This week, ExxonMobil holds its virtual annual shareholders’ meeting—in the spotlight, because the company is in a proxy fight! As I have every year since 2016, I’ll be attending ExxonMobil’s annual meeting as a representative of a climate-conscious shareholder. And the Union of Concerned Scientists isurgingBlackRock, Vanguard,state treasurers, and other major investors tovotefor climate-critical shareholder proposals and against laggard corporate leadership at ExxonMobil. Here are four reasons why.
What is a proxy fight?
First, let’s set the scene. ExxonMobil has been on its back foot since December, when activist investorEngine No. 1declared that it wanted to shake things up at the company and replacefour board members. Engine No. 1 hascalledfor the establishment of an emissions reduction target that includes Scopes 1, 2, and 3. In January, ExxonMobil for the first time reported its Scope 3 emissions—which come from burning its oil and gas products and account for roughly 90 percent of the company’s total emissions. Yet the company omitted Scope 3 emissions—which in 2019 wereabout equal to all of Canada’sglobal warming emissions—from its (underwhelming) five-year emissions reduction plan.
Three major public pension funds—the California State Teachers Retirement System, California Public Employees Retirement System, and the New York State Common Retirement Fund—have announced they will vote for the Engine No. 1 slate over the objections of ExxonMobil’s Board. Proxy advisory firms Institutional Shareholder Services and Glass Lewis have each recommended that shareholders vote for at least two of the directors put forth by Engine No. 1.
Quoting directly fromInvestopedia”,proxy fightoccurs when a group of shareholders in a particular company attempts to join together to effect change in a particular area ofcorporate governance在公司。”股东维权人士将阿ften go to the company with a list of items they want to change—long-term investments, risk management, etc.—that they think will be in the company’s best interest. If the company and its board are resistant to the shareholder’s ideas, the shareholder can then persuade other shareholders to join together and use their combined proxy votes (a bit like the Power Rangers, activist investors are stronger together) to change the composition of the board. The most common way to do this is to try to replace incumbent board members with candidates who are receptive to the desired changes.
Why propose new leadership for ExxonMobil?
Engine No. 1assertsthat ExxonMobil has “failed to evolve with the industry’s transition, resulting in significant underperformance to the detriment of shareholders.” In other words, by denying climate change and fighting climate progress for so long, ExxonMobil is behind the curve and shareholders are paying the price.
And there is significant evidence for that—10 years ago ExxonMobil was the top company in the Dow Jones Industrial Average, but it waskicked outin 2020 for poor performance. Total shareholder returns havelaggedbehind oil and gas competitors since 2013. The company had to write offnearly allof its oil sands crude (a notoriously emissions-heavy product) this year and wrote off$20 billionrelated to its 2009 acquisition of the shale gas company XTO last year. ExxonMobil’s credit rating wasloweredfor thethirdtimesince 2016 in February. But in the period between 2017 and 2019, despite negative returns and increasing debt, total CEO compensation rose almost35 percent.
Reason 1: Align executive incentives with a net zero emissions world
Which leads to the first reason shareholders should reject the ExxonMobil Board’s voting recommendations: as a wake-up call for the company to reward climate action by its executive leadership. Historically, the compensation structures of oil and gas companies have created an incentive for corporate executives toresist climate action(read more in this recentpeer-reviewed studyby Dario Kenner and Richard Heede).
That research was done before a long-awaitedreportby the International Energy Agency found that to bring global energy-related carbon dioxide emissions to net zero by 2050 and give the world an even chance of limiting the global temperature rise to 1.5 °C, investment in new oil and gas projectsmust stop now. ExxonMobil can no longer justify continuing to spend tens of billions of dollars per year on oil and gas exploration and infrastructure—and the company needs to de-link executive compensation from new oil and gas discoveries. Shareholder votes against the current Board will help accelerate the adoption of new performance metrics focused on ExxonMobil’s role in the low-carbon energy transition.
