported by The New York Times that Chevron seemed to have stricter
internal rules in relation to flaring and venting of natural gases and other greenhouse gases directly into
the atmosphere, which discourage drilling in areas that offer few prospects of economically recovering
the natural gas produced. The processes of flaring and venting emit carbon dioxide and methane into
the atmosphere respectively, and are “a tremendous waste of a natural resource”. The World Bank

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estimated that in 2018, flaring released over 350 million tons of carbon dioxide globally. 27 Chevron and
other large oil groups have committed to end “routine flaring” by 2030, many as part of a global
partnership initiative lead by the World Bank.28

Chevron has also announced how it targeted to reduce methane emissions by expanding its methane-
detection capabilities and partnering with industry and academic experts to ensure the accuracy and
credibility of global methane reporting. Further efforts for methane management include various
partnerships such as being a founding partner of The Environmental Partnership – an industry initiative
targeted at accelerating the adoption of practices which reduce methane emissions, and participating
in Project ASTRA to demonstrate a new approach to measure methane emissions.29

In its 2021 climate change resilience report, Chevron went one step further to communicate its
commitment to advancing a lower carbon future to its stakeholders and its support of the global net zero
target of the Paris Agreement. As part of its commitment, it would support carbon pricing as the primary
policy tool to achieve greenhouse gas emissions reduction goals, research and innovation to improve
the management of greenhouse gas emissions, as well as targeted policies to enable cost-effective
lower carbon opportunities. It was also disclosed in the report that Chevron has identified about 100
greenhouse gas-abatement projects and planned to spend over US$300 million in 2022 and eventually
US$2 billion on similar projects through 2028. It expected the projects to cumulatively achieve about 4
million tonnes of emissions reductions yearly.30

Too good to be true?

On 9 March 2021, Chevron revealed that it had met its environmental targets three years ahead of
schedule. However, the news raised eyebrows on whether meaningful efforts were truly made to
combat global climate change and some analysts were unimpressed with its climate and emissions
goals, seeing them as being too modest.31,32

After the early completion of its 2023 upstream carbon intensity reduction goals, Chevron announced
its strategy centred on “higher returns, lower carbon” and upgraded its environmental commitments and
goals, which included a 35% decrease in carbon intensity for oil and gas production and a 50% reduction
in methane emissions compared with 2016 levels.33 These new goals aligned with the second “global
stocktake” period under the Paris Agreement. Additionally, Chevron aimed to reduce the carbon
intensity from its traditional oil and natural gas development and chemicals processing; increase the
use of renewable biofuels; and raise its investment in advanced technologies, such as hydrogen power
and carbon capture, utilisation, and storage.34

Critics will criticise

Despite Chevron’s efforts, some critics have voiced that the company has not been doing enough to
combat climate change,35 while others accused the oil company of “greenwashing”,36 where an
organisation spends more time and money on marketing itself as environmentally friendly than on actual
efforts to minimise its environmental impact.37

Accusations of greenwashing

“We would hope that a successful case against Chevron would set a precedent that would discourage
other companies ... from engaging in these kinds of greenwashing tactics,”

– Zorka Milin, senior legal advisor at Global Witness38

A week after Chevron’s announced its new environmental strategy, environmental groups filed a
complaint with the Federal Trade Commission (FTC), accusing the company of greenwashing and
misleading consumers about its efforts to reduce greenhouse gas emissions. Global Witness,
Greenpeace USA and Earthworks alleged that the oil giant’s pledge of “ever-cleaner energy” conceals
the fact that its production plans may end up increasing absolute emissions. They added that
advertisements touting Chevron’s environmental record and investments in green technology disguise

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its role as one of the most significant corporate polluters worldwide. They also contended that Chevron’s
2021 climate change resilience report mirrored many of the same greenwashing tactics used to mislead
consumers for years. Chevron called the allegations “frivolous” and stated that it was “honest” about its
energy transition.39

The American Petroleum Institute (API), the largest U.S. trade association for the oil and natural gas
industry, stepped in to support Chevron, claiming that the allegations about the green advertising
campaigns used by companies in the oil and gas industry were false and that the industry was making
progress in balancing new climate realities with customer needs.40 However, earlier in 2018, Kathy
Mulvey – accountability campaign director and advocate for the Climate & Energy team at the Union of
Concerned Scientists – said that the API has been promoting disinformation about global warming for
decades, and this “fraudulent behaviour” has also been adopted by Chevron.41

Truly doing good?

