KMI Kinder Morgan Inc

The physical and financial risks posed by climate change to long-term investors are systemic, portfolio-wide, unhedgeable and undiversifiable. Therefore, the actions of companies that fail to align to limiting warming to 1.5°C pose risks to the financial system as a whole, and to investors’ entire portfolios, in addition to specific risks to those companies. See Appendix A for more information regarding Majority Action’s Proxy Voting for a 1.5°C World initiative and the transformation required in key industries.

Kinder Morgan is one of the largest operators of oil and gas pipelines and terminals in North America.¹ It claims it is the largest independent transporter of refined products, and the largest fossil gas transmission network, moving 40% of the United States’ consumption and export of fossil gas.² Kinder Morgan is among the 167 target companies named by Climate Action 100+ as the largest global emitters and “key to driving the global net-zero emissions transition.”³

Petroleum and fossil gas products, including those used in transportation, buildings, industrial processes, and electricity production, account for nearly 80% of carbon emissions from the U.S. energy system.⁴ The U.S. is the largest petroleum and fossil gas producer in the world, having overtaken Saudi Arabia and Russia in recent years.⁵ To stay within the available carbon budget to limit warming to 1.5°C, oil and gas companies must not just decarbonize their own emissions, but global consumption of fossil fuels must fall as well.⁶ In 2021, the International Energy Agency (IEA) set out the implications of a 1.5°C pathway for the oil and gas sector in its “Net Zero Emissions by 2050” scenario (NZE). Under the NZE, fossil fuel use falls dramatically and can be satisfied with existing assets, with no need to invest in new oil and gas fields.⁷

Failure to set ambitious decarbonization targets in line with 1.5°C pathways and align companies’ business plans and policy influence to those targets is a failure of strategy and corporate governance, for which long-term investors should hold directors accountable. At companies where the production, processing, sale, and/or consumption of fossil fuels is central to its core business, and greenhouse gas (GHG) emissions reductions have profound strategic implications, the board chair, and lead independent director, where the position exists, should be held accountable.

Failure to set appropriate GHG emissions reduction targets

The company has not yet adopted a net zero by 2050 ambition, nor any short-, medium-, or long-term GHG reduction targets that cover a significant portion of the company’s scope 1 and 2 emissions let alone its scope 3 emissions.⁸ Kinder Morgan has, through its participation in the U.S. EPA ONE Future coalition/Methane Challenge program, committed to achieving a methane emission intensity target of 0.31% by 2025 for its natural gas transmission and storage operations;⁹ however, given that Kinder Morgan claims it has already achieved this reduction as of 2018,¹⁰ the company currently has no forward-looking methane reduction target. The company published its scope 1 and 2 emissions for the first time in October 2021 and does not yet disclose its scope 3 emissions.¹¹

Capital allocation and investment plans not aligned with 1.5°C pathways

According to the Climate Action 100+ Net-Zero Company Benchmark, Kinder Morgan had not, as of December 2021, met any of the indicators for capital allocation alignment.¹² To do so, the company would need to align future capital expenditures with long-term GHG emissions reduction target(s), commit to align future capital expenditures with the Paris Agreement’s objective of limiting global warming to 1.5°C, and disclose the methodology it uses to assess such alignment.

Misalignment of policy influence activities with net zero commitment and 1.5°C pathways

According to InfluenceMap, Kinder Morgan received a D- grade for its obstructive policy engagement.¹³ As noted by InfluenceMap, Kinder Morgan’s own views on climate change are mixed or limited; for example, in the company’s most recent ESG report, the only discussion of the Paris Agreement is in reference to the TCFD disclosure framework. In early 2022, counsel representing Kinder Morgan asked the Federal Energy Regulatory Commission (FERC) to reconsider its recent issuance of revised policy guidance for gas infrastructure approval, including requiring companies to provide estimates of GHG emissions.¹⁴