原因2: Adapt to new climate policies
AsEuropean governmentsset targets toward the goal of net-zero emissions by 2050, European oil and gas majors have madeheadline-grabbingpledges (not yet consistentwith keeping global temperature increase to 1.5 °C). Now that the US has rejoined the Paris Agreement and the Biden Administration has announced agoalof reducing US global warming emissions by between 50 and 52 percent below 2005 levels by the end of this decade, the pressure is on埃克森美孚and Chevronto step up climate action.
Disclosureis one area where US climate policies are advancing. This month, the Climate Risk Disclosure Actpassedout of the US House Financial Services Committee, a critical step toward addressing the significant risks climate change poses to businesses and holding public companies accountable to their shareholders. UCS organized a sign-onletter of supportfor the bill signed by 82 environmental and social justice groups, faith-based and public interest organizations
The Climate Risk Disclosure Act complements theSecurity and Exchange Commission’s moveto strengthen climate disclosures by publicly listed companies and this month’sExecutive Order on Climate-Related Financial Risk, which would require all federal suppliers (including private companies) to disclose their climate-related risks.
While ExxonMobil pays lip service to the recommendations of theTask Force on Climate-related Financial Disclosuresin itsclimate report, the company’s current leadership has not taken seriously the obligation to provide consistent, comparable, decision-useful information on how it is managing risks and opportunities related to climate change and the energy transition. Investors are demanding such information, and they now have public policy on their side.
Reason 3: Stop climate deception and greenwashing
Instead, ExxonMobil keeps trying to dupe us withgreenwashing ads, such as those touting its experimental algae biofuels. This month, Harvard University researchers Geoffrey Supran and Naomi Oreskes published the first quantitative, academically peer-reviewedanalysisof how ExxonMobil has used language to shape public discourse about climate change in misleading ways. The study found that ExxonMobil:
- has used—and continues to use—public relations techniques thatshift responsibilityfor climate change away from itself and onto consumers;
- has downplayed the reality and seriousness of climate change while presenting fossil fuel dominance asreasonable and inevitable.
These techniques mirror those of the tobacco industry. And like the tobacco industry, ExxonMobil is facing a barrage ofinvestigationsandlawsuitsover its deceptive communications to consumers and investors and the preventable harms caused by its products.
Reason 4: Be accountable for climate harms
One such lawsuit wasfiled in September 2020by Connecticut Attorney General William Tong, alleging that ExxonMobil misled state consumers about the climate change impacts of its fossil fuel products. Last week,UCS delivereda letter signed bymore than 50 Connecticut scientiststo AG Tong expressing support for the lawsuit.
埃克森美孚is seeking to have the case—filed under Connecticut’s consumer protection laws—heard in federal court, where it expects a more favorable outcome. (The fossil fuel defendants have taken this approach with every climate lawsuit filed since 2017, delaying justice for the plaintiffs—with impacts felt most acutely in low-income communities and communities of color). In federal court last Friday, the judge did not seem to buy ExxonMobil’s argument. “You tell me where the federal government directed ExxonMobil to falsely make claims about the gasoline they sold to consumers in Connecticut,” shereportedly askedthe company’s lawyer.
It is past time for ExxonMobil to take responsibility for the climate harms caused by its deception, denial, and delay. The company’s mounting legal risks weigh particularly heavily on long-term investors such as state pension funds and the firms that manage their assets.
These votes matter
There’s at least as much at stake at this week’s ExxonMobil annual meeting as there was in 2017, whenshareholders rebelledby voting in favor of a climate-related proposal for the first time in the company’s history. The $9 trillion asset manager BlackRock, which owns more than six percent of ExxonMobil’s stock, issharing the spotlightdue to its well-publicized climate commitments.
Now is the time for BlackRock and other investors to send a powerful message to ExxonMobil that it’s too late for empty talk and incremental adjustments—ambitious, visionary transformation is necessary to help the nation and the world limit the worst effects of climate change and move decisively toward an equitable net-zero energy system.
Many thanks to my former UCS colleague Nicole Pinko for her research and first drafts of portions of this blog. We wish her the best in her new role atClimate Policy Initiative!