Hodgson: A US-style Aiming for A? Exxon climate resolution is the first transatlantic co-filing

Solid shareholder vote might just wake Exxon up.

A group of investors are filing a resolution urging the largest US oil company ExxonMobil to “disclose the resilience of its business model in the wake of the Paris Agreement on climate change,” according to a press release on 19 January. The resolution “asks ExxonMobil to publish an assessment… through, and beyond, 2040 [with] an analysis of the impacts of a 2-degree scenario on the company’s oil and gas reserves and resources assuming a reduction in demand resulting from carbon restrictions.”
The lead filer of the resolution is New York State Comptroller Thomas DiNapoli, with the Church Commissioners for England as co-filer. Other US-based co-filers include the Vermont State Employees’ Retirement System, the University of California Retirement Plan and The Brainerd Foundation. The group holds more than $1 billion in Exxon shares. The Church Commissioners confirmed that this was the first time a resolution had received transatlantic co-filing. A similar resolution by Hermes and US-based Wespath Investment Management is being filed at Chevron.
Edward Mason, the Head of Responsible Investment for the Church Commissioners for England, told Responsible Investor that, with the level of ownership and institutional quality among the group, as well as the strong investment rationale for the resolution, he expected strong support for the resolution. “If BP and Shell can step up to the plate,” said Mason, “there is no reason why the US oil industry should continue standing apart. With BP and Shell, a rich dialogue is developing and behaviours are changing.” UK-listed diversified mining companies are in dialogue with the Aiming for A coalition too, he noted, though of course that industry is in even more trouble than the oil industry.
“This is not fully replicating ‘Aiming for A’,” Mason said: “You can’t file the same resolution in the US, but we stayed with the core ask: disclose the resilience of their policies surrounding climate change and strategies they are constructing to deal with public policy on climate change. Post COP21 it is even more important,” he added.

The chances that Exxon will support the resolution are significantly lower than with BP and Shell. Asked about the widespread disappointment that met the first publication of a “climate risk” report by Exxon, Mason said: “It’s good that the report came out, at least we got to see Exxon’s views, but it was inadequate for investors to assess Exxon’s portfolio resilience and we now have the Paris Agreement and global political commitment to mitigate climate change, thus we filed this resolution.More importantly, we are not interested in whether Exxon thinks a 2 degrees scenario is likely or not. We need to know “what if”. Is Exxon ready for a low carbon economy?”
Raj Thamotheram stated in an October 2015 Preventable Surprises report: “The USA is polarised on climate policy.” But Thamotheram also noted growing support for Aiming for A-type resolutions in the US. Indeed, the report documented growing alignment between investment professionals, many of whom were US-based, around resolutions calling for the disclosure of a “low carbon compliant business plan”. He also asked how US mutual fund managers would vote on such resolutions. On the grounds that these managers had voted for disclosure at BP and Shell he added, “Climate aware asset owners, including those outside the USA, should expect their money managers to vote consistently for these resolutions regardless of where the companies are listed, or explain why it is not appropriate for US management”.
Important in gaining the support of mutual funds for these resolutions is gaining the support of US proxy advisors, who largely recommended against many of the climate risk resolutions filed last year. Helen Wildsmith, CCLA’s Head of Ethical & Responsible Investment, and Aiming for A initiator, said that: “The Aiming for A coalition and other ISS clients have had meetings with ISS to talk about the ways it could integrate climate change risks and opportunities into its voting guidance. These conversations are ongoing.” Thamotheram’s research into the advice that proxy advisory firms give their clients showed a “lack of analysis of risk across all providers”. One firm – assessing whether to recommend support for a climate risk resolution at Exxon last year – said “the Company has stated that that the concept of unburnable carbon ‘overstates the potential financial impact on the value of oil explorers’ and Exxon stated that it was ‘confident’ that none of its assets are in danger of being stranded’.” That may be what Exxon believes, but no one else does.
Forceful Stewardship also encourages investors to lobby the SEC to bring reports that disclose material climate risks into compliance with a minimum standard (that has yet to be defined).
Given Exxon’s intransigence – just ask Robert A.G. Monks about that, CEO Rex Tillerson’s comments on alternative energy at the 2015 AGM: “We choose not to lose money on purpose” and the fact that Exxon’s next CEO is likely to be a 24-year veteran of the firm, I don’t expect things to change much there soon. Though, a solid shareholder vote might just wake them up to the real future.