Amazon Defense Coalition
An epic showdown between angry Chevron shareholders and notoriously short-tempered CEO John Watson over the company's $18 billion Ecuador liability is brewing just days before the company's annual meeting next week.
Watson—who at the Chevron annual meeting in 2010 had five activists arrested after they challenged him on the Ecuador liability—is facing a potential shareholder rebellion after two leading proxy advisory firms urged support for resolutions directly challenging Watson's authority. Both resolutions cite Watson's poor handling of the Ecuador lawsuit in their supporting statements.
Recommendations from the advisory firms—Institutional Shareholder Services and Glass Lewis—often substantially increase support for shareholder resolutions, which will be voted on at the company's annual meeting on May 30.
Separately, several large investors have signed a letter to be sent to Chevron, citing Watson's “poor judgment” and calling on the company to reach an “equitable” settlement of the Ecuador case, said Simon Billenness, a securities analyst who consults with social investors owning stock in the oil giant.
An Ecuador court last year found Chevron discharged more than 16 billion gallons of toxic waste into Amazon waterways, decimating indigenous groups and causing an outbreak of cancer. The verdict was upheld on appeal in January and rendered enforceable worldwide when Chevron refused to post a bond.
“John Watson will be on the shareholder hot seat at the annual meeting like never before,” said Billenness, who recently issued a report on the risks the company faces. “Chevron shareholders are now tying the enormous and unprecedented Ecuador liability to the company's flawed corporate governance structure and Watson's poor management.”
Last week, Institutional Shareholders and Glass Lewis announced their support for a resolution calling for a separation of Watson’s role as board chairperson and CEO, essentially saying the Board was incapable of exercising effective oversight of Watson. See here. The resolution cites “questions raised about the oversight by the board of the CEO’s management and disclosure to shareholders of the financial and operational risks to the company from the $18 billion judgment in the Ecuadorian courts.”
ISS also announced its support for two other resolutions, both times referring to the company’s failures in the Ecuador case. One allows shareholders to more easily call special meetings, while the other calls for the appointment of an independent board member with environmental expertise.
In addition, Watson will face a showdown with rainforest leaders from Ecuador and other challenges at the annual meeting:
- Two rainforest leaders from Ecuador who have suffered from decades of Chevron's contamination plan to confront Watson at the meeting. They will be joined by a delegation of oil workers from Brazil, where Chevron faces a separate $22 billion lawsuit related to a recent offshore spill.
- Shareholders will vote on three resolutions whose supporting statements rebuke Chevron management for its handling of the Ecuador litigation. One resolution would strip Watson of either the CEO or chairman titles; another would require the company to appoint an independent director with environmental expertise; and a third allows shareholders to more easily call special meetings.
- Environmental advocates from Amazon Watch and Rainforest Action Network plan to ask Watson to show shareholders a video that documents the company's horrific contamination in Ecuador and its impact on public health. Chevron has been accused of lying to shareholders about the extensive fraud it committed to cover up its contamination, as documented in the sworn affidavit of Juan Pablo Saenz and the report of Graham Erion, a well-known securities lawyer.
- A shareholder letter questioning Watson's poor management of the Ecuador case has been signed by several large investors, according to Billenness. While details of the letter will be released in the coming days, a similar letter last year garnered significant support.
- Legal enforcement actions against the company's assets around the world are looming given Watson's refusal to pay the court-ordered Ecuador judgment. The Billenness report concluded the actions could significantly disrupt and even cripple the company's business operations. Chevron's own comptroller, Rex Mitchell, has conceded the actions could case “irreparable harm” to the oil giant.
In addition to the Erion and Billenness reports, shareholders also have called on the Securities and Exchange Commission to determine whether Chevron is misleading shareholders. See here.
Pressure on Watson continued to build last week with yet another legal setback. A U.S. federal judge weakened Chevron's fraud charges against the rainforest communities and their counsel and cast doubt on whether the case could go forward. Previously, a U.S. appellate court denied Chevron the chance to try to block the Ecuadorians from enforcing their judgment.
“In failing to negotiate a reasonable settlement prior to the Ecuadorian court’s ruling against the company, it appears that Chevron has displayed poor judgment,” cited the resolution on special meetings that ISS supports.
Questions are also being raised about Chevron’s say-on-pay advisory vote after the company rewarded General Counsel Hewitt Pate a whopping 75 percent increase after losing the Ecuador case.
“Investors won’t accept any further baseless spin in response to their growing concerns that the $18 billion judgment is now enforceable,” said Erion, who advises the rainforest communities. “Watson needs to have a serious conversation with shareholders about how Chevron will avoid its ‘irreparable harm’ from enforcement.”
This is not the first time Watson is facing shareholder anger over the Ecuador lawsuit. In 2011, Chevron shareholders with more than $150 billion in assets chastised the company for the "grave reputational damage" suffered due to the lawsuit. In 2010, Watson barred Chevron critics with valid proxies and had five activists arrested for questioning the company’s attempted evasion of the Ecuador liability.
Despite its attempts to silence dissent, Chevron’s management suffered a humiliating rebuke in 2010 when shareholders supported a resolution on the Ecuador problem with a whopping 26 percent of the vote representing approximately $38 billion in shareholder value. See here.
Though made in large part of plastic, glass, ceramics, gold and copper, they also contain critical resources. The gallium used for LEDs and the camera flash, the tantalum in capacitors and indium that powers the display were all pulled from the ground — at a price for nature and people.
"Mining raw materials is always problematic, both with regard to human rights and ecology," said Melanie Müller, raw materials expert of the German think tank SWP. "Their production process is pretty toxic."
