As one of the world’s largest oil and gas manufacturers, Exxon Mobil always commands the attention of environmentalists from outside the company. The action at the annual shareholders meeting in Dallas last week showed the company is facing growing scrutiny from institutional investors as well. The voting results tracked the board’s proxy statement recommendations, but the numbers don’t tell the whole story regarding a compelling proxy battle.
The biggest development to come out of the event was set in motion weeks before it occurred. In April, the Securities and Exchange Commission sided with Exxon’s request to strike down a shareholder proposal that would have forced the company to “include disclosure of short-, medium- and long-term greenhouse gas targets aligned with the greenhouse gas reduction goals established by the Paris Climate Agreement.” The SEC agreed with Exxon’s claim that the proposal constituted “micromanagement” of the company.
The Church of England’s endowment and the pension fund of New York state sponsored that Paris Agreement-based climate change proposal, and they weren’t going away easy. In response to the SEC’s decision, the two institutional investors changed tack – throwing their weight behind The Kestrel Foundation’s proposal to split Exxon’s CEO and chairman positions by way of a Notice of Exempt Solicitation. These filings, which attempt to sway fellow shareholders’ votes, have seen a dramatic uptick in the past decade. In 2009, 35 such filings appeared under SEC Forms PX14A6G and PX14A6N. By contrast, 163 such exempt solicitations were filed in January through May of 2019 alone.
Making his case to fellow shareholders, New York State Comptroller Thomas DiNapoli’s filing stated: “Exxon’s board’s refusal to adequately address significant shareholder concerns and properly account for climate risk in its operations, even as its competitors do so, presents a governance crisis. Exxon’s failure to demonstrate it is prepared to take steps toward the transition to a lower carbon future puts its business at risk. We encourage other investors to join us in voting to separate the roles of chair and CEO.” Although the measure failed, support for it climbed to 41% of votes, up from 38% for a similar proposal the year before.
By contrast, a shareholder proposal to split off the chairman position from the chief executive at Chevron Corp., one of Exxon’s chief competitors, garnered only 26% of the votes at Chevron’s annual meeting last week. In a February climate report, Chevron followed Royal Dutch Shell in announcing plans to tie both executive compensation and rank-and-file employee bonuses to reductions in greenhouse gas emissions. Chevron also pledged that by 2023, it will reduce its “methane and flaring intensity” by 25 to 30 percent from 2016 levels. In its own climate report, Exxon set a goal to reduce methane emissions by 15 percent and flaring by 25 percent by next year, as compared to 2016 levels.
In addition to the traditional independent chair governance proposal, The Church of England and the New York state pension fund also backed Arjuna Capital’s failed proposal to create a special board committee on climate change. As You Sow’s separate environmental initiative, which would have required a report on potential public health risks from new chemical plants in the U.S. Gulf Coast, met a similar fate. Neither proponent being shrinking violets in their own right, Arjuna Capital and As You Sow filed their own exempt solicitations as well.
Exxon responded promptly to the Church of England’s and New York State Comptroller’s criticisms: “Unfortunately, the Church of England and New York State Common Retirement Fund are now arguing that ExxonMobil, by successfully requesting SEC confirmation that their resolution could be omitted, is failing to engage with shareholders and is not taking climate change seriously. We disagree.” They ultimately carried the day. However, going forward, Exxon should probably count on the Church of England and the Office of the New York State Comptroller to use any bully pulpit available to pressure the company for more aggressive climate change measures. All other public companies should anticipate monitoring their filings for such notices and have their own communications strategy handy.