Exxon Suffers Stinging Defeat On Shareholder Climate Resolution

Jerri-Lynn here: Yesterday, Trump tweeted that he will announce his decision on continued US participation in the Paris Accord at 3 p.m. today in the White House Rose Garden. Absent some stunning last-minute reversal, he’s expected to announce a US withdrawal. Although such a decision would come as no surprise, there had been some hope that Trump would not follow through on his campaign pledge to pull out of the agreement. Yet even though expected, this is certainly a depressing development on the climate change front.

Just a couple of things to bear in mind.

First, whatever Trump announces,  withdrawal won’t happen immediately, as other national and EU political leaders are not just going to roll over and accept a unilateral US decision. As Politico reports in Juncker warns Trump to ‘stick to’ Paris climate deal, European Commission President Jean-Claude Juncker this week reminded the US leadership:

Although Trump could get out of the non-binding deal’s commitments by simply rolling back U.S. climate policy, Juncker was adamant that it’s not as easy to leave the treaty as Trump might think: “The climate deal says: It takes three, four years after the treaty took effect last November to exit the agreement. That means the idea that you can simply disappear into thin air — that won’t happen.

“The law is the law, and everyone has to stick to it,” Juncker continued. “Not everything which is law, and not everything which is written in international treaties, is fake news. You got to stick to that.”

I’m not going to speculate on what additional pressures other countries could bring to bear on the US that they haven’t already, unsuccessfully, attempted. Instead, the main point of this post is to report on the recent success of another tactic:  shareholder initiatives to prod oil companies to disclose and analyze their exposure to climate change regulation.

Yesterday, despite an intensive push by Exxon to resist a shareholder resolution calling for the company to publish a detailed annual assessment of the risks to its business posed by climate change policies, the resolution passed comfortably, with 62% of shares voting in favor– including those held by BlackRock, according to The New York Times in Exxon Mobil Shareholders Demand Accounting of Climate Change Policy Risks, citing a person briefed on the decision.

The significance of this development was not lost on The Financial Times, which noted in Exxon investors defy board on climate reporting:

The vote at the world’s largest listed oil and gas group suggests there will still be significant pressure from investors to encourage US companies to address climate change, even if President Donald Trump withdraws the country from the Paris agreement.

The following post outlines some further considerations.

By Nick Cunningham, a Vermont-based writer on energy and environmental issues. You can follow him on Twitter at @nickcunningham1. Originally published at OilPrice

ExxonMobil tried to beat back a move from shareholders to press the company to disclose its vulnerabilities to climate change and climate regulation, but it failed. At its annual meeting on May 31, shareholders passed a climate resolution with a vote of 62 percent in favor.

Exxon became the second major oil company in recent weeks to suffer a defeat at the hands of its own shareholders. Shareholders of Occidental Petroleum passed a climate resolution in early May, an important development in years of work for climate activists who have tried to push similar measures through, with little success. The Occidental resolution calls upon the company to review and report on the company’s exposure to climate change.

In the past, these moves have been viewed through the lens of corporate social responsibility. That is, shareholders pressed their companies to clean up their act for the sake of the environment. Or, put more cynically, to at least clean up their public image by being seen complying with the requests of environmental groups.

But that approach has failed to really move the needle for the bulk of shareholders. More recently, however, things are starting to change because the financial calculus is changing. The long-term financial health of the industry no longer looks as rock-solid as it did as recently as just a few years ago.

Over the coming decades, the oil industry will be under assault from multiple fronts. First, governments around the world will steadily tighten the noose around the industry’s neck in order to cut down on carbon emissions, President Trump’s rumored withdrawal from the Paris climate agreement notwithstanding. The industry could see death by a thousand cuts through taxes, stricter environmental enforcement up and down the industry such as limits on methane emissions or stricter pipeline safety standards, or an outright ban on certain regions for drilling. In short, public policy could force the industry to leave oil and gas reserves in the ground.

Second, the industry could face peak oil demand at some point because of the rollout of electric vehicles, a development that is not immediately imminent but is the subject of growing speculation from even the most conservative and hard-headed oil companies.

These industry trends have changed the equation for investors. In a potent sign that the industry is suddenly facing more pressure, BlackRock, the world’s largest asset management company, supported the climate resolution for Occidental Petroleum, using its 8 percent of the company’s shares to tip the scales.

But the passage of a climate resolution by Exxon’s shareholders is on a different level in terms of importance and symbolism. Ceres, one of the leading groups on environmental shareholder activism, called it a “historical shift in investor support for climate disclosure.”

Exxon was under added pressure because of the investigation several Attorneys General, led by New York, which allege that the oil major is misleading its shareholders by not disclosing its long-term climate risks. The outcome of the investigation is uncertain but could be a watershed moment for the industry.

