Can someone please explain the logic behind the votes at Exxon and Chevron?

You’d have to be the most eternal of optimists to have expected backing for climate proposals at US oil majors to do anything other than fall this year.  

Record profits and the growing ferocity of the anti-ESG backlash were always likely to test the resolve of asset managers.  

But the collapse in support for the Follow This proposal last week at Exxon and Chevron was not just depressing but inconsistent.  

Around a tenth of shareholders backed an advisory resolution filed by the Dutch activist at Chevron and Exxon, which asked the duo to set Paris-aligned medium-term reduction targets for emissions linked to the use of their products (Scope 3).   

Last year, Follow This saw close to three times that level of support at the companies with a proposal which also included a request for medium-term Paris-aligned targets.  

Even that paled in comparison to the 60 percent support for the non-profit’s less prescriptive emissions target proposal at Chevron in 2021 – the same year that shareholders took the unprecedented step of voting three “climate competent” directors onto the board of Exxon against the company’s wishes, supporting the high-profile campaign by activist Engine No 1.  

Were the companies excused this proxy season because of progress? The company benchmark provided by Climate Action 100+, most of whose members must have opposed the Follow This proposal, suggests otherwise.  

Exxon does not currently meet any of the criteria when it comes to medium-term reduction targets, according to the CA100+ framework, while Chevron’s medium-term target is not aligned with the Paris goal of limiting global warming to 1.5C.

Compare and contrast 

There is also the question of consistency. 

The Follow This proposal also went to the vote last month at European majors BP, Shell and TotalEnergies, where it secured support of 17, 20 and 30 percent, respectively. 

The tally at Total equalled the highest level of backing for a Follow This climate resolution at a European major. Support has historically been easier to come by in the US for the activist’s resolutions, given the prevailing view that European oil giants are more progressive when it comes to responding to climate risks.    

Total is probably the best comparator for Exxon and Chevron, since the Follow This proposal filed there was also a non-binding “consultative” one – a response to the French major’s refusal to table a binding climate resolution last year. 

According to the CA100+ benchmark, Total is in line with Chevron – and therefore ahead of Exxon – when it comes to setting medium-term goals. The investor-backed Transition Pathway Initiative (TPI) also ranks Exxon, Chevron, Shell, BP and Total in its level four category, with BP and Total awarded a star ranking.  

Yet taken at face value, the votes suggest Total is three times more of a concern to its shareholders in terms of medium-term targets than Exxon or Chevron. 

Such an interpretation fits with the recommendations of influential proxy adviser ISS, which opposed Follow This at Chevron and Exxon but supported it at Total this year. 

The US-based adviser, which along with its rival Glass Lewis has come under greater scrutiny by conservative groups in the US, supported Follow This last year at Chevron and Exxon. Glass Lewis supported Follow This at Chevron in 2022 but opposed the resolution at both Exxon and Chevron this year.  

Prescriptive proposals?

The inconsistency does not stop there. 

Unlike at Total, Exxon and Chevron, the proposals at BP and Shell were binding – a feature that prompted some big asset managers to vote against them due to the “inflexibility” posed by the wording.  

Nevertheless, Follow This secured double the support at Shell that it did with the US oil majors and around 7 percentage points more at BP.  

If prescriptiveness is the main concern, as some of the biggest US asset managers have asserted, how is this disparity accounted for? One can surely question how prescriptive an advisory vote can be – but if that is the case, then surely a binding one on the same topic must be substantially more so? 

Sensitivity to the prescriptiveness of climate proposals in the US seems curiously correlated with the growing anti-ESG backlash, much of which has been directed at the biggest US asset managers.  

Much of the rhetoric associated with that movement alleges that ESG is a non-financial, ideological contaminant undermining financial decision-making. The abandonment of climate proposals in the wake of that onslaught, ironically, gives credence to that notion, suggesting that climate concern was always regarded by asset managers as an optional extra.  

Engagement risks

The retreat is also likely to embolden companies to ignore engagement efforts, something that Dutch manager Robeco has already reported in response to rising profitability and concerns around energy security. 

There are signs US firms are being emboldened. Exxon, for example, questioned in one SEC filing why it should disclose against the IEA’s Net Zero Emissions by 2050 scenario when “virtually all observers, including the IEA itself, agree that the world is not on the IEA NZE pathway”. 

In recent weeks, some investors have suggested that engagement with fossil fuels firms should be deprioritised in favour of the demand side – although not abandoned completely. 

Following the votes at BP and Shell, the UK Asset Owner Roundtable said it plans to bring in large managers to scrutinise how their voting at the European majors aligned with asset owner’s own long-term interests as universal owners. The votes at Exxon and Chevron should only heighten the need for such a probe.