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Elizabeth Warren asks SEC to investigate compensation at fossil fuel giants

In calling for regulatory review, the Democratic senator cited bonuses based on ‘easily manipulated’ environmental metrics at Marathon Petroleum

A view of the Chevron refinery in Richmond, Calif. In a letter Tuesday to the chairman of the Securities and Exchange Commission, Sen. Elizabeth Warren (D-Mass.) expressed concern that companies, including Chevron, may be deceiving investors and the public about their climate progress in order to guarantee large bonuses for top executives. (Justin Sullivan/Getty Images)
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Sen. Elizabeth Warren called on the country’s top securities regulator to examine the pay practices of large energy companies, citing a report in The Washington Post that revealed how some fossil fuel giants reward executives for meeting environmental goals even in years when their companies caused significant environmental harm.

In a letter Tuesday to Gary Gensler, the chairman of the Securities and Exchange Commission, Warren (D-Mass.) expressed concern that companies including Marathon Petroleum and Chevron may be deceiving investors and the public about their progress combating climate change to guarantee large bonuses for top executives.

“If the environmentally-friendly narratives sold by these corporations, and the promises that they would hold their top executives to stringent environmental quality standards, are found by SEC to be deceptive or fraudulent, they would represent a violation of the Securities Act of 1933,” Warren wrote, citing the law that requires companies to be truthful.

A growing number of large companies are tying executive bonus packages to nonfinancial metrics, such as workplace safety, employee diversity and reductions in carbon emissions. Some shareholders and activist groups say dangling cash rewards may be the best way to motivate CEOs to bring about real change on environmental and social issues.

But with little oversight of how such data is assessed and disclosed, corporate boards may set targets that can be easily achieved rather than hold executives accountable for making changes some believe are needed to mitigate the impacts of climate change.

Many of the largest fossil fuel companies reward top executives for meeting environmental goals, a compensation tactic they adopted over the past two decades as a response to regulators and investors concerned about pollution and worker safety. The way some of these incentive programs are designed allows companies to award executives their full bonuses even in years when the firms cause major environmental damage or total emissions go up, according to data and interviews gathered by The Post for an October article.

Despite spills and air pollution, fossil fuel companies award CEOs for environmental records

In 2018, for example, Marathon Petroleum said its executives surpassed their environmental goals, even though the company spilled 1,400 barrels of diesel fuel into an Indiana creek. Because Marathon’s executive performance reviews only account for the company’s number of significant oil spills in a year — not the total volume of oil — the Indiana spill counted as just one of 23 incidents that year.

“Marathon used easily manipulated metrics — in this case counting the number of ‘environmental incidents’ — to obscure the scale of these spills, ensuring that its executives would receive high compensation and its narrative of corporate sustainability would remain pristine,” Warren wrote in her letter.

In response to The Post’s story in October, Marathon spokesman Jamal Kheiry said the company uses incentives to “measure the effectiveness of our environmental management system, and drive continuous improvement in environmental stewardship.”

Chevron spokesman Sean Comey said in a statement Wednesday that the company motivates executives to achieve climate transition goals through metrics that are “clearly defined.” He added that Chevron supports “well-designed mandatory reporting, particularly for climate-related information.”

Gensler, less than a year into his tenure as head of the SEC, has pledged to require companies to be more transparent about their social and environmental metrics. He plans to propose new rules that would mandate certain types of corporate disclosures, such as carbon emissions, in order to help investors assess climate risks across many different businesses.

“Generally, I believe it’s with mandatory disclosures that investors can benefit from that consistency and comparability,” Gensler said in prepared remarks last July. “When disclosures remain voluntary, it can lead to a wide range of inconsistent disclosures.”

In her letter, Warren asked Gensler how soon these rules would be released and implemented, and whether they would address the use of misleading metrics in executive compensation. She asked whether the SEC would conduct a “broad review” into past disclosures to assess whether corporations have been truthful about the data they use to determine pay packages.

A spokesperson for the SEC declined to comment.

Along with other Democratic senators, Warren co-sponsored a bill earlier this year that would require all public companies to disclose their greenhouse gas emissions and climate-related risks.

Over the past 30 years, the SEC has steadily expanded the amount of information companies are required to report about executive pay. In the 1990s, regulators began requiring compensation to be broken down by salary, bonuses, perks and long-term incentives, such as stock options. In the 2000s, the SEC pushed firms to explain the goal of their pay programs in plain English.

Marc Steinberg, a law professor at Southern Methodist University who worked as an attorney at the SEC in the 1980s, says it makes sense to update these rules again. If companies use environmental or social data in their bonus program, they should have to explain why the company’s performance in these areas was good or bad compared to what is typical for their industry, Steinberg said.

“A lot of these executives got bonuses even though their companies performed below the norm,” Steinberg said. The SEC “can require the company to disclose where it fits within the industry — whether they are above average or below average.”

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