“Chevron chiefs face shareholders after huge $18bn Ecuador fine”
Shelley Alpern, Trillium’s Director of ESG Research and Shareholder Advocacy, was quoted in guardian.co.uk on May 25, 2011: ”The Ecuadorian courts are but one step away from seizing Chevron’s assets to pay for the record $18bn judgment. It doesn’t seem unreasonable to hope that a settlement agreement might be brokered that comes in below this extraordinary amount, puts funds to work immediately restoring the polluted areas, and helps Chevron put this reputational disaster behind it.”
Click here to read the article.
Click here to read Trillium’s press release about the request made to the SEC to review Chevron’s shareholder disclosures.
Chevron Liability in Ecuador Pollution Case Approaches $27 Billion
Court Judgment Expected This Year
by Shelley Alpern
Five years ago, I had the privilege of getting a firsthand look at the evidence in one of the most important lawsuits being heard anywhere in the world. The exhibits are a number of oily pits and ponds scattered throughout the state of Sucumbios, Ecuador, right in the middle of the Amazon rainforest. The contamination is allegedly the work of Texaco, the first petroleum company to break ground in Ecuador in the early 1970s. The court case is being heard in Lago Agrio, a sad-looking town whose many ramshackle buildings look far older than their age due to the ever-present rain and humidity. Poverty is everywhere. Contrasted with the lush jungle surrounding it, the whole town stands out like a very sore thumb.
The lawsuit Aguinda v. Texaco was first filed in 1993. The defendant is Chevron, which acquired Texaco in 2001. The company is charged with polluting hundreds of sites from Texaco’s operations in the 1970s and 1980s. Texaco spent $40 million in the 1990s to clean up contaminated sites per an agreement with the Ecuadorian government, and the two parties declared the site remediated in 1998. But an international team of lawyers is representing thousands of indigenous residents and settlers in a civil suit, claiming that the pollution is responsible for the region’s rising rates of cancer and other serious illnesses, and that the cleanup was sloppy, inadequate and fraudulent.
“This is an epic case,” Sean Hecht, the director of the University of California at Los Angeles’s Environmental Law Center, told the Wall Street Journal in April. “The sheer size of the money involved also explains why a company like Chevron will continue to fight this as long as possible.”
No one disputes the existence of the contaminated sites, but virtually everything else in this case is in dispute – who is responsible for creating them (Chevron blames its former partner Petroecuador), how unclean the sites are, and whether they bear the blame for the health problems in the area. The vitriol between the two sides has played out in the courts, media, and through intense lobbying of non-judicial branches of government.
Advantage Plaintiffs
Chevron has unquestionably greater resources than the defendants, but its deep pockets have thus far failed to secure it any advantage in winning this case. Indeed, Aguinda v. Texaco can only feel like a minor headache that exploded into a migraine.
- Losing bid for arbitration. In October 2008, Chevron was denied by the U.S. Court of Appeals for the Second Circuit in its motion to force Ecuador out of court and into binding arbitration. Any judgment against Chevron in Ecuador will be enforced in the United States, per the ruling of the U.S. court that decided the venue in 2002.
- Damages Estimate Increased to $27 Billion. It’s hard to believe that five years ago, when a consultant hired by the plaintiffs estimated that the cost to finish cleaning up the contaminated sites could go as high as $6 billion, the amount seemed shockingly large. The Ecuadorian court’s appointed expert now assesses damages at $27 billion and estimates that the number of cancer deaths from oil contamination to be greater than 1,400.
- Fraud charge. In September 2008, two Chevron lawyers were indicted in Ecuador for alleged fraud in the remediation effort. The indictment argues that this remediation was not conducted adequately. Chevron maintains that the indictments are politically motivated. Chevron also asserts that it cannot get a fair trial in Ecuador, a point not without merit, given Ecuadorian President Rafael Correa’s open support for the plaintiffs.
