Preliminary votes on the climate proposals at US oil giants Exxon and Chevron reveal that a substantial minority of shareholders backed a request by climate activist Follow This for Paris-consistent emissions targets.
On Wednesday, 33 percent reportedly supported the proposals at Chevron and 28 percent at Exxon.
Yet Engine No.1, the US activist fund behind the historic board revolt at Exxon last year, was not among them.
The fund makes public the voting intentions of its The Transform 500 ETF fund, which was launched last June with ticker “VOTE” and the stated aim of improving US companies’ environmental and social performance through shareholder voting, campaigns and investor collaboration.
“The problem isn’t passive investing, it’s passive ownership,” said Engine No.1’s former managing director, Michael O’Leary at the time of the launch, referring to long-standing criticism that index-based investment strategies are too restrained and hands-off to achieve real-world impact.
While voting against the Follow This proposals this year, Engine No.1 did support other climate proposals at Exxon and Chevron, including ones asking for audited reports on how their businesses would fare under the 2050 net-zero scenario put out by the International Energy Agency (IEA). More than a third (39 percent) of shareholders supported that proposal at Chevron, according to filer US non-profit As You Sow.
A spokesperson for Engine No.1 pointed out that the fund voted for many of the ESG proposals at the companies, including others on reduction of plastic pollution, transparency on political contributions and racial equity audits.
But they told Responsible Investor via email: “Some proposals are not well written to drive both change and economic value. We wish they were! But we believe that these issues are economic issues and investors must see them as economic issues in order to support them.”
On Follow This’s proposals, which asks for emission reduction targets covering the majors’ full value chain, the spokesperson stated: “We didn’t support proposals that asked these companies to set targets on Scope 3 emissions in the near term because oil and gas producers cannot be precise on Scope 3 reductions in the short-term (ie, setting targets) until the consumer companies are much more clear.”
By contrast, Californian public pension giants CalPERS and CalSTRS supported the Follow This proposals at both Chevron and Exxon. CalSTRS was one of the first supporters of the Engine No.1 campaign against Exxon last year, which resulted in three board members being replaced with the activist’s own picks.
CalPERS, which co-leads engagement with Chevron as part of investor engagement initiative Climate Action 100+ (CA100+), also voted against the four members of Chevron’s public policy and sustainability committee in response to what it describes as the company’s failure “to adequately respond to the Climate Action 100+ engagement initiative”.
Norges Bank Investment Management, manager of Norway’s trillion-dollar sovereign wealth fund, also supported the proposals at Chevron and Exxon, as did the Office of the New York City Comptroller, Brad Lander, which oversees the city’s five pension pots.
The plastic proposal at Exxon, which challenged the Texas oil giant on virgin and single-use plastic production, was supported by 37 percent of investors, according to As You Sow. The tally follows a majority vote (50.4 percent) at Phillips 66 on a similar resolution earlier this month.
All disclosure no action? Is Chubb a useful barometer of where investors are on climate right now?
The shift at the US Securities and Exchange Commission under President Biden has resulted in an increasing number of companies being targeted with climate-focused shareholder proposals this year.
Guidance issued by the powerful regulator last November blunted the power of common arguments used by firms to get such proposals excluded via the SEC’s ‘no action’ process.
Since then, filers have been emboldened to file increasingly progressive asks of companies, such as calling for Paris-aligned emissions reduction targets, capital expenditure and, for financial firms, fossil fuel financing.
With the SEC no longer an obstacle, are we starting to see the limits of investors’ ambitions when it comes to climate proposals?
An interesting example is US insurer Chubb, where two climate proposals went to the vote on 19 May.
One, filed by Green Century Capital Management, asked the company to adopt policies to ensure that its underwriting did not support any new fossil fuel supplies, aligning itself with the IEA’s net-zero emissions by 2050 scenario. The other, filed by As You Sow, asked the company to disclose “whether and how” it intends to reduce emissions associated with its business activities in line with the Paris Agreement.
