Corporate Governance

Shearman & Sterling LLP Energy Transition and the Role of the Board | 22 2030. EQT announced targets to achieve net zero Scope 1 and Scope 2 greenhouse gas emissions in its production segment operations by or before 2025. 12 To address comparability, in March 2021, the SEC requested public input from investors, registrants and other market participants on climate change disclosure with a view to facilitating the disclosure of consistent, reliable information on climate change, including, among other things, standardization of net zero disclosures. 13 For public companies, the question is not if the SEC will adopt new disclosure rules focusing on standardizing reports on climate change, but when. BOARD'S ROLE IN ENERGY TRANSITION Against the foregoing backdrop, the present reality for publicly traded oil and gas companies is a need to adapt business models to seek investments in renewable energy and other mitigation technologies. Seeking to shift to a low carbon regime requires a balancing act of allocating capital that previously would have been earmarked for exploration and production, to projects related to the development of carbon capture, storage and sequestration, hydrogen, renewable diesel or renewable, certified natural gas, among others. There is a growing expectation that boards will play an essential role in this transition, specifically with respect to overseeing the physical, regulatory, financial, reputational and other risks associated with climate change. For instance, BlackRock recently announced that it expects "boards to shape and monitor management's approach to material sustainability factors in a company's business model" and will hold directors accountable where they fall short. State Street intends to start voting against boards of companies that underperform their peers when it comes to ESG matters. Similarly, ISS and Glass Lewis have announced new voting policies that include director accountability for ESG governance failures. While there is no sure blueprint, a few key principles can help boards meet the unprecedented challenges they face in this rapidly changing, unpredictable and politicized space. Be Well-Informed Directors' fiduciary duties fundamentally require that they must be well-informed. For many companies, this includes having relevant information related to climate-related risks when making corporate decisions as to long-term business strategies, as well as exercising their oversight obligations. • Engage with Management. It is important for management teams to brief boards regularly on climate and other ESG issues so that they can fulfill their obligation to oversee the company's SEC disclosures. The board's job is made more complicated by the fact that there currently are no across-the-board standards or metrics. In addition, by keeping an open door with management, boards can also be apprised of other investor concerns so that they are not surprised by activist attacks or institutional investor support of activists' platforms. In promoting their cause, activists often seek to drive a wedge between the board and management. • Investigate Red Flags. Directors also have a responsibility to investigate red flags that suggest potential legal or other risks to the corporation. If management is not comprehensively addressing climate risks and opportunities, directors may have to dig in on climate change (and other ESG issues) as the investor and stakeholder engagement and regulatory landscape continues to evolve. Discuss Climate Risk Regularly Climate change and other ESG matters should be regular agenda items for the board, whether at meetings of the full board or in committees. In addition, an analysis of a selection of S&P 100 proxy statements found that 78% of companies had at least one board committee charged with overseeing environmental sustainability matters. 14 Of such companies, 42% reported at least one director with expertise in ESG. Seek Robust Shareholder Engagement Activist shareholders will hone in on companies with boards that do not appear to be proactively and meaningfully contributing to a company's approach to energy transition. Showing a willingness to engage and actively keep up with the rapidly evolving developments can serve as a strong defense against activist attacks. By employing an active shareholder engagement program, companies can better identify areas of concern before they rise to the level of very public shareholder proposals, "vote no" campaigns or proxy fights for board seats. Finally, now more than ever, it is important for companies to know who holds their stock and track accumulation from activist investors through a stock surveillance program. 13 See Allison Herren Lee, "Public Input Welcomed on Climate Change Disclosures," U.S. Securities and Exchange Commission (March 15, 2021). 14 See Kellie Huennekens, "ESG Disclosure in 2020 Proxy Statements," Nasdaq (May 13, 2020). Energy Transition and the Role of the Board | 22 Shearman & Sterling LLP 12 See EQT Corporation, "EQT Releases 2020 Environmental, Social and Governance Report and Announces Net Zero Emissions Targets," https:// ir.eqt.com/investor-relations/news/news-release-details/2021/EQT- Releases-2020-Environmental-Social-and-Governance-Report-and- Announces-Net-Zero-Emissions-Targets/default.aspx (June 29, 2021).

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