Shareholders Will Not Let the SEC or the Oil Companies Stop Their Efforts on Climate Change
They can run, but they can’t hide. Efforts by ExxonMobil to squelch shareholder initiatives on climate change have led to escalation, including a high-visibility call to withhold votes for the nominees for the company’s board. Directors at Exxon Mobil Corp. are facing a withhold campaign from two institutional shareholders alleging the energy company has failed to be sufficiently responsive to climate change. The Office of the New York State Comptroller and Church Commissioners for England announced they would vote against all Exxon board directors at the company’s annual meeting on May 29, alleging that environmental oversight practices lag behind those of peer companies. The proposal was filed after the US Securities and Exchange Commission (SEC) ruled that Exxon could exclude from a vote a shareholder proposal that would have required the disclosure of targets for emissions reductions.
In 2017, ExxonMobil shareholders voted in favor of a shareholder proposal calling for the company to disclose data on its greenhouse gas emissions. Even though shareholder proposals are advisory only, so that a 100 percent vote does not force the company to do anything, the prospect of another vote this year so profoundly shivered the timbers of the $324 billion dollar international superpower of a company that it had to pour money into lobbying and campaign contributions and dark money to extinguish not only even putting a shareholder proposal to a non-binding vote but giving investors access to independent research on the issues.
The latest in this win the battle, lose the war fight to preserve the right to contribute to climate change came last week, when the SEC ruled that the very same proposal for disclosure that got majority support in 2017 was too much of an infringement on “ordinary business” to even be put to an advisory vote.
[The] Securities and Exchange Commission, which has widened its definition of shareholder “micromanaging,” has sided with company management and has issued guidance effectively keeping a wide array of shareholder resolutions off annual-meeting ballots.
One of the highest-profile battles is being waged over a proposal that would have urged ExxonMobil to disclose short-, medium- and long-term greenhouse-gas targets “aligned with” reductions established by the Paris climate agreement in 2015 in an effort to limit global warming to two degrees Celsius, if not 1.5 degrees.
The oil giant, whose management lost a vote on a similar resolution in 2017, appealed to the SEC, which in an April 2 letter agreed that the proposal amounted to shareholders trying to “micromanage the Company by seeking to impose specific methods for implementing complex policies in place of the ongoing judgments of management as overseen by its board of directors.”
It was one of 11 resolutions about climate change that the SEC allowed to be left off shareholder ballots this year, out of 62 total climate-related resolutions and nearly 400 overall, according to the Sustainable Investments Institute.
What ExxonMobil and its fake dark money front groups working to cut off shareholder proposals on climate change don’t seem to get is that shareholders will continue to apply pressure on the issue via other proposals. For example, New York State Comptroller Thomas P. DiNapoli, Trustee of the New York State Common Retirement Fund has submitted a shareholder proposal on splitting the CEO and Chair positions. The fund writes:
The New York State Common Retirement Fund and the Church Commissioners for England are leading engagement efforts with ExxonMobil as part of Climate Action 100+, an initiative of 324 investors who collectively manage more than $33.4 trillion in assets. In addition, the Fund and the Church Commissioners led the filing of a shareholder proposal asking ExxonMobil to disclose short-, medium- and long-term targets for GHG emissions. It was co-filed by more than 30 institutional investors with a collective $1.9 trillion in assets under management. ExxonMobil sought and obtained no action relief from SEC staff and has declined to include the proposal in its proxy materials for the 2019 annual general meeting.
Shareholders have engaged with ExxonMobil on issues relating to climate change and greenhouse gas emissions since at least as early as 2005. In 2016, a shareholder proposal filed by the Fund and the Church Commissioners asking ExxonMobil to publish an assessment of long-term portfolio impacts of public climate change policies received a majority vote of 62.3 percent. The Fund and the Church Commissioners believe that ExxonMobil’s responses to climate change and to engagement with Climate Action 100+ are inadequate.
In spite of the clearly demonstrated shareholder concern regarding the impact of climate change on the company, ExxonMobil:
· has no business-wide targets for GHG emissions reductions at its own operations;
· does not disclose the GHG emissions associated with the use of its products;
· has no targets for the reduction of GHG emissions associated with the use of its products;
· offers no guidance on the extent of its ambition to reduce over time the GHG emissions associated with the use of its products.
This can be contrasted with ExxonMobil’s supermajor peers:
· BP has recommended that its shareholders support a proposal asking the company to set operational emissions reductions targets and disclose how it evaluates capital expenditures’ alignment with the goals of the Paris Agreement.
· Chevron has set operational emissions intensity reductions targets through 2023 linked to employees’ variable pay.
· Royal Dutch Shell has declared an ambition to halve the net carbon footprint of the energy products it sells (i.e. combined operational and product emissions) by 2050, aiming for a reduction of 20% by 2035 as an interim step, with aligned incentive compensation.
· Total has set an ambition to reduce the carbon intensity of the energy products it sells (i.e. combined operational and product emissions) by 15% between 2015 and 2030, and a longer-term ambition to reach a reduction of 25–35% by 2040.
We believe ExxonMobil has also failed to respond adequately to shareholder engagement on this topic, in contrast to its industry peers. The company:
· has been unresponsive to requests for assurance from investors participating in Climate Action 100+ about the consistency of the corporation’s strategy with the goals of the Paris Agreement; and
· has refused all requests from investors participating in Climate Action 100+ for engagement with an independent director.
In the spirit of “I do it because I want to and not because you told me so,” and possibly in the spirit of “we would like our investors, customers, and regulators to think we are doing something because it helps our brand,” ExxonMobil has just made an announcement showing at least some recognition of the reality of climate change risk to its business model and its brand as well as to the environment:
ExxonMobil will invest up to $100 million over 10 years to research and develop advanced lower-emissions technologies with the U.S. Department of Energy’s National Renewable Energy Laboratory and National Energy Technology Laboratory.
“We’re focusing on advancing fundamental science to develop breakthrough solutions that can make a difference on a global basis in emissions reduction,” said Darren W. Woods, chairman and chief executive officer of ExxonMobil. “We’re doing that with our in-house scientists and with corporate partners, through relationships with 80 universities and now with the intellectual and computing capacity of the renowned national labs.”
This is clearly in part because the SEC ruling has only increased shareholder pressure on the company. It’s just the beginning.