Last year proved to be a watershed moment for oil and gas companies in the global transition to clean energy, with Big Oil facing a series of boardroom and courtroom battles against hardline climate activists.
The world's largest publicly-traded oil company, Exxon Mobil (NYSE:XOM), lost three board seats to Engine No. 1, an activist hedge fund, in a stunning proxy campaign. Engine No. 1 demanded that Exxon needs to cut fossil fuel production for the company to position itself for long-term success. "What we're saying is, plan for a world where maybe the world doesn't need your barrels," Engine No.1 leader Charlie Penner told the Financial Times. Engine No. 1 enjoyed a stunning victory thanks to support from BlackRock Inc. (NYSE:BLK), Vanguard, and State Street who all voted against Exxon's leadership.
Next was its close peer, Chevron Corp.(NYSE:CVX), with no less than 61% of Chevron shareholders voting to further cut emissions at the company's annual investor meeting a week ago and rebuffing the company's board which had urged shareholders to reject it.
Finally, a Dutch court ordered Royal Dutch Shell (LON:SHEL) to cut its greenhouse gas emissions harder and faster than it had previously planned. Never mind the fact that Shell already had pledged to cut GHG emissions by 20% by 2030 and to net-zero by 2050. The court in The Hague determined that wasn't good enough and demanded a 45% cut by 2030 compared to 2019 levels. The past two years have been especially challenging for Shell shareholders after the company announced a major dividend cut with the quarterly dividend falling to 16 cents from 47 cents, the first dividend cut since WW11. Meanwhile, the company's debt had ballooned massively from $1bn in 2005 to $73bn in 2020.
Luckily for these oil and gas supermajors, investor sentiment has once again shifted in their favor.
Encouraged by last year's victories, including rules that made it easier to put public policy-related questions on proxy ballots, an analysis by the Conference Board of data supplied by Esgauge has revealed that climate activists have filed 389 environmental and social proposals with member companies of the Russell 3000 index so far this year.
However, the share of support for environmental proposals has dropped from 37% in 2021 to 33% this year, reflecting a growing aversion by asset managers to tying managers' hands when it comes to climate-related issues. Russia's invasion of Ukraine has also forced investors and companies to think more about energy security.
Ironically, it's none other than the world's largest asset manager, BlackRock Inc., that set the tone earlier this year when it warned that it would be voting against shareholder resolutions on climate that it considered to be too extreme or prescriptive.
Over the past few years, BlackRock has been at the forefront of encouraging oil and gas divestments, with CEO Larry Fink calling for corporate climate disclosures while also proclaiming that companies must have a purpose beyond profit. Back in 2019, BlackRock declared its intention to increase its ESG (Environmental, Social and Governance) investments more than tenfold from $90 billion to a trillion dollars in the space of a decade.
With $9.6 trillion of investments under its watch, BlackRock can certainly throw its weight around. Indeed, in 2020, the firm voted against 69 companies and 64 company directors for climate-related reasons while placing another 191 companies on watch.
Other money managers are following suit:
"It's the board's role to oversee and direct corporate strategy. As long-term shareholders, we need to be as pragmatic and consistent as possible," Ben Colton, head of stewardship at State Street Global Advisors, has told the Financial Times.
According to the Conference Board analysis, proposals asking management to report on several environment-related options have been receiving significantly higher backing than those that have sought to restrict management behavior. The report reveals that seven resolutions asking for reports on plastic pollution garnered an average of 45% support; on the contrary, the ten demands that banks and insurers stop financing new fossil fuel development received average support of just 10%.
Last month, Exxon recorded a major victory after its shareholders supported the company's energy transition strategy at the annual general meeting. Only 28% of the participants backed a resolution filed by the Follow This activist group urging faster action to battle climate change; a proposal calling for a report on low carbon business planning received just 10.5% support, while a report on plastic production garnered a 37% favorable vote.
Following in the footsteps of its larger peer, in June, Chevron shareholders voted against a resolution asking the company to adopt greenhouse gas emissions reduction targets, indicating support for the steps the company already has taken to address climate change.
Just 33% of shareholders voted in favor of the proposal, according to preliminary figures disclosed by the company, a sharp turnaround from last year when 61% of shareholders voted to support a similar proposal.
It appears that ESG and climate activism are now taking a backseat amid the global energy crisis, meaning the legacy businesses of fossil fuel companies remain safe--at least for now.
By Alex Kimani for Oilprice.com
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In such a situation, economics prevails over climate change.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London