The company does not have a Paris-aligned lobbying position, nor a commitment to ensure that the trade associations of which the company is a member lobby in line with the goals of the Paris Agreement.¹⁵ Kinder Morgan’s most recent ESG report discloses its trade association memberships with annual dues in excess of $50,000, and while the company says it “prefer[s]” that those trade associations have climate change positions that align with its own, the report does not contain any specific commitment to or language addressing misalignment.¹⁶

Conclusion: Kinder Morgan has failed to set net zero targets, align its capital investments with limiting warming to 1.5°C, or ensure its policy influence activities would support doing so. Therefore, we recommend that shareholders vote AGAINST Executive Chair Richard Kinder (Item 1-01 and Lead Independent Director Michael Morgan (Item 1-09) at the company’s annual meeting on May 11, 2022.

Appendix A: Proxy Voting for a 1.5°C World

The world is currently on track to reach disastrous levels of warming, driving massive harm and threatening the lives and livelihoods of millions. Corporate leaders in the industries responsible for this crisis have failed to take up the leadership required to change course.

“Climate risk” is systemic, escalating and irreversible - and corporate boards urgently need to take responsibility for averting and mitigating this risk.

The UN Intergovernmental Panel on Climate Change (IPCC) in 2018 made clear that in order to have at least a 50% chance of limiting warming to 1.5°C and avoiding the most catastrophic effects of the climate crisis, we must bring global, economy-wide carbon emissions down to net zero by 2050 at the latest.¹⁷ According to the International Energy Agency (IEA), in order to achieve net zero emissions globally by 2050, the electricity sector must reach net zero emissions in OECD countries no later than 2035 and there can be no investment in new fossil fuel production from today.¹⁸ The IPCC also recognizes that reducing rates of deforestation and forest degradation also represents one of the most effective and robust options for climate change mitigation.¹⁹

That means that corporate directors must ensure that companies set ambitious decarbonization targets in line with 1.5°C pathways, and align companies’ business plans, capital expenditures, and policy influence to those targets. Despite the escalating climate crisis, systemically important U.S. companies continue to invest in the expansion and continued use of fossil fuels, further accelerating global warming.²⁰

The physical and financial risks posed by climate change to long-term investors are systemic, portfolio-wide, unhedgeable and undiversifiable. Therefore, the actions of companies that directly or indirectly impact climate outcomes pose risks to the financial system as a whole and to investors’ entire portfolios. In order to manage this systemic portfolio risk, investors must move beyond disclosure and company-specific climate risk management frameworks and focus on holding accountable the relatively small number of large companies whose actions are a significant driver of climate change.

When directors fail to transform corporate business practices in line with 1.5°C pathways, responsible investors must use their most powerful tool – their proxy voting power – to vote against directors.

Bold and unprecedented action by investors is a prerequisite to averting further global economic and financial catastrophe. While past shareholder efforts at standard setting, disclosure and engagement have laid important groundwork, company commitments won thus far have been far too incremental, far too hard fought, and collectively insufficient to the scale of the crisis.

Business-as-usual proxy voting will not suffice to address the seriousness of the crisis at hand. We urge investors to vote against directors at companies failing to implement plans consistent with limiting global warming to 1.5ºC.

Key Sectors Are Critical to Curbing the Climate Crisis

The electric power, finance, transportation, and oil and gas sectors are key drivers of the production and consumption of fossil fuels and must all make dramatic transformations to curb the worst of catastrophic climate change and protect long-term investors. Similarly, companies driving deforestation – including companies that source key deforestation-linked agricultural commodities, driving market demand for one of the greatest threats to the world’s forests – must adopt comprehensive climate policies and end deforestation.

Substantial votes against board members at these companies could help realign business and investment plans to the goals of the Paris Agreement, hold companies accountable for lobbying and policy influence practices that obstruct climate action, and align executive compensation to key decarbonization goals.

While each industry and company will need to chart its own path in pursuing decarbonization consistent with limiting warming to 1.5ºC, setting a target to reach net zero emissions by no later than 2050 is a critical first step. In the absence of such a target, investors can have no confidence that the company will be able to transform its business consistent with limiting warming to 1.5ºC.

