Exxon shareholders vote down activist resolution to cut emissions
Pro-climate board members appointed last year “have no influence on the most crucial issue,” says activist group head.
As many as 73% of Exxon Mobil shareholders voted down a proposal requesting the fossil fuel giant cut greenhouse gas (GHG) emissions in line with Paris Agreement targets, at the company’s AGM in May 2022, going against proxy advice firm Institutional Shareholder Services’ (ISS) recommendation to vote in favour.
The resolution, put forward by Dutch activist shareholder group Follow This, requested Exxon to set and publish medium- and long-term targets to reduce emissions from its operations and energy products across Scopes 1, 2, and 3. More than a quarter, or 27%, of shareholders voted in favour of this, including five of the top 10 Dutch investors, of which Aegon and Robeco are two.
Earlier this year Exxon said it would aim for its oil and gas operations to be net-emissions free by 2050, in response to investor pressure to address climate change threats to its business. The company also pledged to invest over $15bn in low-emissions initiatives, but refuses to account for its indirect emissions that occur across its value chain (Scope 3).
Follow This has so far campaigned successfully to compel five oil majors, including Shell, Equinor, BP and Chevron, to account for Scope 3 emissions.
In a proxy statement, Exxon argued existing methods for accounting for Scope 3 were “duplicative and flawed.”
Exxon’s third-largest shareholder, BlackRock, voted down the proposal, the $10trn New York investment giant revealed in an investment stewardship vote bulletin.
BlackRock declined requests to comment. Other large Exxon shareholders, namely State Street, Vanguard, and Fidelity, also declined to comment.
U-turn?
Just a year on from Engine No.1’s successful campaign to appoint three members to Exxon’s board, the activist investor group pivoted on the issue, voting down the proposal to cut emissions, citing companies cannot take responsibility for Scope 3 emissions in the near-term.
Engine No.1 was supported by BlackRock and State Street, among others, in its campaign last year, in which accounting for Scope 3 emissions was a key component, according to Follow This founder, Mark Van Baal.
Van Baal told Net Zero Investor (NZI): “We can now conclude that these three board members have no influence on the most crucial issue [Scope 3 emissions]. What is more telling is the fact that Engine No.1 voted against the Follow This resolution, indicating Exxon Mobil should not have to account for Scope 3 emissions, which was a key ask of theirs when they started their campaign.
“While I can understand that three board members might not have the power to convince the remaining nine, the fact that Engine No.1 voted against Scope 3 targets is inexplicable.”
At the same AGM, 90% of shareholders voted against a proposal that would force the company to publish what its low-carbon strategy was, 64% voted against seeing a report on how it intended to reduce its plastic waste, and 73% voted against it disclosing its political contributions.
While I can understand that three board members might not have the power to convince the remaining nine, the fact that Engine No.1 voted against Scope 3 targets is inexplicable.
Explanations
Rising energy costs could have harmed transition efforts in oil companies’ boardrooms, exacerbated further by Russia’s invasion of Ukraine.
According to Ellen Good, equity strategist at Morningstar, adopting explicit Scope 3 emissions targets can be “problematic”, adding it is often unclear how they will be achieved outside of divestiture.
“I am not sure the resolution would have passed even if Ukraine had not been invaded,” she said.
“Regardless, there is continued need for hydrocarbon investment, which high prices, following the invasion, probably brought to the forefront. This was likely on investors’ minds when voting. However, while it increases the need for hydrocarbon production outside of Russia, the need for continued investment for decades to come has always been the case.”
Climate investor group Ceres told NZI that the environmental lobby effort is not concerned by the vote, citing it was encouraged to see that, during a time of record oil prices, over a quarter of shareholders indicated a “fundamental rethink of the company’s long-term strategy”.
“Of course, we would like that number to be higher,” Andrew Logan, senior director of oil and gas at Ceres, told NZI. “But it is important to note that this resolution was considerably more ambitious in what it was asking the company to do than last year’s proposal.”
