Scope 3 emissions proposal attracts support at Lockheed Martin AGM

A shareholder proposal asking Lockheed Martin Corporation to explain how it plans to cut greenhouse gas (GHG) emissions, including those classified as Scope 3, has attracted significant – though not majority – support at the aerospace and defense company’s AGM.

The resolution, filed by As You Sow, does not name Scope 3 directly but asks that Lockheed Martin’s board release a report ‘disclosing how [the company] intends to reduce its full value-chain emissions in alignment with the Paris Agreement’s 1.5°C goal.’ According to an SEC filing, it received support from 32.2 percent of votes cast at the meeting, a figure governance professionals generally deem to be significant.

As You Sow recommends that, at the board’s discretion, the report include:

• ‘A timeline for setting 1.5°C-aligned near-term emissions reduction targets
• ‘A timeline for setting long-term net-zero goals
• ‘A climate transition plan to achieve emissions reduction goals across all relevant emission scopes
• ‘Annual reporting demonstrating progress toward meeting emissions reduction goals’.

Scope 3 emission disclosures were notably removed from the final version of the SEC’s climate change risk rules. This exclusion pleased many businesses that describe them as difficult to measure, but disappointed shareholder advocates pressing for corporate action on climate change and related disclosures.

For example, Danielle Fugere, president and chief counsel of As You Sow, said in a statement when the SEC finalized its reforms: ‘Transparency is the bedrock of our financial system. While this rule is an important step in improving climate-related disclosures, it ignores a critical component of risk: Scope 3 GHG emissions reporting. This leaves, on average, 75 percent of total [GHG] emissions across all sectors unreported.’

In its proxy filing, As You Sow writes: ‘Investor demand for science-aligned emissions reductions and transition planning reflects the reality that climate-related risk exposure is growing. Lockheed Martin is subject to substantial emerging regulation and increasing costs in the US and abroad regarding its emissions-intensive operations and products.

‘For instance, the proposed Federal Supplier Climate Risks and Resilience Rule would require large federal contractors, such as Lockheed Martin, to disclose Scope 1, [Scope] 2 and [Scope] 3 emissions and set science-based emissions reduction targets. By reducing emissions from its full value chain, Lockheed Martin can reduce regulatory burdens and better assess technological changes, capital deployment needs and financial opportunities.’

The proponent argues that Lockheed Martin’s existing disclosures ‘lack specific, forward-looking and quantitative action plans that are sufficient to achieve alignment with the global aim of 1.5°C. While the company set an emissions reduction target covering its operations, this goal covers less than 5 percent of [its] total emissions and fails to align with a 1.5°C ambition.’

As You Sow writes that Lockheed Martin has not set a target to cut emissions from its value chain, which constitutes 95 percent of the company’s overall emissions: ‘This absence of emissions reduction targets across all scopes, coupled with the absence of a comprehensive transition plan, leaves investors without crucial information regarding the company’s exposure to climate-related risks in its supply chain and customer use, as well as its strategies for mitigating these risks.’

Company argument
Lockheed Martin’s board had urged shareholders to vote against the proposal. In the company’s proxy statement it writes: ‘[W]e believe the proposal does not take into account the unique challenges the company faces in reporting Scope 3 [GHG] emissions and seeking their reduction when the end-users of our products are sovereign governments that are not obligated to – and in many cases will not for national security reasons – report on or make commitments regarding Scope 3 goals.’

It also argues that the proposal poses potential risks to Lockheed Martin and is unnecessarily prescriptive and premature: ‘The proposal ignores the meaningful actions the company has taken and continues to take to reduce GHG emissions (including Scope 3) or our existing comprehensive reporting on these actions…

‘Aerospace and defense companies face industry-specific constraints in addressing both upstream and downstream Scope 3 emissions, impeding our ability to set achievable quantitative Scope 3 emissions reduction goals without extensive cross-industry and cross-government collaboration.’

The board states that the defense industrial base relies on a highly specialized and complex supply chain and aerospace and defense contractors’ ‘unique customer profile’ impacts Scope 3 emissions in ways such as:

• ‘Sovereign governments control the specification of product requirements
• ‘Sovereign governments control the ultimate end-use of products
• ‘Customers do not currently provide contractors with product-in-use information, and that which they might provide will be limited by national security considerations.’

Those issues make it difficult for an individual defense contractor to set the requested Scope 3 emissions reduction targets and can create a false comparison between companies such as Lockheed Martin and those in industries outside of defense, including commercial aviation, the board states.

In addition, the board says: ‘We also already disclose relevant Scope 3 emissions information. As the proposal specifically requests Scope 3 emissions disclosures and annual reports demonstrating progress toward meeting emissions reduction goals, these elements of the proposal are duplicative and unnecessary.’

A Lockheed Martin spokesperson had no additional comment on the proposal but noted that the company recently released its latest sustainability reporting.