Voting Guide: Oil & Gas

Petroleum and fossil gas products, including those used in transportation, buildings, industrial processes, and electricity production, account for nearly 80% of carbon emissions from the U.S. energy system.²¹ The U.S. is the largest petroleum and fossil gas producer in the world, having overtaken Saudi Arabia and Russia in recent years.²² In general, U.S. oil companies lag behind their European peers in adopting net zero by 2050 ambitions²³, or investing in renewable energy production.²⁴

To stay within the available carbon budget to limit warming to 1.5°C, not only must oil and gas companies decarbonize their own emissions, but global consumption of fossil fuels must fall as well.²⁵ In May 2021, the IEA set out the implications of a 1.5°C pathway for the oil and gas sector in its ‘Net Zero by 2050’ scenario (“NZE”).²⁶ Prior IEA scenarios such as the Beyond 2°C Scenario (aligned to limiting warming to 1.75°C by 2060²⁷) and the Sustainable Development Scenario (aligned to the Paris Agreement’s upper target of well below 2°C²⁸), still fell short of limiting warming to 1.5°C.

Under the NZE, fossil fuel use falls dramatically and can be satisfied with existing assets, with no need to invest in new oil and gas fields, and no new coal mines or mine extensions.²⁹ However, according to analyses by Carbon Tracker, the world’s largest oil companies have projects both sanctioned (those currently producing or under development) and unsanctioned (those not yet under development) over the course of the next two decades that would exceed the carbon budget for 2.0°C of global warming, let alone 1.5°C.³⁰ This signals that many companies are not yet fully committed to meaningful reductions. While oil demand fell in 2020 due to COVID-19 disruptions,³¹

oil demand and pricing are currently rebounding,³² and any expansion plans are fundamentally at odds with the immediate global production reductions required within most Paris Agreement-aligned scenarios.³³

As shale-focused companies rely primarily on continued new drilling to sustain production, these companies are particularly at risk: in order to limit to 1.5°C and be aligned with the IEA NZE, shale-focused companies in particular must reduce production by more than 80%.³⁴ However, many U.S. companies continue to expand into shale-rich regions such as the Permian Basin³⁵ (see Capital Allocation section). The Permian is predicted to account for much of the growth in US oil production, and much of this will likely be exported and burned overseas; an Occidental Petroleum company executive recently noted the trend by saying “every single molecule from here on out has to be exported.”³⁶

Target setting

To avoid the risk of global temperature overshoot, emissions need to fall by 45% from 2010 levels by 2030, reaching net zero by 2050.³⁷ Net-zero commitments should also incorporate interim targets and milestones that allow accelerated emissions reduction between now and 2030 rather than delaying the hard task of emissions reduction until after that date. Net zero commitments must cover projects on a full equity share basis, such that all joint ventures and subsidiaries are covered by the company-wide target. Companies should achieve net zero by 2050 with limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including carbon capture and storage (CCUS). Relying on CCUS–rather than phasing out the production of fossil fuels–is a risky strategy³⁸; even pro-CCUS sources acknowledge that many proposed CCUS technologies are as yet unproven, and a massive infrastructure investment and buildout would be required to capture enough carbon to limit warming to 1.5°C.³⁹ Oil and gas companies should clearly disclose specific plans to use offsets or negative emissions to achieve net zero emissions by 2050, so that investors may assess the quality and credibility of their plans.

KEY DATA SOURCES:

Capital allocation

Given that oil supplies currently in production already exceed the carbon budget for limiting warming to 1.5°C, oil and gas companies must immediately cease approving investment in new projects that fall outside the carbon budget. At minimum, Arctic and oil sands projects should be halted because they are inconsistent with limiting warming to 1.5°C⁴⁵, economically marginal due to elevated production costs, and carry additional environmental and human rights risks.⁴⁶

