ExxonMobil failed to fend off a shareholder rebellion over climate change, as investors with 62.3 percent of shares voted to instruct the oil giant to report on the impact of global measures designed to keep climate change to 2 degrees centigrade.
Although the identity of voters wasn’t disclosed, a source familiar with the vote said that major financial advisory firm BlackRock had cast its shares in opposition to Exxon management and that Vanguard and State Street had likely done the same. All three financial giants have been openly considering casting their votes against management on this key proxy resolution at the annual meeting Wednesday.
BlackRock and Vanguard are the biggest shareholders in ExxonMobil, owning 13 percent, or $43.6 billion worth, of the company’s stock. A vote by them against management marked an important step for groups that have been trying to force corporations to adopt greater disclosure and transparency about the financial fallout of climate change.
BlackRock, which said that climate disclosure is one of its top priorities, had warned on its website that “our patience is not infinite.”
“This is an unprecedented victory for investors in the fight to ensure a smooth transition to a low-carbon economy,” said New York State Comptroller Thomas P. DiNapoli, a trustee of the New York Common Retirement Fund. “Climate change is one of the greatest long-term risks we face in our portfolio and has direct impact on the core business of ExxonMobil.”
The ExxonMobil resolution, introduced by the New York State Common Retirement Fund, says that the company “should analyze the impacts on ExxonMobil’s oil and gas reserves and resources under a scenario in which reduction in demand results from carbon restrictions and related rules or commitments adopted by governments consistent with the globally agreed upon 2 degree [Celsius] target.”
The resolution adds that “this reporting should assess the resilience of the company’s full portfolio of reserves and resources through 2040 and beyond, and address the financial risks associated with such a scenario.”
It notes that other major oil companies including BP, Total, ConocoPhillips and Royal Dutch Shell have endorsed the 2 degree analysis.
BlackRock’s website injected a sense of urgency about the issue.
“As a long-term investor, we are willing to be patient with companies when our engagement affirms they are working to address our concerns,” it said.
However, it added, “when we do not see progress despite ongoing engagement, or companies are insufficiently responsive to our efforts to protect the long-term economic interests of our clients, we will not hesitate to exercise our right to vote against management recommendations.”
Reuters reported that State Street Global Advisers, another big financial advisory firm that has called for greater climate disclosures, might also oppose management on the resolution. It is the third-largest shareholder with 5.1 percent of the stock.
Fidelity Investments said it was adopting the U.N.’s Principles for Responsible Investment, though a spokesman said that was just a “formulization of what we’ve done for a long time.”
The prospect of major financial management firms joining pension funds such as California’s and New York’s that have backed social and environmental resolutions in the past is already putting some companies on the defensive.
This month similar resolutions demanding that management explain how climate change could affect their businesses were adopted at Occidental Petroleum and PPL, a large utility holding company. Occidental’s shareholders backed the resolution with a 58 percent majority; that majority included BlackRock in its first vote ever against a company’s management over the climate issue.
Major shareholders also have leveled criticism at ExxonMobil’s board of directors. Worried about the outcome of the Wednesday votes, the oil giant on Tuesday issued an addendum to its proxy statement, providing additional arguments and information to bolster its recommendation that shareholders reject resolutions about the responsiveness of the company’s board of directors. One resolution, requiring that a director running unopposed garner a majority of votes cast, was supported by 45.7 percent of the shares despite the opposition of management.
The ExxonMobil annual meeting is the first for Darren W. Woods as chief executive. He took over from Rex Tillerson, now secretary of state.
Although the company has written two open letters urging President Trump to stay in the Paris climate accord, ExxonMobil has remained the subject of criticism and litigation over whether it has adequately disclosed climate consequences of burning fossil fuels.
Some corporate governance groups have urged ExxonMobil to disclose more than the modest statement it currently files with the Securities and Exchange Commission.
But other experts say that the uncertainties about the size and consequences of climate change make disclosure useless.
At a recent Chamber of Commerce panel about whether the SEC should require greater disclosure, historian and oil industry expert and consultant Daniel Yergin said that events that take place in 30 years might not be material for Big Oil and gas companies and that it went “beyond the scope of what investors need to make decisions.” He said that there was a difference between scenarios and forecasts that provide foundations for financial planning. And financial regulation should not turn into climate regulation, he added.
“Climate regulation is best left to governments with expertise and not to financial regulators,” he said.
But Gretchen Goldman, research director at the center for science and democracy at the Union of Concerned Scientists, said that investors “are right that climate change can pose material risks to companies and that this is another indication that investors are demanding this information and are not satisfied with the way companies are acting.”
She said that climate change would persuade governments to restrict the use of fossil fuels and that much of the reserves held by oil, gas and coal companies could be “stranded” and never used.
In its proxy materials, ExxonMobil rejected that argument. It cited the International Energy Agency’s estimate that $11 trillion to $22 trillion would be needed through 2040 for energy investment in exploration and production.
The company also said that it had done adequate disclosure in its annual “Outlook for Energy” document, which most recently said that global demand for energy would increase 25 percent through 2040 and that “oil will remain the world’s primary fuel.”
Exxon’s feud over access to directors has added to friction with major shareholders. Edward Kamonjoh, of the 50/50 Climate Project, said that ExxonMobil barred shareholders from “engaging in a direct and unfiltered way” with directors. He called the board “ossified” thanks to the way it chooses new directors and the financial incentives for directors to serve until the age of 72.
Unhappy about those issues, BlackRock voted against two of ExxonMobil’s directors last year.
This year 50/50 Climate Project is urging shareholders to oppose director Kenneth Frazier, who chairs ExxonMobil’s Board Affairs Committee that has direct oversight responsibility for the investor engagement policy, board succession planning and director compensation.
Kamonjoh said that Exxon’s addendum to the proxy statement “feels a little desperate to me and is, in many respects, unprecedented but Exxon has been known to employ its well-oiled machinery to defeat proposals that are headed for majority investor support in the past.”