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Ask an Expert: What to Expect this Oil Industry Proxy Season

   

 The Equation Read More 

There are ways to hold fossil fuel companies accountable for the climate crisis—or at least nudge them in the right direction—in addition to government regulation. One avenue, which dozens of cities, counties and states across the United States and its territories are pursuing, is to sue them in state court for fraud and damages. Chicago and Bucks County, Pennsylvania, some 30 miles north of Philadelphia, are the most recent municipalities to file such a lawsuit. The defendants in both cases include BP America, Chevron, ConocoPhillips, ExxonMobil, Philips 66 and Shell, as well as the American Petroleum Institute, the oil industry’s biggest trade association.

Another approach is to transform the companies from the inside via shareholder pressure.

Mid-April marks the beginning of proxy season, when publicly traded corporations hold their required annual meetings, giving shareholders the opportunity to elect and oversee corporate leadership and provide direction on major issues affecting the business. Over the last few years, institutional investors have been introducing proposals calling on fossil fuel companies to take more ambitious climate action, align their lobbying with stated company positions, and adapt their business models to transition to clean energy.

Climate-conscious investors are particularly concerned about what are called Scope 3 global warming emissions, which result from the use of a company’s products, such as gasoline. These emissions generally account for more than 70 percent of a company’s carbon pollution, according to the UN Global Compact. The remaining percentage comes from the direct carbon pollution from a company’s operations, called Scope 1 emissions, and pollution from the electricity companies use, called Scope 2.

As of March 26, a record 263 climate-related shareholder resolutions have been filed for this year’s North American company annual meetings. What are their prospects? What do advocates plan to do in the wake of a new Security and Exchange Commission (SEC) rule for corporate climate-related disclosures, which dropped a key provision requiring companies to report their Scope 3 emissions? Are leading asset managers abandoning their commitment to environmental, social and governance (ESG) principles in response to a reactionary backlash?

For answers to these and other, related questions, I turned to Laura Peterson, a corporate analyst with the Union of Concerned Scientists’ Climate Accountability Campaign. Before joining the UCS staff in 2021, Peterson was a policy analyst at the Project on Government Oversight, Taxpayers for Common Sense, and the Senate Homeland Security and Governmental Affairs Committee. Below is an abridged version of our discussion.

EN: First, let’s talk about the upcoming proxy season. Will there be any particular climate-related resolutions or other shareholder votes at major oil and gas company meetings that stand out? Are there any for banks or other financial institutions that fund fossil fuel companies that could make a difference? 

LP: Investor pressure on oil and gas companies to address the climate crisis remains robust despite efforts by corporate leaders and anti-environmental campaigners to suppress it. Climate-conscious investors are continuing their efforts to make oil and gas companies—like Shell, for instance—to move more quickly to reduce their Scope 3 emissions, which account for as much as 90 percent of their total.

Resolutions this spring will ask companies to report on their planning for the energy transition, account for climate change-related impacts to their businesses, and address risks from single-use plastics, among other things.

Investor groups are also asking shareholders to vote against re-electing board directors at ExxonMobil, Occidental Petroleum, and other oil giants because they are so far behind in planning for the energy transition. The investor initiative Climate Action 100+, for example, found that the world’s biggest oil and gas companies’ transition plans are “insufficient for investors to accurately gauge transition risk,” while the UK climate finance watchdog CarbonTracker found that no major investor-owned oil and gas company has plans aligned with Paris climate agreement targets.

Likewise, banks and other financial institutions are attracting attention for their contribution to global warming. For example, shareholders are asking for reports on climate-related proxy voting at JPMorgan Chase as well as at the asset manager BlackRock.

EN: ExxonMobil is apparently so irritated by climate-related shareholder resolutions that it is suing two activist investor groups. In response, the groups withdrew their proposal and promised not to submit it again. Regardless, ExxonMobil has refused to drop its lawsuit. What is going on here? Is this type of suit unprecedented? Could it have a chilling effect?

LP: Yes, it resembles what are called “strategic lawsuits against public participation,” or SLAPP, cases, which are brought by companies that want to shut down activists. ExxonMobil and other fossil fuel corporations are particularly aggressive practitioners of this tactic. By taking the case to a friendly Texas court instead of appealing through the SEC, ExxonMobil wants to establish a new precedent. A decision favoring the company would have a chilling effect on investor initiatives and encourage other companies to follow suit.

This particular lawsuit is also related to the anti-ESG wave that emerged after significant shareholder wins in 2021, although silencing shareholder voices on such issues has always been a goal of some corporations and political organizations.

What’s particularly notable about this case, along with similar anti-ESG activities, is how anti-capitalist it is. It not only attempts to undermine the federal regulatory structures that protect investors, but also violates the compact between shareholders and companies that is fundamental to the idea of a free market.

Although ExxonMobil framed its lawsuit as an action against overly aggressive activist investors, it’s important to note that shareholder resolutions prodding companies to take action on climate is not an extreme or radical position. Dozens, if not hundreds, of climate-related resolutions have been introduced at companies by a broad range of investors and many pass because shareholders know that climate-related financial risk is real and that harmful emissions should not be business as usual. And investors are pushing back against ExxonMobil. The huge California employee pension fund CALPERS warned the company that it will consider divesting its shares if it doesn’t drop the suit.