Oil production in the Permian Basin in Texas and New Mexico – almost entirely fracking⁴⁷–has nearly quadrupled from 2010 to today,⁴⁸ while natural gas production has more than tripled.⁴⁹ According to an analysis conducted by Oil Change International, carbon emissions from Permian oil and gas production through 2050 could alone exhaust nearly 10% of the global 1.5°C carbon budget.⁵⁰ The climate impact of Permian oil and gas is even greater than coal based on the amount of methane that escapes into the atmosphere during hydraulic fracking.⁵¹ It is estimated that the Permian Basin has a 60% higher methane leakage rate than other U.S oil and gas regions.⁵² Given that the vast majority of these emissions would come from wells not yet in production at the end of 2020, much of these emissions could be avoided if companies simply halted all drilling of new wells.⁵³

Investors should use the NZE scenario as a floor to assess companies’ climate policies, transition scenarios and capital allocation alignment. Importantly, no new oil or gas fields should be approved for development under a 1.5°C pathway; no investment in new oil and gas production should be undertaken;⁵⁴ and production levels must fall by the 2030s.⁵⁵ Under such a scenario, asset stranding of additional production assets as well as existing assets is a major risk to investors.⁵⁶

KEY DATA SOURCES

Policy influence

Oil and gas companies must fully align their policy influence activities, including political spending and lobbying, with the policy settings required to accelerate sector-wide emissions reductions on a timeline necessary to limit warming to 1.5°C. Oil and gas companies must provide full disclosure of all political and lobbying spending in all jurisdictions to allow investors to assess this alignment. Finally, companies must ensure the alignment of the policy influence activities of any trade associations or similar entities of which they are members or to which they contribute with 1.5°C outcomes, or cease membership of such organizations.

KEY DATA SOURCES:

Summary table

¹ Kinder Morgan, “About Us” (website), https://www.kindermorgan.com/, accessed March 6, 2022

² Kinder Morgan, “2022 Investor Day,” January 26, 2022. https://s24.q4cdn.com/126708163/files/doc_presentations/2022/2022-Kinder-Morgan-Investor-Day-v37.pdf p. 5

³ Climate Action 100+, “Companies,” https://www.climateaction100.org/whos-involved/companies/, accessed March 16, 2022

⁴ US Energy Information Administration, ‘Total Energy.’ Data browser. https://www.eia.gov/totalenergy/data/browser/index.php?tbl=T11.01#/?f=A&start=1973&end=2019&charted=0-1-13, accessed March 1, 2022

⁵ US Energy Information Administration, “United States Remains Largest Producer of Petroleum and Natural Gas Hydrocarbons,” https://www.eia.gov/todayinenergy/detail.php?id=26352, accessed March 1, 2022

⁶ International Energy Agency (IEA), Net Zero by 2050: A Roadmap for the Global Energy Sector, May 2021. https://www.iea.org/reports/net-zero-by-2050

⁷ IEA, ‘Net Zero by 2050,’ Figure 3.4, p. 103

⁸ Climate Action 100+ Net-Zero Company Benchmark, ‘Kinder Morgan -Company Assessment,’ March 30, 2022, https://www.climateaction100.org/company/kinder-morgan-inc/

⁹ Kinder Morgan, Environmental, Social and Governance Report 2020, p. 27

¹⁰ Kinder Morgan, Environmental, Social and Governance Report 2020, p. 28

¹¹ Kinder Morgan, Environmental, Social and Governance Report 2020, October 20, 2021, https://www.kindermorgan.com/getmedia/b87cb3e5-d8d5-4d42-8e27-dd66c895768d/2020-ESG-Report, pp. 2, 26.

¹² Climate Action 100+ Net-Zero Company Benchmark, ‘Kinder Morgan -Company Assessment.’