A media article by ClientEarth, an environmental law charity, also challenged the goals set by Chevron.
It took issue with the fact that the oil company sets targets on an intensity basis instead of an absolute
basis. This suggests that Chevron is able to continue to increase fossil fuel production and thus increase
its absolute emissions. ClientEarth highlighted that although Chevron disclosed that its carbon capture
and storage projects are expected to reduce greenhouse gas emissions by approximately five million
tonnes yearly, its 2019 annual emissions stood at 697 million tonnes of carbon dioxide equivalent –
more than 130 times larger than its carbon capture plans.42 Fieldwork conducted by Earthworks also
found that Chevron still regularly pollutes methane despite its environmental claims.43

Furthermore, as the timing of Chevron’s targets has been synchronised with stocktake milestones
outlined in the Paris Agreement, it was argued that targets are set against a 2016 baseline, which were
levels prior to the advent of new sustainability trends such as renewable energy and net-zero initiatives.
ClientEarth said that Chevron’s alignment of timelines with the Paris Agreement was not meaningful
given that the emissions targets have been falling short of what is required to attain the Paris goals.44

Analysis by Climate Action 100+ – an investor-led initiative aimed at making the largest corporate
greenhouse gas emitters worldwide take necessary action on climate change – found that Chevron has
neither disclosed the methodology used to determine the Paris alignment of its future capital
expenditures nor has a Paris Agreement-aligned climate lobbying position.45

Succumbing to the heat

“The votes signal investors’ impatience with Big Oil’s refusal to curb emissions by 2030,”

– Mark van Baal, founder of Follow This46

In the midst of the anti-greenwashing storm, Chevron has also been under increasing shareholder
pressure to look into scope 3 emissions generated from customers burning its fuel.47 This coincided with
the period when activist hedge fund Engine No. 1 won three board seats at Chevron’s competitor Exxon
Mobil in mid-2021 after claiming that the latter’s focus on fossil fuels was putting its future at risk. 48
Despite the fact that scope 3 emissions amounted to more than 580 million tonnes of carbon dioxide
equivalent in 2020, Chevron had not proposed any additional steps to cut its scope 3 emissions. 49

Earlier in March 2021, Chevron requested the SEC to exclude a proposal from Dutch activist
shareholder group Follow This for its 2021 AGM, calling for the company “to substantially reduce the
greenhouse gas emissions of their energy product”. The oil giant claimed that the proposal sought to
“micromanage” the company and stated that the resolution would impose “prescriptive methods” on its
greenhouse gas emissions-management program. However, on 30 March 2021, the SEC denied
Chevron’s request to exclude the resolution, thereby allowing shareholders to vote on the carbon
emissions reduction proposal during the 2021 AGM.50,51 This signalled a victory for climate activists in
the global fight against climate change.

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At the AGM on 26 May 2021, 61% of Chevron’s shareholders voted in support of the Follow This
resolution calling on Chevron to cut scope 3 greenhouse gas emissions. 52 Mark van Baal, founder of
Follow This, commented: “Chevron cannot ignore this unequivocal request from its shareholders. Big
Oil can make or break the Paris Accord. Investors in oil companies are saying now: we want you to act
by decreasing emissions now, not in the distant future.”53

Chevron’s third largest shareholder, BlackRock Inc. (BlackRock) – which earlier supported Engine No.
1’s campaign against Exxon – said that it supported the shareholder proposal because it is consistent
with what it expected of large corporations such as Chevron. The proposal was also in line with
BlackRock’s belief that “it is particularly important to assume responsibility, where reasonable, for the
complete emissions profile of the company as the world transitions to a low carbon economy”.54 This
followed BlackRock’s decision to progressively exit investments that “present a high sustainability-
related risk” in January 2020 – a significant move by the world’s largest asset manager which was
welcomed by environmental activists to “reshape the relationship between money and the climate
crisis”.55

Hidden motives?

