The Exxon and Chevron AGM’s this year are going to be seminal moments in the battle for a low carbon transition. These two oil giants have become a litmus test of the company level transition worldwide and how the shareholders approach these two companies each year sets the precedent for the entire sector, in terms of how they plan to adapt to the global 2C climate change target. Their action in turn sets the tone for all other sectors in how they meet the challenge of climate change.
This year’s Exxon AGM has a record nine climate based resolutions. Just to understand their own agenda, even the most climate-resistant Exxon or Chevron board member will have had to improve their climate understanding, a far cry from the days when the single climate resolution on the agenda could be met with a simple ‘don’t believe all that stuff’. Now we have a huge raft of resolutions covering director appointments, capital return, reporting, risk management and even Exxon’s need to accept the morals of climate change. The argument for climate change board skills has become tautological as now at least one Exxon or Chevron board member needs to explain the agenda to all the others. However, there is much to be done if these resolutions are to be adopted.
To back the brave co-filers of these resolutions, a collaborative NGO campaign platform voteyourpension.org developed by AODP has just launched the largest member campaign this week to ensure that the largest 2,000 funds worldwide are contacted by their membership over these two AGM’s. Investor inboxes are now filling with members demanding proxy action. But not all resolutions are equal. The VYP campaign backs the four most materials resolutions at these AGMs: proxy access, lobbying, 2 degree stress testing and energy unit reporting.
Item 12 was co-filed by a fund coalition Aiming for A and New York and so it is understandable that support for this resolution has been front of mind for many investors and we have now seen Norway’s Norges Bank add its support. This is huge and credit to NBIM for changing their process on pre declaring votes last year in a signal to other funds that this is a new norm.
However, funds must not stop at stress testing when they review this year’s voting. Just as critical is the item 13 raised by San Francisco NGO As You Sow, which asks Exxon to report its output in broad energy units rather than just barrels of oil. For any investors that haven’t read between the lines, it is time we all came clean in what this resolution really means. It is the beginning of the end of big oil and the start of diversification of these companies.Last year’s Chevron AGM delivered a clear sign that the investor community rejects the concept of returning capital so that they can re-invest in smaller clean companies. The funds’ reasoning was that this would encourage activism, not of the VoteYourPension type but of the Carl Icahn type. From this, investor discussions indicated that simply directing Exxon and Chevron to start packing up the oil rigs ready to go and build wind farms might be too big a leap without addressing some of the core internal barriers to diversification. Item 13 goes to the heart of this issue insofar as the reporting of output in BTUs (British Thermal Units) ends their solitary focus on being an oil company by continuing exploration.
After a few years of battling the divestment movement, asset owners are now having to rapidly restore engagement as a credible way to manage portfolio climate risk. Investors need not wait for another year for the benefits of items 13 to become apparent. Time is short and we simply don’t have a year to educate funds as to what makes sense each time we need to annually raise the engagement bar. Proxy advisers ISS and Glass Lewis will likewise come under increasing scrutiny for their political alignment in this area
To those thinking that turning Exxon and Chevron into renewables companies is pure fantasy, consider the number of people who stand to win massively from this strategy.
Governments looking for a market solution to climate change would dearly love to see the Exxon and Chevron lobbyists disappear from their weekly diaries and become part of the solution. Funds looking to reduce risk in their portfolio on behalf of their members will benefit from the transition as will employees of Exxon and Chevron and their unions looking to avoid an alternative calamitous, inevitable end. And in an irony that will surely grace a Hollywood screen one day, Messrs Tillerson, Watson & co, the CEOs of those firms, get incentivised to grow even richer from the low carbon transition.
Yes, we’re now going to pay the very people who helped get us into this mess get us out of it. If this creates a sinking feeling then be assured you are not alone but this is now a fight that needs to be played in the direction of nature’s forces, not against them. The scenario of Tillerson, Watson and Musk sharing a Nobel Prize for their clean actions one day is actually a win for everyone, not least the pension and mutual members pleading that their money is used to start this process on May 25.
Julian Poulter is Chief Executive of the Asset Owners Disclosure Project.