¹³ Influence Map, ‘Kinder Morgan Inc, Company Assessment.’ https://lobbymap.org/company/Kinder-Morgan-9471da944be60e45737f1eb71d7c67a1/projectlink/Kinder-Morgan-in-Climate-Change-a2bb8b2f5c0f74d06372bfbb3a3c3335, accessed March 6, 2022

¹⁴ Davis, Carolyn. “Kinder,Boardwalk and Enbridge say FERC Policies Damaging to Future Natural Gas Investments.” Natural Gas Intelligence, March 16, 2022. https://www.naturalgasintel.com/kinder-boardwalk-and-enbridge-say-ferc-policies-damaging-to-future-natural-gas-investments/

¹⁵ Climate Action 100+ Net-Zero Company Benchmark, ‘Kinder Morgan - Company Assessment,’

¹⁶ Kinder Morgan, Environmental, Social and Governance Report 2020, p. 61;

¹⁷ IPCC, Special Report on Global Warming of 1.5°C., 2018, https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Full_Report_Low_Res.pdf , pp. v, 5, 7-10, 95-97 and 116

¹⁸ International Energy Agency (IEA), Net Zero by 2050: A Roadmap for the Global Energy Sector, May 2021. https://www.iea.org/reports/net-zero-by-2050, Slide 8.

¹⁹ IPCC. Special Report on Climate Change and Land, Summary for Policy Makers,January, 2020, https://www.ipcc.ch/site/assets/uploads/sites/4/2020/02/SPM_Updated-Jan20.pdf, pp 23-24 and 26.

²⁰ Climate Action 100+: Net-Zero Company Benchmark Company Assessments https://www.climateaction100.org/progress/net-zero-company-benchmark/

²¹ US Energy Information Administration, ‘Carbon Dioxide Emissions from Energy Consumption by Source’, https://www.eia.gov/totalenergy/data/browser/index.php?tbl=T11.01#/?f=A&start=1973&end=2019&charted=0-1-13, accessed March 19, 2022

²² US Energy Information Administration, “The U.S. leads global petroleum and natural gas production with record growth in 2018,” https://www.eia.gov/todayinenergy/detail.php?id=40973, accessed March 16, 2022

²³ Luhavalja, Amanda, et al. “Path to Net Zero: European Oil Majors Outpace US Companies on Climate Goals,” S&P Global Market Intelligence, July 28, 2020, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/path-to-net-zero-european-oil-majors-outpace-us-companies-on-climate-goals-59543423, accessed March 16, 2022

²⁴ Quinson, Tim, “US Oil Companies Lag Far Behind Greener European Rivals,” Bloomberg, March 24, 2021, https://www.bloomberg.com/news/articles/2021-03-24/u-s-oil-companies-lag-far-behind-greener-europe-rivals-green-insight

²⁵ IEA, ‘Net Zero by 2050 Scenario’

²⁶ IEA, ‘Net Zero by 2050 Scenario’

²⁷ IEA, ‘Energy Technology Perspectives 2017.’ https://www.iea.org/reports/energy-technology-perspectives-2017

²⁸ IEA, ‘Sustainable Development Scenario.’ https://www.iea.org/reports/world-energy-model/sustainable-development-scenario-sds

²⁹ IEA, ‘Net Zero by 2050 Scenario.’ pp. 21 -22.

³⁰ Carbon Tracker, ‘Adapt to Survive.’ p. 4 and pp.14-16

³¹ International Energy Agency, World Energy Outlook 2021, https://iea.blob.core.windows.net/assets/4ed140c1-c3f3-4fd9-acae-789a4e14a23c/WorldEnergyOutlook2021.pdf p. 19.

³² Deloitte, 2022 Oil and Gas Industry Outlook, https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-2022-outlook-oil-and-gas.pdf p. 4.

³³ Oil Change International et al, The Sky’s the Limit: Why the Paris Climate Goals Require A Managed Decline of Fossil Fuel Production,

https://priceofoil.org/content/uploads/2016/09/OCI_the_skys_limit_2016_FINAL_2.pdf, pp. 19-21 and 24.

³⁴ Carbon Tracker, ‘Adapt to Survive.’ p. 6 and p. 15.

³⁵ Oil Change International. Drilling Towards Disaster: Why US Oil and Gas Expansion Is Incompatible With Climate Limits, January, 2019, https://priceofoil.org/content/uploads/2019/01/Drilling-Towards-Disaster-Web-v2.pdf, p. 7.