Last year a similar measure only garnered 38 percent of the vote. Exxon reportedly lobbied shareholders directly in the lead up to this year’s vote, pressing them to reject the resolution. Exxon maintains that it is already scenario-planning for different possible futures. “[T]he corporation agrees with the underlying objective – we just have a different view on the best means to achieve it,” Exxon said in a statement. In any event, the company maintains that it is confident it will be able to produce all of the oil and gas on its books.

But on Wednesday, 62 percent of them passed the resolution. Shareholders also passed separate resolutions calling on Exxon to describe its plans to reduce methane emissions.

The passage of the resolution by a large margin will force Exxon, whether it wants to or not, to become more transparent about its financial risks. “Whether it’s shareholders or attorneys general or the passage of time, they’re going to have to become honest about the potential for their assets to be stranded,” Bob Litterman, chairman of the risk committee at asset-management firm Kepos Capital, told CNBC. And with major pools of money from asset management companies like BlackRock shifting in favor of climate disclosure, there is probably no going back.

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  1. cnchal

    President Trump, please leave the United States in the Paris Accord. Set your narcissism aside for one day and think of the other nearly 8 billion people on the planet. It’s not always about you.

    1. PIANKI

      President Trump please keep to your promise and leave this Paris Debacle. It is high time that the United States no longer be looked at as the Cash Cow for the worlds ambitions. If other nations desire for this spending proxy then let them foot the cost.

  2. Larry

    This does seem like a watershed event, almost like shareholders asking to have their share price directly devalued. Did an economists mind get fried from this vote outcome?

    1. rfdawn

      On the other hand, shareholders are trying to perfect their knowledge and become ideal economic agents.

  3. Wyoming

    I am going to make a call on the interpretation above (and in all of the main stream press) of what the actual meaning of the shareholder resolution actually was.

    In sum I think they have it exactly backwards in that the purpose of this resolution was NOT to try and force Exxon to address climate change it terms of modifying Exxon business practices with a goal of lessening the effects of their fossil fuel business making climate change worse. (they would like it to be but really?)

    What this resolution does is try and force more transparency in company reporting on how the Paris climate agreement and other governmental actions around the world have the potential to impact their “profits”. In other words they are more worried about their investments and protecting their bottom lines. Solving climate change is not what it is about.

    Blackrock and others are extremely wealthy investors and have a lot at risk here. They, as always, are looking out for themselves – not us.

    If you would like to read what the shareholder resolution actually says go here: Page 62


  4. Jon Cloke

    Won’t make too much difference, really; Paris is a bullshit smoke-and-mirrors piece of Capitalist non-action anyway. US carbon emissions have been in decline since about 2000 because of the de-industrialization going on there (hello, NAFTA!) and Trump isn’t going to reverse that.

    The critical player here is China, which is making gargantuan efforts to cut down reliance on fossil fuels for strategic reasons with a little bit of citizen concern thrown in. They’ll be thanking Trump profusely for handing them a competitive advantage in RE research and development which probably can’t be overcome.

    In the meantime we have 40 years before we hit the critical 2C global temperature rise which will fuck us all. We’re at around 410 ppm carbon in the atmosphere (we start suffocating at around 1,000) so if you’re planning on having kids they’ll need to be able to breathe CO/CO2. The only way of stopping this is by regulatory action so dramatic that it isn’t possible – e.g. no fossil-fuel cars by about 2025. Anywhere.

    So, see you all on the other side! BTW, If you want to know what the other side looks like go and look up Late Permian Extinction and the Siberian Traps on Google…

    1. sunny129

      [..]Based on the Met Office’s estimates and my calculations, 2016 will probably be around 1.1 to 1.5 degrees above the 1850-1900 average. An annual breach of 2 degrees could happen as soon as 2030, according to climate model simulations, although there’s always the chance that climate models are slightly underestimating or overestimating how close we are to that date. Writing with fellow meteorologist Jeff Masters for Weather Underground, Henson said the current spike means “we are now hurtling at a frightening pace toward the globally agreed maximum of 2.0°C warming over pre-industrial levels.”[..]


  5. hemeantwell

    significant pressure from investors to encourage US companies to address climate change

    If there’s going to be a corporate cavalry coming to the rescue, it will be composed of regiments from the insurance companies. E.g. from the top of the google heap http://fortune.com/2016/08/23/munich-re-disaster-insurance/

    And there’s this on insurance companies and the environmental movement.

    The real world grounding of surplus value waiting to be monetized is capitalism’s nightmare.