BlackRock and The Vanguard Group Inc. (Vanguard) – two of Chevron’s largest shareholders – are
investment firms which have signed the Net Zero Asset Managers initiative, 56 an international group of
asset managers which are committed to supporting the goal of net zero greenhouse gas emissions by
2050.57

BlackRock has been vocal about its shareholder campaigns against Chevron to cut down carbon
emissions and other ESG issues. In 2020, it also voted for a proposal calling for Chevron to report on
how the company’s lobbying aligned with the Paris Agreement goals. 58 Although the investment firm
appeared to be aligned with environmental activists in their goals to save the environment, BlackRock
CEO Larry Fink explained in his 2019 and 2020 letters to CEOs that BlackRock’s shareholder activism
was primarily a way to market its investment products to millennials, a targeted group perceived to view
the primary objective of business as altruistic rather than profit generation.59 That being said, Fink also
argued that sustainable-focused investing strategies were sensible not solely from a social perspective,
but also an economic one.60

Vanguard has also consistently claimed to be a firm supporter of ESG issues and has promoted its
credentials in tackling sustainability issues. However, in 2019, Financial Times uncovered from
Vanguard’s voting records how little it had truly done to support environmental and social shareholder
proposals.61 CNBC’s findings also corroborated this; it reported that BlackRock and Vanguard voted
against all of the 2019 U.S. shareholder proposals backed by Climate Action 100+, which represented
US$34 trillion in assets. This even occurred in the investment firms’ ESG-branded portfolios, which
were found to have voted in favour of shareholder resolutions less frequently than its peers. 62

U.S. issue-advocacy organisation Majority Action also mentioned that collectively as key shareholders,
Blackrock and Vanguard hold outsized voting power at numerous S&P 500 companies, including
Chevron, and hence they should bear the responsibility of holding corporate boards accountable on
sustainability issues. Despite this, Majority Action found that both investment firms used their
shareholder voting power to shield corporate boards from accountability and undermine investor efforts
to promote responsible corporate climate action. This was in contrast with other large asset managers
which have made conscious decisions to set and enforce policies to hold corporate boards accountable
should climate-related issues not be adequately addressed.63

Sounds like a plan

As a result of the growing pressure from investors, governments, and environmentalists alike, Chevron
announced plans to invest more capital to grow lower carbon energy businesses during its Energy
Transition Spotlight event on 14 September 2021.64 This was complemented by Chevron’s updated
climate change resilience report in October 2021, which further detailed its ambition to progress towards
a lower carbon future.65

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The oil giant adopted a 2050 net zero aspiration for equity upstream scope 1 and 2 emissions. It also
introduced a portfolio carbon intensity (PCI) target that represents its carbon intensity across the full
value chain – comprising scope 1, 2 and 3 emissions. This would be accompanied by plans to release
a PCI methodology document and an online tool that would allow third parties to calculate PCI for
energy companies – a step towards transparent carbon accounting.66 Furthermore, the oil giant pledged
to increase its investments to US$10 billion – US$3 billion on carbon capture and storage and offsets,
US$3 billion on renewable fuels, US$2 billion on hydrogen, and US$2 billion on greenhouse gas
reduction activities – to reduce its carbon emissions footprint through 2028.67

However, Chevron’s CEO Wirth said that the company was “not yet ready to commit to a 2050 net-zero
emissions target”. He justified the statement by saying that the company was reluctant to be “in a
position where we lay out ambitions that we don’t believe are realistic and deliverable”. 68 Andrew Logan,
senior director of oil and gas at non-profit organisation Ceres, opined that Chevron’s announcement
“looks like a step forward, but a relatively modest step when what is needed is a giant leap”. 69 David
Victor, a professor of innovation and public policy at the School of Global Policy and Strategy at the
University of California San Diego, also expressed some scepticism at the US$10 billion budget,
commenting that it was “not really nailed down”, but also acknowledged the industry’s challenges in
navigating the changing landscape around emissions reductions.70

