ShareAction: It’s time for investors to flex their muscles at ExxonMobil

In the next couple of days, we will know whether ExxonMobil has successfully prevented shareholders from voting on a proposal to get the oil major to align its business model with the goals of the Paris Agreement.

Led by the Church Commissioners and NY State Common Retirement Fund (NYSCRF), who are backed by an investor coalition worth US$1.9 trillion in assets, the proposal asks Exxon to set Scope 1, 2 and 3 targets aligned with the greenhouse gas goals of the Paris Agreement.

The Church Commissioners said Exxon’s opposition was an “outdated reflex” and NYSCRF qualified it as “shortsighted and disappointing.”

This sort of behaviour is not surprising from a company that until recently refused to allow its shareholders to meet with its board and to nominate board members. Exxon also holds a leadership position in the National Association of Manufacturers (NAM), which supports a campaign to discredit shareholder engagement, particularly on climate change.

Exxon argues that the shareholder proposal is “impermissibly vague and indefinite so as to be inherently misleading” and seeks to “micro-manage” the company. It also states that its 2018 Energy and Carbon Summary “substantially addresses the principal objective of the proposal: that the company do its part to help address the risks of climate change and (…) report to shareholders on those actions.”

Yet, Exxon’s own summary report has been criticised for lacking clarity across a number of critical areas therefore minimising its usefulness to investors. While the company finally recognised that not all fossil fuel resources would be extracted in a 2°C scenario, it failed to estimate the potential impact that this could have on its individual assets and long-term profitability. This impact could be quite significant. An analysis by Carbon Tracker estimates that between 20 to 30% of Exxon’s upstream capex falls outside of the IEA’s Sustainable Development Scenario, which gives only a 50% chance of keeping global warming below 2°C. This number rises to 40 to 50% in the IEA’s Below 2 Degree Scenario.

These numbers are stark in the context of the company’s fossil fuel ambition. At a presentation for analysts recently, CEO Darren Woods announced that the company would ramp up capital spending to up to $35bn next year, up from about $26bn last year. He spoke passionately about Exxon’s recent investments in the Permian Basin and oil discoveries in Guyana. According to Woods, the investment opportunities available to Exxon are more attractive than at any time since Exxon and Mobil merged in 1999.Exxon’s major advertising blitz about its algae biofuels research may have fooled some of us into thinking that the company is finally taking climate change seriously. The company aims to develop the technical ability to produce 10,000 barrels of algae biofuel per day by 2025 (having said in 2009 that was 5 to 10 years away), which would constitute only 0.2% of its current refinery capacity, according to InfluenceMap.

For a multi-billion dollar corporation, you might have hoped a decade-long research programme would have delivered more than just another round of newer, shinier advertising. But advertising a message while lobbying against it is a skill that Exxon has mastered over the years. A recent report by InfluenceMap found that Exxon allocated 19% of its branding activities on climate – despite pouring millions into trade associations that oppose most forms of climate regulation.

For these reasons, the shareholder proposal filed by the Church Commissioners and NYSCRF is welcome and needed. If the SEC – the US regulator with the final say – allows shareholders to vote on the proposal, fiduciary investors should support their shareholder proposal and consider announcing their voting decisions early. This will be crucial in swaying the votes of larger passive investors such as Blackrock and Vanguard.

If the SEC rules in Exxon’s favour, investors should escalate their engagement with the company and use their voting powers to vote down the re-election of its CEO and Chair.

Voting is the central mechanism by which shareholders exercise their ownership rights and influence a company’s strategic direction or leadership. While traditionally used on issues such as remuneration and poor governance, a growing number of investors, such as the Church of England, Legal & General Investment Management, and Sarasin & Partners, have started using their voting power to drive companies’ agendas on climate change.

Exxon has resisted calls from shareholders to address climate-related risks for more than 25 years. It’s time for investors to flex their muscles and force the company to deliver.

Jeanne Martin is Senior Campaigns Officer at ShareAction.