A final judgment is expected in 2009. The losing party will have the right to appeal to an intermediate court and then to Ecuador’s Supreme Court. Chevron has pledged to appeal should it lose in this round. However, its refusal to consider settling the case has only backfired in the court of public opinion.
David v. Goliath
Aguinda v. Texaco has taken a sustained toll on Chevron’s reputation. As played out in the media, the case might as well be named David v. Goliath. Hundreds of articles have covered the story worldwide, with long features sympathetic to the plaintiffs in venues as diverse as Vanity Fair and Outside magazine. A documentary about the case, Crude, premiered at the Sundance Film Festival earlier this year, and 60 Minutes featured a segment in May 2009. In large part due to its perceived refusal to take responsibility for Texaco’s misdeeds in Ecuador, professional corporate reputation watchers have found Chevron to be one of the most mistrusted companies in the world. In December, Chevron ranked fourth among five North American companies singled out by the research and consulting firm ECO:FACT for the year 2008.
Chevron has fought back with its own PR offensive, and is aggressively exerting pressure on the U.S. to revoke Ecuador trade privileges. But it has an uphill political battle to fight with the change in administrations. In 2006, then-Senator Obama and colleague Senator Patrick Leahy wrote to the U.S. Trade Representative:
…seek[ing] your assurances that the U.S. Trade Representative will not allow negotiations over the
Andean Free Trade Agreement to interfere with a case involving Chevron…. While we are not prejudging the outcome of the case, we do believe the 30,000 indigenous residents of Ecuador deserve their day in court.
For what it’s worth, the lead American attorney for the plaintiffs played basketball with the president at Harvard Law School. Chevron remains undeterred. One of the company’s lobbyists told Newsweek ”We can’t allow little countries to screw around with big companies like this.”*
Showdown in San Ramon, Part V
This April, for the fifth year, shareholders will have a chance to weigh in on Chevron’s handling of Aguinda v. Texaco by voting on a shareholder resolution sponsored by the New York City Pension Funds, Trillium Asset Management Corporation, the Pennsylvania Treasurer’s office, the New York State Comptroller and Amnesty International USA. Collectively, the proponents held 14.4 million shares of Chevron stock at the time they filed the proposal. The proposal calls upon the company to prepare a report “on the policies and procedures that guide Chevron’s assessment of host country laws and regulations with respect to their adequacy to protect human health, the environment and our company’s reputation.” In prior years, this proposal has received about 9% of the vote.
Chevron’s annual stockholder meeting in San Ramon, California, routinely draws protestors and celebrities (Bianca Jagger, Darryl Hannah) eager to draw attention to the company’s unresolved environmental and human rights issues all over the globe where it operates. Last year’s meeting drew 75 protestors in hazmat (hazardous material) garb, equipped with brooms to “clean up” Chevron’s pollution in Ecuador and its nearby refinery in Richmond, CA. The company’s gatekeepers will look for every technical loophole possible to keep unhappy shareholders out of the meeting. Once inside the meeting, CEO Bill Reilly will ruthlessly enforce the two-minute limit for shareholders’ questions and comments – but if past is precedent, the meeting will drag on for hours anyway as the long queue at the microphones gets to have its say. Afterwards, the press will report the resolution as having been ‘resoundingly’ defeated, even though the supportive shares represent multiple billions under management by some of the country’s most prestigious institutions. And we will be left to wonder once more, how many multiples of $27 billion will it take before a critical mass of shareholders becomes concerned?
* “Chevron Hires Lobbyists to Squeeze Ecuador in Toxic-Dumping Case. What an Obama Win Could Mean,” Newsweek, 26 July 2008.
Chevron – Global Environmental Standards Report
WHEREAS
The Chevron Business and Ethics Code places the highest priority on the safety of its staff, community members and the environment where it operates. Corporate Policy 530 “commits Chevron to comply with the spirit and letter of all environmental, health and safety laws and regulations, regardless of the degree of enforcement.”
Our company operates in 180 countries, including Africa, Asia and Latin America nations where environmental regimes may be less protective of human health and the environment than in other countries where Chevron operates.