  6. Steven

    What WOULD hurt Blackrock and other extremely wealthy investors is for the rest of the world to stop buying not just Exxon’s world-destroying products but the financial claims (i.e. stocks, bonds, etc) on the profits those world-destroying products produce.

    And while we are at it, why not a generalized boycott on the products and financial paper of other segments of the US economy, e.g. its military-industrial complex, until such time as the country rejoins the world as a responsible member of the family of nations?

    1. Vatch

      generalized boycott

      The first step would be to provide a list of companies that are heavily involved in objectional practices. Can you point us to such a list?

      Aside from boycotting specific companies, people can do good simply by using energy more efficiently.

      1. Steven

        Most of us could come up with specific candidates, e.g. Ratheon. But as Peter Dorman notes, this goes beyond blatantly objectionable to products and processes that have become an accepted part of everyday life in the West, e.g. air travel and transportation systems based on the internal combustion engine.

        What is required is a reworking of the infrastructure sustaining the Western way of life so we can pass the world along the the next generation in, hopefully, at least as good shape as we found it. This obviously requires collective action – and a science-based vision of ‘what is to be done’.

      2. philnc

        Can I Google that for you?

        But seriously. The way to drive a species (corporations whose businesses threaten the survival of the human race) into extinction is to thin the herd, picking them off one at a time until they’re all gone. Approach the task as our Neolithic ancestors did: go first for those so far behind or ahead of the rest that you can corner them and take them down in isolation. The coming Chinese and Indian push to steer clear of fossil fuels, two markets that were supposed to comprise a huge part of predicted future demand, will undercut the business plans of all the major suppliers, including Exxon. It will also leave a lot of others, unprepared for change, in the lurch. Targetted boycotts of specific companies like those that did in South African apartheid, are the strategy to follow. Recall that the SA boycotts took a decade to have an effect, and did not look like much in the beginning.

        1. Arizona Slim

          I remember those boycotts. They affected a lot of purchasing behavior, including that of a former boss. She had purchase a clearly inferior computer for our office. When I asked her why she hadn’t gone with an IBM machine, she flat-out told me that they did business in SA, and that was that.

  7. Peter Dorman

    The interpretation of this event depends on how you think we will mitigate the carbon threat (if at all). If you believe, as many apparently do, that action against climate change will take place primarily on an individual-by-individual or company-by-company level, then the issue for you is whether a report by Exxon of its vulnerability to carbon regulation will spur it to make choices that voluntarily to leave reserves in the ground.

    If you think, as I do, that collective action — regulations, taxes, permit systems — is the only viable route, the issue is political: how would a report by Exxon contribute (or not) to the political change we need to get an effective set of laws and treaties? The answer to me seems obvious: getting Exxon to reveal its financial stake in preventing climate action clarifies the conflict. It’s information for us, really, not for them. (I assume they already know.)

    But it would be a mistake to stop with the fossil fuel companies. A wide range of firms is exposed to risk from potential climate policy, either because of the inputs they depend on or the demand from which they get their revenue. Boeing? Of course, and all their airline customers. A lot of manufacturing may be impacted, and agriculture and the real estate and commercial sectors. It would be wonderful to shed some empirical light on the incentives that have created such powerful headwinds to climate action in every country subject to the political power of capital (i.e. all of them).

    Of course, investors should know these impacts, so the demand for reporting is not simply political. But the reason this demand is important is its political effect.

  8. Tim

    I think too much is being read into the Exxon vote.

    Shareholders are simply stating all risks should be properly accounted for, and climate change is the biggest risk there is. It doesn’t mean they are all good steward environmnetalists, or long term minded economists.

    They just don’t want some damning report hiding in a drawer until the CEO takes his golden parachute jump.

  9. RBHoughton

    I think we have a problem in the Anglosphere about contracts. I recall about 20 years ago a Florida-based company was selling contractual clauses for the China trade. The best-seller was a contract that was enforceable by the western buyer but not by the Chinese manufacturer.

    When Gorbachev objected to NATO recruitment of all the Eastern European countries up to the Russian border the western response was “ha,ha – that was a verbal promise not to encroach. You should have got it in writing”

    When legal executives reach this level of corruption we cannot pretend we live by the rule of law.

  10. Smitty

    What if ……the majority of ExxonMobil shareholders are OPEC members eliminating the competition?

    Or worse an offshore Federal Reserve slush fund?

    Like the Fed setting public policy through printing/ownership.

    Or did ya not notice the 20T in debt we suddenly created out of thin air from a state so sore sub-prime collapse.

  11. Smitty

    Of the 62 % XOM shareholders that voted Carbon BS what % are foreign states?

    Japanese don’t let foreigners hijack their corporations, that’s why we drive Hondas and Toyotas.

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