ExxonMobil’s Climate Change Pivot Speaks Volumes about Shareholder Activism

Pension funds and other big-dollar investors have long been challenging fossil fuel companies on climate change. In response, some have stepped up their efforts to cut greenhouse gas emissions. ExxonMobil is one of the holdouts, but cracks in its armor are finally beginning to show.

Reuters recently reported that the company has written a letter to the U.S. Securities and Exchange Commission (SEC), asking the agency to block shareholders from voting on a proposal that would force the company to set greenhouse gas targets.

Climate change: money talks

The SEC request is significant to the degree that it reflects ExxonMobil’s concern over losing control of the climate change narrative.

For many years, ExxonMobil was a powerful force on the public debate about climate change, here in the U.S. and to some extent abroad.

Even as overwhelming scientific consensus pointed to the connection between climate change and human-caused greenhouse gas emissions related to fossil fuels, ExxonMobil garnered considerable notoriety for funding “think thanks” and other lobbying efforts aimed at side-tracking the issue and diffusing concern.

In recent years, however, the facade has begun to crumble. Climate change is a matter of now, not when, and certainly not if.

As more risks and effects pile up, the debate over climate change has shifted. The earlier focus was on environmental protection. Now the concerns include financial risk. This current focus provides shareholders with a firm bottom line platform to advocate for change.

Shareholders revolt over climate change

ExxonMobil is facing legal action over climate change on a number of different fronts, including the potential for charges of racketeering.

The letter in question is a response to a new threat, a first-of-its-kind shareholder resolution filed last December by a group of institutional investors.

The group is spearheaded by New York State Comptroller Thomas P. DiNapoli on behalf of New York State’s pension fund.

The resolution asks ExxonMobil to disclose short-, medium- and long-term greenhouse gas targets that are consistent with the Paris Agreement, beginning next year.

In addition to New York State, other institutional supporters of note are CalPERS, HSBC Global Asset Management, Presbyterian Church USA, SHARE on behalf of Fonds de Solidarité des Travailleurs du Québec, and the Church Commissioners on behalf of the Church of England.

All together, these groups have an estimated $1.9 trillion in under management, as estimated in the sustainable investing group Ceres.

ExxonMobil pushes back

According to the Reuters report, the investor group believes that ExxonMobil’s argument against the shareholder resolution rests on the idea that it is an attempt to “micromanage the company.”

The micromanagement argument does hold some sway at SEC. Last year, for example, the Los Angeles Times noted that SEC blocked a shareholder proposal that would have required Dunkin’ Donuts to disclose the environmental impact of its K-Cup Pods packaging.

SEC justified its action on the basis of proportionality, explaining that the K-Cup resolution would impact only a small fraction of the company’s business.

In that light, ExxonMobil’s “micromanagement” argument is fairly weak. The shareholder resolution in question would impact every aspect of the company’s core business, not a mere fraction of it.

The micromanagement argument also loses weight considering that other oil and gas companies have already begun to disclose their greenhouse gas emissions, set targets, and even incentivize executives to cut emissions in response to shareholder concerns.

In addition, other legacy oil and gas companies, most notably Shell, Statoil and BP, are racing far ahead of ExxonMobil to diversify their holdings into renewable energy and electric vehicles.

On the other hand, last year ExxonMobil successfully appealed to the SEC over the “Low Carbon Business Model” resolution proposed by the socially responsible investor organization As You Sow and Arjuna Capital.

One word: plastics

In 2017, Carbon Tracker surveyed 69 of the world’s largest publicly traded oil and gas companies. It found that ExxonMobil was far and away leading the group in exposure to risks from unneeded future projects.

One problem for ExxonMobil is that a main focus of its growth plan involves stepping up its natural gas holdings.

Here in the U.S., the company has played a major role in driving coal out of the power generation sector.

However, evidence is mounting that greenhouse gas emissions from natural gas operations are neutralizing the benefits of burning less coal.

More to the point, renewable energy is already beginning to beat both natural gas and coal in the U.S. power generation market when it comes to efficiency and competitiveness.

A growing movement to transition buildings in the U.S. away from natural gas will also cut into that market.

ExxonMobil and other fossil stakeholders have been ramping up their petrochemical operations, anticipating a rapid pace of growth in the demand for plastic products in Asia and other emerging economies.

However, a countermovement to reduce plastic dependency is also rapidly growing. In addition to grassroots activism, major companies like AB InBev and Kao are taking action to reduce plastic in their supply chain.

One way or another, ExxonMobil and its shareholders face a day of reckoning.

Meanwhile, if the SEC allows the new shareholder resolution to move forward, a vote on the proposal is expected in May.

Image credit: Roy Luck/Flickr