CEO David O’Reilly has recognized the importance of our company’s relationships with oil producing nations in Africa and Latin America. (International Petroleum Finance, 03/09/05, “Chevron Chief Believes the Surplus is Over.”)
Notwithstanding Chevron’s efforts to comply with environmental laws and regulations in developing countries, our company has repeatedly been cited for practices that allegedly have caused environmental damage and harmed the health and welfare of local communities.
- Chevron is on trial in Ecuador for widespread contamination of Amazonian land and water resources in the 1970s. (“Ecuador Keeps Up Oil Cleanup Fight Against Chevron,” Los Angeles Times, 11/17/08)
- A court-appointed expert in the Ecuadorian litigation has recommended that Chevron be held liable for up to $27.3 billion in damages. This amount includes $18.9 billion for environmental remediation and compensation to local people, and $8.3 billion in unjust enrichment penalties. (Technical Summary Report, Engineer Richard Cabrera, Expert for the Court of Nueva Loja- November, 2008)
- Chevron is accused of polluting land and water resources in its ongoing operations in the Niger Delta. According to observers, these persistent environmental problems have fueled civil unrest, protests against our company and a related lawsuit alleging Chevron’s complicity in security forces’ killing of two protestors. (“Chevron Faces Suit Over Nigerian Violence,” San Francisco Chronicle, 10/26/08)
- Unocal’s pipeline operations in Burma contributed to the deforestation of the last primary tropical rainforest on mainland Asia, a recognized ‘biodiversity hot spot.’ (“Unocal-Total Oil Pipeline in Burma Threatens Indigenous People, Animals,” Environmental News Network, 4/27/02)
Chevron’s Environmental, Health and Safety Fines and Settlements have increased from $3.99 million in 2003 to $14.06 million in 2007, according to the company’s latest Corporate Responsibility Report.
Chevron’s three strategic priorities for environmental performance are: “Defining world-class standards, measuring and communicating performance and demonstrating continual performance improvement,” toward the goal of being “recognized and admired everywhere for having a record of environmental excellence.”
RESOLVED
The shareholders request that the Board prepare a report by November 2008, prepared at reasonable cost and omitting proprietary information, on the policies and procedures that guide Chevron’s assessment of host country laws and regulations with respect to their adequacy to protect human health, the environment and our company’s reputation.
SUPPORTING STATEMENT
We believe that Chevron’s record to date demonstrates a gap between its international environmental aspirations and its performance, which would be narrowed by a commitment to apply the highest environmental standards wherever the company operates. The requested report would play a role in illuminating and addressing the factors accounting for this gap.
Statement on Recent Developments in Aguinda v. Texaco
Trillium Asset Management Corporation Statement on
Recent Developments in Aguinda v. Texaco
December 4, 2008
Contact: Shelley Alpern
(617) 292-8026, x 248
On November 26, 2008, the court-appointed expert charged with assessing Chevron’s liability for damages in connection with Aguinda v. Texaco raised that figure by two-thirds, from $16.3 billion assessed in April to $27 billion. Richard Cabrera had concluded in a 4,000 page report to the court last spring that 100% of Chevron’s former sites are extensively contaminated with cancer-causing toxins, and that an earlier clean-up Texaco claimed it had completed was ineffective. Texaco, which dumped more than 18 billion gallons of toxic waste into large sections of the Amazon rainforest in the 1970s and ‘80s, was acquired by Chevron in 2001. A judgment will be announced next year.
This announcement is the latest in a series of setbacks for Chevron related to the litigation. In October, the U.S. Court of Appeals for the Second Circuit denied an attempt by Chevron to force the Ecuadorian government into binding arbitration to determine who should be responsible for the liability. The three-judge panel unanimously found Chevron’s claim to be without merit. In September, two Chevron lawyers and seven former Ecuadorian government officials were indicted in Ecuador on fraud charges relating to Texaco’s 1990s remediation of the contaminated sites. Also this fall, Ecuador’s renewal of trade benefits was renewed despite a concerted lobbying effort by Chevron to persuade Congress to use them as leverage to influence the outcome of the trial in Ecuador.