The move towards divestment

To further demonstrate its commitment to expanding renewables and offsets, Chevron launched a
number of renewable natural gas (RNG) ventures. On 14 September 2021, it reported that it was ahead
of its plan of increasing RNG production tenfold by 2025. Through partnerships with companies like
Brightmark LLC and California Bioenergy for production, and Clean Energy Fuels Corp. (Clean Energy)
and Mercuria Energy Trading for marketing, Chevron has been able to strengthen the value of its RNG
supply chain.71

For instance, Chevron pumped US$28 million into its “Adopt-A-Port” initiative with Clean Energy, which
would provide local truck operators with affordable access to cleaner, carbon negative RNG and in turn
reduce greenhouse gas emissions.72 Such initiatives were expected to contribute to Chevron’s aim to
become a U.S. market leader in RNG.73

Despite RNG’s smaller climate impact as compared to fossil fuels, some environmental activists say
that it is not an antidote for climate change. They argue that the huge demand for RNG and methane
leakage from their use might nonetheless have an adverse impact on human and environmental
health.74 Sightline Institute, an independent research organisation, has also criticised the misuse of
RNG, stating that although it may seem green, it has numerous flaws – availability, cost, and a large
carbon footprint. It also alleged that the industry was greenwashing its image by marketing RNG as a
“renewable” solution, creating an illusion that the use of RNG would be significant greenhouse gas
reductions.75

Self defence

In the face of public outcry, Chevron has repeatedly attempted to defend itself, claiming that it has been
continuously improving its framework to better address evolving ESG issues.

Operational Excellence Management System

In 2004, Chevron launched its Operational Excellence Management System (OEMS), a comprehensive
system that helped build its operational excellence culture and improve its health, environment and
safety performance. Chevron updated its OEMS in 2018 to emphasise linkages between risk,
assurance and safeguards, and a streamlined approach to manage risk. These updates have helped
Chevron to improve its focus on preventing high-consequence incidents and impacts.76

Since 2004, Chevron has engaged an independent accredited assurance organisation, Lloyd’s Register
Quality Assurance, Inc. (LRQA), to verify that its OEMS meets international environmental and safety
management system standards and specifications. The certificate of approval issued by LRQA

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demonstrated the alignment of Chevron’s OEMS with ISO 14001:2015 and 45001:2018 standards, and
the integrity of the Chevron Technical Center in setting the strategic direction of the OEMS and providing
oversight and verification of its effectiveness.77

Risk management

Chevron disclosed its risk management processes in place to manage climate- change-related risks.
Chevron’s strategies, business planning as well as risk management take into consideration
greenhouse gas emissions issues, climate change risks and carbon pricing risks. It also evaluates the
global energy demand, the role of fossil fuels in supplying the required amount of energy, the updates
of energy and climate policies, and the advancement of new energy technologies when analysing its
business risks.78

Executive-level committees

At the executive level, Chevron has also put in place the Global Issues Committee (GIC), a
subcommittee which oversees the company’s policies and positions on sustainability issues and
practices. These include energy transition, lobbying and trade association activity, ESG reporting,
revenue transparency, human capital management, and human rights issues. The other executive-level
subcommittee, the Enterprise Leadership Team (ELT), has the primary responsibility of managing the
composition, resource allocation and strategic direction of Chevron’s portfolio to achieve its objectives.
The areas covered by the ELT include operational excellence, performance improvement, energy
transition, enterprise risk management processes, and market and price forecasts. 79

A dedicated ESG team

In 2018, Chevron formed a dedicated ESG team to engage with stakeholders – investors, framework
developers, the Sustainability Accounting Standards Board (SASB), and ESG rating agencies – on ESG
issues. Together with senior executives, subject matter experts and Chevron’s lead director, the ESG
team regularly conducts in-depth discussions with investors and stakeholders to gain valuable
feedback, which is then shared with the board and relevant board committees.80