While both are precatory, the first asks for action and the second calls for information. As You Sow’s proposal was backed by an impressive 72 percent of shareholders, yet Green Century’s attracted support of 19 percent.
Even fewer investors (9 percent) supported the same Green Century proposal at rival insurer Hartford Financial Services.
“We recognise that our proposal is breaking ground by asking for direct changes to Chubb’s and Hartford’s underwriting strategies for coal, oil and gas projects, and we’re not deterred by the vote result,” said Andrea Ranger, shareholder advocate at Green Century.
The general reluctance of investors to support proposals asking for action compared to those asking for greater disclosure is well documented.
Earlier this month, investment behemoth BlackRock published a memo warning it would oppose more climate proposals this year, arguing that they have become “more prescriptive or constraining on companies and may not promote long-term shareholder value”.
The limits of corporate action on climate, without things like policy intervention, were touched upon in the recent report from the UN-backed Net Zero Asset Owner Alliance on engagement. It stated: “As companies take steps to decarbonise and start to move up the ever-steepening cost curves, investor requests for additional emission reductions are met with increasing resistance. Without quantifying an exact point on this curve, which would differ even among peers in the same sector, it follows that companies will inevitably hit a boundary where they can no longer justify going further.”
Fall in support for Paris-alignment proposals at European oil majors continues at Shell
Support for Paris-aligned emission reduction targets at Shell has fallen by 10 percentage points, with 20 percent of shareholders supporting Follow This’s proposal this year at the oil major’s annual meeting on 24 May.
The result follows a 6 percentage point fall in support for the same proposal filed at Shell’s rival BP compared with the year before – just 15 percent of investors supported Follow This’s proposal at BP on 12 May.
“Both our climate resolution and Shell’s strategy remained the same since [last] May. Shell’s current strategy has yet to lead to significant emission reductions this decade. Unfortunately, investor sentiment has shifted, likely as a result of the energy crisis and windfall profits brought on by the war in Ukraine,” said Follow This founder Mark van Baal.
While support fell for Paris-consistent targets, a fifth of investors also rejected the climate progress report Shell put to shareholders, which outlined the efforts the company has made in implementing the Say on Climate plan that was backed by 89 percent of investors the year before.
Last week, Responsible Investor reported that Dutch investors MN and PGGM are the new lead engagers on Shell under the Climate Action 100+ investor engagement initiative, taking over from the Church of England Pension Board, Robeco and the Universities Superannuation Scheme.
PGGM, which manages €273 billion in assets, voted against Shell’s climate report and supported the Follow This proposal, repeating its voting stance last year on the company.
On Wednesday, 89 percent of shareholders also supported the Say on Climate plan put forward by French oil major TotalEnergies.
The company refused to table a proposal, filed by 11 big institutional investors led by asset manager MN, with similar asks to the Follow This one. Total previously allowed a climate proposal to go to the vote in 2020, which was supported by just under 17 percent of shareholders.
Close to two-thirds of shareholders (62 percent) backed calls for an independent racial equity audit at Home Depot. It is the second majority supported ESG-focused proposal at the US retailer this year after a deforestation resolution was backed by around 65 percent of investors on 19 May.
Majority support was also achieved for a science-based emissions reduction proposal at food giant US Foods on 18 May, when a hefty 88 percent of investors supported the resolution filed by Green Century. The board of the company stated an intention to “substantially implement” the proposal and did not make a recommendation on whether shareholders should support or oppose it.
Support for proposals asking US banking heavyweights to align their fossil fuel financing policies with achieving net-zero emissions by 2050 continued to garner support of around 10 percent. JPMorgan Chase and Goldman Sachs last week saw such proposals backed by 9 percent and 11 percent of shareholders, respectively.
Another climate proposal at JPMorgan, which asked for disclosure of credible absolute reduction goals, fared better with 15 percent support.
Find out more about this topic from industry leaders at the RI Europe 2022 conference, taking place in person in London on 14-15 June.