Investors including the New York State Common Retirement Fund, HSBC Asset Management, the Church Commissioners and CalPERS are weighing up the possibility of voting against the board of ExxonMobil in response to its obstructiveness on a major climate resolution.
New York’s $207bn pension fund told RI it expects to vote against “all incumbent directors” at ExxonMobil for a second year, after the Securities and Exchange Commission controversially ruled that the climate resolution it filed may be omitted – agreeing with the oil giant’s argument that it seeks to micromanage the company.
A spokesperson for the giant fund, which leads on Exxon as part of the Climate Action 100+ (CA100+) engagement initiative, said the move would be prompted by a perceived “failure to adequately address climate risk” at Exxon, but added that the decision is still “under review”.
Speaking with RI last year, Anne Simpson, Investment Director of Sustainability at CalPERS and Chair of CA100+, said that if the initiative’s efforts weren’t accepted by companies, “we can vote against the boards of directors”, adding: “We’re called Climate Action, not Climate Talking or Climate Pondering – and there’s a reason for that”.
CalPERS told RI that it will evaluate its “voting options on all items on the ballot” according to its governance and sustainability principles.
HSBC Asset Management, another driving force behind CA100+, and a co-filer on the Exxon resolution, told RI they were “clearly supportive” of the proposal and were therefore “considering our voting position” when it came to the board. The Church Commissioners confirmed they too were reviewing their options following the news.
Sarasin & Partners does not have any holdings in Exxon, but its Head of Stewardship, Natasha Landell-Mills, told RI that “if we held Exxon we would certainly vote against the Directors”. The London-based asset manager is the co-coordinator of the European oil and gas engagements for CA100+ with the UK’s Church Commissioners, which co-filed the omitted Exxon resolution.
“It’s certainly the view of many investors that climate change is a long-term, strategic issue and so it’s the responsibility of the board to oversee it,” said Andrew Logan, Senior Director of Oil & Gas at US NGO Ceres. “So, if investors are unhappy with the company’s position, it’s logical to ask whether the board needs to be changed in some fashion – either the current set of directors, or some sub-set of them”. Over the longer term, he said, it would also be viable for investors to put forward their own nominees for the board.
But voting against the board is not the only option open to investors, he pointed out. “One option is to appeal the decision with the SEC. It’s not the norm, and it’s not always successful, but it’s an option – particularly if investors think that a mistake has been made.”
Investors could also take the decision to the federal court. New York State has done this before, on other topics with other companies, but has made no signs so far that it plans to pursue legal action in this instance.The most obvious way for investors to express dissatisfaction with Exxon’s move is to vote in favour of those climate-related resolutions that did make it onto the ballot, Logan added. “In the near-term, the idea that investors would shift their support to one of these other proposals seems like a logical next step.”
Tim Smith, Director of ESG Shareowner Engagement at Boston-based SRI firm Walden Asset Management agrees and told RI that he expects there will now be “considerable support” for SRI firm Arjuna’s resolution on climate risk, which passed the SEC’s ‘no action’ process unscathed.
“This SEC decision doesn’t close off the ability of investors to push on climate risk – it just shapes it into other vehicles and other avenues” – Andrew Logan, Ceres
New York State has already confirmed to RI that it will support the Arjuna resolution.
Speaking in September, New York State Comptroller Thomas DiNapoli left the door open
to divesting Exxon in the future, if the company failed to respond to shareholders’ concerns.
This followed the publication of Exxon’s disappointing climate risk report in February 2018, which investors had pushed for in a widely-celebrated ‘landmark’ resolution supported by 68% of shareholders in 2017.
Walden’s Smith also questioned the “confusing message” the SEC’s decision on Exxon sends to the market. This year’s resolution was omitted because it was too specific and thus deemed ‘ordinary business’, said Smith, but last year another climate change resolution was omitted because it was deemed to be “too general”.
Exxon, he added, has “decided to censor the voice of investors and avoid a debate at their stockholder meeting on a vitally important set of questions”.
Walden has itself co-filed a resolution on lobbying at Exxon with United Steelworkers of America.
The Office of New York City Comptroller, Scott Stringer – a fellow member of CA100+ – declined to comment on whether it would be voting against Exxon’s board off the back of the SEC decision, as did asset manager Robeco – although its Director of Active Ownership, Sylvia Van Waveren, said on LinkedIn this week: “Let’s vote the Board & Supervisors of Exxon down!”.
“It’s early days, so it’s difficult to say with any certainty where investors will coalesce their energy,” concluded Ceres’ Logan. “But the key thing is that this SEC decision doesn’t close off the ability of investors to push on climate risk – it just shapes it into other vehicles and other avenues.”