EN: I understand that the House Judiciary Committee is now challenging climate-related shareholder activism.

LP: That’s right. Republican committee members have issued subpoenas to groups that have introduced climate-related shareholder resolutions in the past, including Follow This and As You Sow, as well as major asset managers such as Vanguard, proxy advisory firms such as Glass Lewis, and such industry coalitions as the Glasgow Financial Alliance for Net Zero. Committee members claim these groups are engaging in antitrust activity to cripple the fossil fuel industry, which is akin to saying voters are colluding to unseat a candidate by participating in the democratic process. Organizations have testified before committee counsel and turned over tens of thousands of pages of documents, but the committee is pressing on with its baseless intimidation campaign.

EN: Besides introducing climate-related resolutions, activist investors have sought seats on corporate boards of directors. Seven years ago, ExxonMobil added Susan Avery, a physicist and atmospheric scientist, to its board. Avery is leaving the board at the company’s annual meeting in May. Did she have any impact on company policy?

LP: Certainly not the impact anyone who cares about a stable climate wanted. Shareholders and scientists hoped Avery would use her leadership role to promote scientific integrity, transparency, and accountability. As chair of the board’s Environment, Safety, and Public Policy Committee, Avery was in a uniquely influential position to steer the corporation in that direction.

Her tenure, however, was sadly a disappointment on all fronts. As for scientific integrity, ExxonMobil has continued to expand its oil and gas exploration and production and is still lobbying against government climate action while claiming to be “aligned” with the Paris climate agreement. The corporation’s “low carbon” roadmap, meanwhile, relies heavily on unproven and unscaled technologies such as carbon capture and storage. ExxonMobil also resists transparency, working via its memberships in the US Chamber of Commerce, the American Petroleum Institute, and other business trade groups to oppose a strong SEC rule designed to mandate standardized, comparable corporate disclosures.

In addition to continuing its support for organizations that spread climate disinformation and seek to block climate action, ExxonMobil has been evading accountability for its impact by shifting the blame for global warming onto consumers and governments. This is not a track record to be proud of. For more details, check out a recent blog by my colleague Kathy Mulvey on Avery’s stint on ExxonMobil’s board.

EN: As I mentioned in my introduction, the SEC recently issued a new corporate climate-disclosure rule that had been in the works for two years. Even though the agency dropped plans to require companies to report their Scope 3 emissions and scaled back other provisions, 10 Republican state attorneys general filed a petition in March to block the rule, calling it “unlawful.” (I should note that the fossil fuel industry is a major sponsor of the Republican Attorneys General Association (RAGA).) What is your take on the rule, and what do you think will happen to it?

LP: As I wrote in a recent blog, the final rule leaves too much to the imagination, meaning that it gives corporations too much leeway to decide what to disclose to investors. The rule was the subject of intense lobbying by industry and trade associations, buttressed by the threat of lawsuits by RAGA, the US Chamber of Commerce, and other longtime antiregulatory zealots.

To try to shape a regulation that would survive legal challenges, the SEC cut a lot of the elements that would have compelled companies to provide investors with the information they need—and want. Fully 97 percent of the investors who sent in comments on the rule supported Scope 3 disclosures.

The irony is all those changes that weakened the rule failed to protect it from litigation. Within hours of its release, Republican attorneys general filed suit against the SEC. Meanwhile, environmental groups, including the Natural Resources Defense Council and the Sierra Club, filed lawsuits arguing that the watered-down rule fails to fulfill the SEC’s mandate to protect investors. The upshot? By trying to pass a rule that made its corporate opponents happy, the SEC failed to set a standard that would help investors clearly understand how companies will fare in the clean energy transition.

EN: Large asset managers, including BlackRock, have apparently succumbed to pressure from fossil fuel industry-funded conservatives and stopped referencing environmental, social and governance (ESG) factors in their investment decisions. What is ESG’s current status? 

LP: ESG investing is not dead, but the phrase may be headed for the dustbin of history. It is just a sensible way of assessing risk, and as long as investors are worried about risk, they will demand that companies disclose information about it. What we’re seeing now is a kind of “greenhushing,” where financial institutions don’t want to use the term ESG because it has been politically weaponized.

Many companies and financial institutions are still pursuing the same targets they were before all the hubbub, even though investors, such as JPMorgan Asset Management, have recently withdrawn from the Climate Action 100+ initiative that tracks financial industry performance. Meanwhile, the demand for ESG funds is still high because many people want to align their investments with their values.

A bigger problem with ESG funds is “greenwashing,” where financial institutions slap ESG-related labels on their funds to appeal to investors who care about the climate, human rights, or racial justice when the companies in their portfolios don’t perform well in those areas. UCS is currently working with other advocacy organizations and federal lawmakers to ensure that the SEC finalizes a rule requiring asset managers to increase transparency about the funds they sell so investors can be confident they are actually getting what they pay for.

 

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