The gallium and indium in many phones comes from China or South Korea, the tantalum from the Democratic Republic of Congo or Rwanda. All in, such materials comprise less than ten grams of a phone's weight. But these grams finance an international mining industry that causes radioactive earth dumps, poisoned groundwater and Indigenous population displacement.
Environmental Damage: 'Nature Has Been Overexploited'
The problem is that modern technologies don't work without what are known as critical raw materials. Collectively, solar panels, drones, 3D printers and smartphone contain as many as 30 of these different elements sourced from around the globe. A prime example is lithium from Chile, which is essential in the manufacture of batteries for electric vehicles.
"No one, not even within the industry, would deny that mining lithium causes enormous environmental damage," Müller explained, in reference to the artificial lakes companies create when flushing the metal out of underground brine reservoirs. "The process uses vast amounts of water, so you end up with these huge flooded areas where the lithium settles."
This means of extraction results in the destruction and contamination of the natural water system. Unique plants and animals lose access to groundwater and watering holes. There have also been reports of freshwater becoming salinated due to extensive acidic waste water during lithium mining.
But lithium is not the only raw material that causes damage. Securing just one ton of rare earth elements produces 2,000 tons of toxic waste, and has devastated large regions of China, said Günther Hilpert, head of the Asia Research Division of the German think tank SWP.
He says companies there have adopted a process of spraying acid over the mining areas in order to separate the rare earths from other ores, and that mined areas are often abandoned after excavation.
"They are no longer viable for agricultural use," Hilpert said. "Nature has been overexploited."
China is not the only country with low environmental mining standards and poor resource governance. In Madagascar, for example, a thriving illegal gem and metal mining sector has been linked to rainforest depletion and destruction of natural lemur habitats.
States like Madagascar, Rwanda and the DRC score poorly on the Environmental Performance Index that ranks 180 countries for their effort on factors including conservation, air quality, waste management and emissions. Environmentalists are therefore particularly concerned that these countries are mining highly toxic materials like beryllium, tantalum and cobalt.
But it is not only nature that suffers from the extraction of high-demand critical raw materials.
"It is a dirty, toxic, partly radioactive industry," Hilpert said. "China, for example, has never really cared about human rights when it comes to achieving production targets."
Dirty, Toxic, Radioactive: Working in the Mining Sector
One of the most extreme examples is Baotou, a Chinese city in Inner Mongolia, where rare earth mining poisoned surrounding farms and nearby villages, causing thousands of people to leave the area.
In 2012, The Guardian described a toxic lake created in conjunction with rare earth mining as "a murky expanse of water, in which no fish or algae can survive. The shore is coated with a black crust, so thick you can walk on it. Into this huge, 10 sq km tailings pond nearby factories discharge water loaded with chemicals used to process the 17 most sought after minerals in the world."
Local residents reported health issues including aching legs, diabetes, osteoporosis and chest problems, The Guardian wrote.
South Africa has also been held up for turning a blind eye to the health impacts of mining.
"The platinum sector in South Africa has been criticized for performing very poorly on human rights — even within the raw materials sector," Müller said.
In 2012, security forces killed 34 miners who had been protesting poor working conditions and low wages at a mine owned by the British company Lonmin. What became known as the "Marikana massacre" triggered several spontaneous strikes across the country's mining sector.
Müller says miners can still face exposure to acid drainage — a frequent byproduct of platinum mining — that can cause chemical burns and severe lung damage. Though this can be prevented by a careful waste system.
Some progress was made in 2016 when the South African government announced plans to make mining companies pay $800 million (€679 million) for recycling acid mine water. But they didn't all comply. In 2020, activists sued Australian-owned mining company Mintails and the government to cover the cost of environmental cleanup.
Another massive issue around mining is water consumption. Since the extraction of critical raw materials is very water intensive, drought prone countries such as South Africa, have witnessed an increase in conflicts over supply.
For years, industry, government and the South African public debated – without a clear agreement – whether companies should get privileged access to water and how much the population may suffer from shortages.
Mining in Brazil: Replacing Nature, People, Land Rights
Beyond the direct health and environmental impact of mining toxic substances, quarrying critical raw materials destroys livelihoods, as developments in Brazil demonstrate.
"Brazil is the major worldwide niobium producer and reserves in [the state of] Minas Gerais would last more than 200 years [at the current rate of demand]," said Juliana Siqueira-Gay, environmental engineer and Ph.D. student at the University of São Paulo.
While the overall number of niobium mining requests is stagnating, the share of claims for Indigenous land has skyrocketed from 3 to 36 percent within one year. If granted, 23 percent of the Amazon forest and the homeland of 222 Indigenous groups could fall victim to deforestation in the name of mining, a study by Siqueira-Gay finds.
In early 2020, Brazilian President Jair Bolsonaro signed a bill which would allow corporations to develop areas populated by Indigenous communities in the future. The law has not yet entered into force, but "this policy could have long-lasting negative effects on Brazil's socio-biodiversity," said Siqueira-Gay.
One example are the niobium reserves in Seis Lagos, in Brazil's northeast, which could be quarried to build electrolytic capacitors for smartphones.
"They overlap the Balaio Indigenous land and it would cause major impacts in Indigenous communities by clearing forests responsible for providing food, raw materials and regulating the local climate," Siqueira-Gay explained.
She says scientific good practice guidelines offer a blueprint for sustainable mining that adheres to human rights and protects forests. Quarries in South America — and especially Brazil — funded by multilaterial banks like the International Finance Corporation of the World Bank Group have to follow these guidelines, Siqueira-Gay said.
They force companies to develop sustainable water supply, minimize acid exposure and re-vegetate mined surfaces. "First, negative impacts must be avoided, then minimized and at last compensated — not the other way around."
Reposted with permission from DW.