The need for greater governance

Leading the oil giant is Chevron’s board of directors which oversees and provides guidance with regard
to its business and affairs. This includes the company’s business plan, the following year’s capital
expenditure budget, as well as key financial and supplemental objectives. The Chevron board has four
committees – Audit Committee, Board Nominating and Governance Committee, Management
Compensation Committee (MCC), and Public Policy and Sustainability Committee (PPSC). Board
committee members are appointed annually by the board based on recommendations from the Board
Nominating and Governance Committee. The Chairman of the board is also selected by independent
directors annually, giving them the flexibility to select the most optimal leadership structure based on
the current needs and situations.81

Amongst the four board committees, the PPSC has the key oversight role of Chevron’s environmental
matters, including those related to sustainability and climate change. The committee assists the board
in overseeing policy issues and potential risks in areas such as environmental matters, legislative and
regulatory initiatives, as well as political contributions and lobbying. In particular, the charter of the
PPSC clarifies the manner in which the committee assists the board with climate change and other
sustainability issues. The committee’s other roles include assisting the board in fulfilling its oversight of
risks that may arise in connection with the social, political, environmental, human rights, and public
policy aspects of Chevron’s business and the communities in which it operates; providing oversight and
guidance on and receiving reports regarding environmental matters in connection with Chevron’s
projects and operations; and discussing risk management in the context of legislative and regulatory
initiatives, safety and environmental stewardship, community relations, government and non-
governmental organisation relations, and Chevron’s global reputation.82,83 The Chairman of the GIC –
the vice president of strategy and sustainability – serves as the secretary to the PPSC, connecting the
GIC’s work to the oversight of the PPSC.84

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In 2021, the PPSC comprised four independent directors, namely Wanda M. Austin, Enrique Hernandez
Jr, Alice P. Gast, and Jon M. Huntsman Jr.85 Based on Chevron’s 2021 sustainability report, Gast and
Huntsman have “environmental” expertise.86 Gast has been president of Imperial College London since
2014, where she oversees environmental institutes and centres as well as leads the university crisis
management group.87 Huntsman oversaw environmental policy as Governor of Utah during his term
from 2005 to 2009, including the signing of the Western Climate Initiative, where Utah banded together
with other U.S. state governments to pursue reductions in greenhouse gas emissions. He also has
substantial experience overseeing environmental practices as Vice Chairman of Huntsman Corporation
and Chairman and CEO of Huntsman Holdings Corporation.88

ESG incentives and compensation plans

In 2021, Chevron had substantive engagements regarding ESG issues with shareholder holding more
than 39% of Chevron’s outstanding ordinary shares. These discussions included the topic of
executive compensation. The company’s Say-on-Pay vote outcome garnered 94% support in 2021,
indicating strong support for its executive compensation practices and pay for performance
alignment.89

The MCC is chaired by Hernandez, and consists of three other Committee members – Huntsman,
Ronald D. Sugar, and D. James Umpleby III. The company said that the MCC maintains a disciplined
and consistent approach in aligning incentive program design with its sustainability strategy. It assists
the board in fulfilling its oversight of risks that may arise in connection with Chevron’s compensation
programs and practices; reviews the design and goals of Chevron’s compensation programs and
practices in the context of possible risks to Chevron’s financial and reputational well-being, and
alignment with shareholders’ interests, including those related to sustainability and climate change risks
and opportunities; and reviews Chevron’s strategies and supporting processes for executive retention
and diversity.90

Links to the environment

The MCC also oversees the Chevron Incentive Plan (CIP), an annual cash incentive plan that links
awards to performance results of the prior year. CIP awards are designed to reward plan participants
for business and individual performances. In 2021, the MCC modified the 2021 CIP scorecard to include
“energy transition” as one of the four performance categories. Performance would be measured against
Chevron’s progress towards reducing greenhouse gas intensity, increasing renewable energy and
carbon offsets, and investing in low-carbon technologies. This addition was a response to investors’
input and are believed to reinforce Chevron’s objective of “higher returns, lower carbon”. 91,92

