Four of the five largest electric utilities in the U.S. received a failing grade from the shareholder advocacy group As You Sow for not including greenhouse gas emissions from their natural gas supply chains and other indirect pollution in their net-zero emission goals.

Most of the 55 largest companies in the U.S. now report at least some of their emissions, and utilities perform well on their direct Scope 1 and 2 emissions from their own operations, the group said in an assessment published March 3. In the power sector, Southern Co. earned the highest score with a "C-" for also providing the most complete accounting of its Scope 3 emissions, which include supply chain methane emissions and end-user pollution over which companies have little or no control.

However, As You Sow gave Exelon Corp., Dominion Energy Inc., Duke Energy Corp. and NextEra Energy Inc. an "F" each for not reducing their total emissions sufficiently to reach net-zero by 2050. This accounting problem mainly occurs because the utilities do not include upstream methane emissions associated with production of the natural gas they use to generate electricity, the group said.

"To accurately assess net-zero progress, it is critical that utilities measure not only direct emissions associated with producing power, but also the indirect emissions associated with their fuel sources and products," the report said.

As You Sow, one of the nation's largest shareholder advocacy groups, is the lead filer on more than 80 resolutions for the 2022 proxy season thus far. Of those resolutions, 15 were related to climate change, though several affecting utilities and oil companies have recently been withdrawn after the companies agreed to step up their ambitions.

A resolution filed in November 2021 against Duke Energy, for example, was withdrawn three months later after shareholders engaged with the company about including upstream methane leakage and some other Scope 3 emissions in its goal to reach net-zero emissions by 2050.

The group also recently withdrew a shareholder resolution calling on Southern Co. to integrate upstream and downstream Scope 3 emissions or else explain publicly why it would not. A spokesperson for the utility said he could not immediately comment on the group's report.

U.S. utilities are beginning to include Scope 3 emissions in their climate goals, something European energy companies have been doing for a relatively long time. For instance, Dominion recently rolled out a more ambitious climate plan that will account for such pollution. It was not immediately clear how this plan affected the utility's standing with As You Sow.

After garnering near-majority votes in favor of resolutions at several energy companies in 2021, investor clout appears to have grown ahead of this year's proxy season.

"Once you start hitting 30-40-50%, where a significant portion of investors are in support of actions, I think that drives companies to agree to also take those actions," Danielle Fugere, As You Sow's president and chief counsel, said in an interview. "It feels like we've been increasing our ability to withdraw this year, especially on climate and diversity."

Companies do not want to risk having a resolution pass that they later cannot deliver on. That has made more companies willing to negotiate with shareholders before resolutions reach a vote, Fugere said.

Tech companies rank high

The three companies earning an "A" in As You Sow's report were Microsoft Corp. PepsiCo Inc. and Ecolab Inc. a large water treatment and cleaning products company that got an A-minus. Apple Inc. and Alphabet Inc. were the only companies earning a B- and B, respectively.

Microsoft and Apple were the only companies out of 55 with a goal to cut their Scope 3 emissions in line with keeping global warming to 1.5 degrees Celsius from preindustrial levels, As You Sow reported. That is the more ambitious limit set by the Paris Agreement on climate change and what scientists say will help the world avoid the worst impacts of climate change.

"Some companies have established less ambitious Scope 3 reduction goals, such as [the Paris accord's] 'well below 2 degrees,' which is notable progress but insufficient," the group said in its report.

In all, 20 of the 55 companies assessed are now at least reporting all Scope 3 categories, the group said.

The latest United Nations climate report warned that many changes to ecosystems and human conditions are already irreversible, calling on policymakers to quickly help nations adapt.

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