³⁶ Collier, Kiah. “As Oil and Gas Exports Surge, West Texas Becomes the World’s ‘extraction colony’” Texas Tribune, August 10, 2018, https://www.texastribune.org/2018/10/11/west-texas-becomes-worlds-extraction-colony-oil-gas-exports-surge/

³⁷ IPCC. ‘Special Report on Global Warming of 1.5.’ 2018

³⁸ Oil Change International, Big Oil Reality Check, September 2020. http://priceofoil.org/content/uploads/2020/09/OCI-Big-Oil-Reality-Check-vF.pdf, pp. 8, 9, and 18.

³⁹ Global CCS Institute, Global Status of CCS 2021, https://www.globalccsinstitute.com/wp-content/uploads/2021/11/Global-Status-of-CCS-2021-Global-CCS-Institute-1121.pdf p. 35

⁴⁰ https://www.cdp.net/en/responses?queries%5Bname%5D=&utf8=%E2%9C%93

⁴¹ https://sciencebasedtargets.org/companies-taking-action

⁴² https://sciencebasedtargets.org/sectors

⁴³ https://www.climateaction100.org/progress/net-zero-company-benchmark/

⁴⁴ Oil Change International, ‘Big Oil Reality Check’

⁴⁵ Carbon Tracker, Breaking the Habit: Why None of the Large Oil Companies are “Paris-aligned”, and What They Need to Do to Get There, September 2019, https://carbontransfer.wpengine.com/wp-content/uploads/2019/09/Capex-report-2019_Infographic.pdf,

⁴⁶ BankTrack, Oil Change International, Rainforest Action Network, Sierra Club. Banking on Climate Change: Fossil Fuel Finance Reportcard 2017 https://priceofoil.org/content/uploads/2017/06/Banking_On_Climate_Change_2017.pdf, pp.4, 13 and 20

⁴⁷ Oil Change International. ‘Drilling Towards Disaster.’ p. 26

⁴⁸ Please see chart: Total Oil Production in the Permian Basin

https://www.dallasfed.org/research/energy11/permian.aspx#Oil

⁴⁹ Natural Gas Production in Permian Basin chart

https://www.dallasfed.org/research/energy11/permian.aspx#Gas

⁵⁰ Oil Change International. ‘Drilling Towards Disaster.’ pp. 7 and 26

⁵¹ https://thehill.com/policy/energy-environment/155101-report-gas-from-fracking-worse-than-coal-on-climate

⁵² Zhang, Y. et al. “Quantifying methane emissions from the largest oil-producing basin in the United States from space.” Science Advances: 22 Apr 2020. https://www.science.org/doi/10.1126/sciadv.aaz5120

⁵³ Oil Change International, Earthworks, and the Center for International Environmental Law, The Permian Climate Bomb. https://www.permianclimatebomb.org/chapter-2

⁵⁴ Carbon Tracker. ‘Adapt to Survive.’ pp. 4-5, 8-10

⁵⁵ Carbon Tracker. ‘Adapt to Survive.’ p. 6.

⁵⁶ Carbon Tracker. ‘Adapt to Survive.’, pp. 4-5, 8-10

⁵⁷ Rainforest Action Network, Banking on Climate Chaos. March 2021. https://www.ran.org/wp-content/uploads/2021/03/Banking-on-Climate-Chaos-2021.pdf

⁵⁸ Carbon Tracker, Fault Lines: How Diverging Oil and Gas Company Strategies link to Stranded Asset Risk, October 2020,

https://carbontracker.org/reports/fault-lines-stranded-asset/

⁵⁹ Carbon Tracker. ‘Adapt to Survive.’

⁶⁰ https://carbontracker.org/company-profiles/

⁶¹ https://www.climateaction100.org/progress/net-zero-company-benchmark/

⁶² https://www.climateaction100.org/progress/net-zero-company-benchmark/

⁶³ https://influencemap.org/filter/List-of-Companies-and-Influencers#