Amid Exxon climate change vote euphoria, PGGM warns on capital distributions

Dutch investor puts oil giant on watch over dividends and buybacks

PGGM, the Dutch pension investment giant with a “green heart”, says it may in future vote for Exxon Mobil to increase capital distributions in lieu of investment in the face of global climate change, calling on the oil major to “demonstrably integrate” climate change risk into its strategy.

Amid the euphoria generated by the passing of the climate change proposal co-filed by the Church Commissioners for England and New York State Common Retirement Fund (see Edward Mason’s remarks at the AGM here), a proposal from Arjuna Capital/Baldwin Brothers at the oil giant was one of the proposals that went under the radar.

It called for the oil giant to commit to increasing the total amount authorized for capital distributions (dividends and share buybacks) to shareholders as a “prudent use of investor capital in light of the climate change related risks of stranded carbon assets.”

The company had advised investors to vote against the resolution, saying it returned nearly $370bn to shareholders over the 2000-2016 period. In the event, it got just 3.8% support, compared to 4.1% support for a similar proposal last year.

The proposal says Exxon faces two physical constraints that make growth planning untenable.

The first is the growth of unconventional assets (oil sands, ultra-deep water and the Arctic) that “are significantly more expensive and carbon intensive to develop and have sent Exxon’s profitability on a southerly course for the last decade”.Secondly, “there is only so much carbon we can pump into the atmosphere without catastrophic climate disruption”.

PGGM, whose outgoing CEO Else Bos yesterday praised her colleagues’ “green heart”, disclosed that – while it voted against the Arjuna proposal this time round – it may support it if Exxon doesn’t improve.

PGGM urges the company to demonstrably integrate climate change risk”

It said: “Given concerns that future changes in regulations to mitigate climate change, and associated market reaction, could adversely affect demand, raising questions regarding the viability of high cost, unconventional reserve assets which could potentially cause the loss of related investments and negatively impact shareholder value, PGGM urges the company to demonstrably integrate climate change risk into the strategy of the company.”

It concluded: “Failing to do so in the coming year might result in a supportive vote on such proposal.” PGGM also withheld support for new CEO Darren Woods, as he is also chairman.