According to Chevron’s 2021 proxy statement, the CIP award for the CEO and other named executive
officers is calculated based on a corporate performance rating multiplied by individual bonus
component. A raw score range is assigned based on the actual performance of each CIP category,
namely financial results; capital management; operating performance; and health, environmental and
safety performance. The minimum score is zero and the maximum is two. The weightage allocated to
financial results and capital management in the CIP scorecard is 40% and 30% respectively. 93

In 2021, the health, environmental and safety performance category – which has a 15% weightage –
scored the highest amongst the other categories, with a score of between 1.50-1.60. The high score
was attributed to its prudent greenhouse gas management while staying on track to achieving oil, gas,
flaring and methane intensity reductions.

Links to share price

In contrast, the determination of the number of awarded performance shares, restricted stock units
(RSU) and stock options and most of the at-risk compensation are tied to Chevron’s ordinary share
price.94 A company’s share price is often used as an indicator of investors’ perceptions of its ability to
earn and grow its profits in the future.95

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While the inclusion of ESG metrics into a company’s remuneration structure may appear to be a well
thought out strategy at face value, some experts argue that it might be a way for the company to check
the right boxes and to divert shareholders’ attention away from whether executive pay has in fact
delivered shareholder value. Companies may include ESG metrics in their remuneration structures to
try to appease their shareholders in light of growing pressures by investors to do so, or to disguise
potentially unjustified compensation paid out to senior management despite underperformance of the
companies.96

What’s next for Chevron?

“We are working hard to win back investors. This is a sector that has underperformed for 10 years, for
five years, for three years,”

– Pierre Breber, Chevron’s Chief Financial Officer97

Chevron’s credibility has taken a hit in light of the controversy surrounding its efforts to reduce
greenhouse gas emissions. Is prioritising ESG the key to turning Chevron’s around? Opposing views
have emerged on whether adopting ESG policies would pave the future. Some experts highlighted that
ESG investors pushing for sustainability actions in oil and gas giants do not actually invest in
corporations which have adopted the mainstream climate change narrative. In this regard, corporations
investing in ESG efforts might not guarantee better share price performance. 98

Other experts have asserted that divesting from fossil fuels makes long-term financial sense as well
because intangible assets such as brand value and customer loyalty are increasingly key components
of corporate value reflected in a company’s share price.99 Some have reported that during the market
uncertainty brought by the COVID-19 pandemic, many companies with strong ESG track records
displayed lower volatility than their non-ESG counterparts. This suggested that having a focus on ESG
indicates a lower downside risk, represented strong leadership leading the company in the right
direction, and therefore higher returns.100

Luckily for Chevron, its business outlook in the near future seemed to be undeniably positive. The oil
giant’s share price recovered to pre-COVID levels in the tail end of 2021,101 and it reported 2021 annual
net profits of US$15.6 billion, following a loss of US$5.5 billion the year prior. 102 The record profits were
largely spurred by higher oil and natural gas prices.103 Share prices of Chevron and its competitors in
the oil and gas industry had outpaced the broader market in 2021 and 2022 – a sharp turnaround after
close to ten years of poor returns when the industry was left behind by many investors. 104 Furthermore,
in April 2022, against the backdrop of Russia’s invasion of Ukraine, crude oil and natural gas prices
continued to surge to multi-year highs, prompting Chevron to pledge to ramp up shareholder returns.105

As the big players in the oil and gas industry have all returned to profitability, some analysts and ESG
investors expected that they would take advantage of their bumper profits to increase investments into
new gas exploration and low-carbon technologies. Instead, Big Oil seemed to have placed any form of
green investment on hold. With rising oil prices, oil corporations like Chevron have been shoring up
their businesses by repaying outstanding debts, increasing dividends, and planning share buy-backs.106
Has all the progress on environmental awareness and push towards global net zero been undone? Will
Big Oil ever achieve the right balance of ESG and profits?