For the past several years, Trillium Asset Management Corporation has monitored Aguinda v. Texaco closely and filed several shareholder resolutions related to the case, both independently and in coordination with the New York City pension funds. Our director of advocacy visited contaminated areas of the rainforest in 2004. Long before damage estimates rose into 8-digit figures, through resolutions and dialogue with management, we urged Chevron to come clean with its shareholders about the high risks posed by its litigation strategy. We believe Chevron’s management thought it could keep this case hidden from investors, a strategy that has backfired miserably because it failed to recognize the magnitude of public interest in the case worldwide. The Ecuadorian courts have proved to be no pushover, and Chevron’s ability to outlast the plaintiffs lawyers is now open to serious question. It is time for Chevron to rethink what can be gained by continuing to fight what seems to be an increasingly inevitable and embarrassing judgment of enormous financial magnitude. We call upon Chevron to negotiate a settlement and bring this case to an end.
# # # #
Chevron – Global Environmental Standards Report
WHEREAS
The Chevron Business and Ethics Code places the highest priority on the safety of its staff, community members and the environment where it operates. Corporate Policy 530 “commits Chevron to comply with the spirit and letter of all environmental, health and safety laws and regulations, regardless of the degree of enforcement.”
Our company operates in 180 countries, including Africa, Asia and Latin America nations where environmental regimes may be less protective of human health and the environment than in North American and European countries where Chevron operates.
CEO David O’Reilly has recognized the importance of our company’s relationships with oil producing nations in Africa and Latin America. (International Petroleum Finance, 03/09/05, “Chevron Chief Believes the Surplus is Over.”)
Notwithstanding Chevron’s efforts to comply with environmental laws and regulations in developing countries, our company has repeatedly been cited for practices that allegedly have caused environmental damage and harmed the health and welfare of local communities.
- Chevron is accused of polluting land and water resources in its ongoing operations in the Niger Delta. According to observers, these persistent environmental problems have fueled civil unrest, protests against our company and a related lawsuit alleging Chevron’s complicity in security forces’ killing of two protestors. (Nigeria Ten Years On: Injustice and Violence Haunt the Oil Delta, Amnesty International, 11/03/05)
- Kazakhstan authorities have imposed a $609 million fine on the Chevron-led consortium developing the Tengiz oil field, for alleged environmental violations.
- In 2002, the Angolan government fined Chevron $2 million for pipeline oil spills that polluted beaches and damaged fishing in the Cabinda region.
- Chevron is on trial in Ecuador for widespread contamination of Amazonian land and water resources in the 1970s. (“Rain Forest Jekyll and Hyde,” The New York Times, 10/20/05)
- Unocal’s pipeline operations in Burma contributed to the deforestation of the last primary tropical rainforest on mainland Asia, a recognized ‘biodiversity hot spot.’ (“Unocal-Total Oil Pipeline in Burma Threatens Indigenous People, Animals,” Environmental News Network, 4/27/02)
Chevron’s total Environmental, Health and Safety Fines and Settlements has increased from 278 in 2002 to 699 in 2006, according to the company’s latest Corporate Responsibility Report.
Chevron’s three strategic priorities for environmental performance are: “Defining world-class standards, measuring and communicating performance and demonstrating continual performance improvement,” toward the goal of being “recognized and admired everywhere for having a record of environmental excellence.”
RESOLVED
The shareholders request that the Board prepare a report by November 2008, prepared at reasonable cost and omitting proprietary information, on the policies and procedures that guide Chevron’s assessment of host country laws and regulations with respect to their adequacy to protect human health, the environment and our company’s reputation.
SUPPORTING STATEMENT
We believe that Chevron’s record to date demonstrates a gap between its international environmental aspirations and its performance, which would be narrowed by a commitment to apply the highest environmental standards wherever the company operates. The requested report would play a role in illuminating and addressing the factors accounting for this gap.
