Big U.S., European oil firms split on stockholder climate-related proposals

By Benjamin Hulac | 05/28/2015 08:14 AM EDT

Article updated at 12:29 p.m. EDT.

Proposals from Chevron Corp. and Exxon Mobil Corp. shareholders fell far short of majority support yesterday, the latest developments in a year that has seen a surge in proxy resolutions on climate change.

At Chevron’s general meeting, a measure from As You Sow, a sustainable investment nonprofit, requesting a dividend boost over concerns that the firm is making risky investments that could be blocked off due to government regulations or undercut by cheaper energy options received 4 percent support. The Securities and Exchange Commission blocked a comparable petition to Exxon earlier this year (ClimateWire, March 26).

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"Chevron has lost money in 9 of the last 10 quarters due to poor capital investment decisions … we don’t think we have a climate competent board capable of innovative thinking," said Andrew Behar, the CEO of As You Sow, in a statement.

Both companies faced proposals to set greenhouse gas emission targets, and neither garnered strong support — receiving about 9 and 9.6 percent support at Chevron and Exxon, respectively. Michael Crosby, a Franciscan friar in Milwaukee, had sponsored an Exxon proposal to appoint a climate change expert to the company board. His suggestion earned 21 percent of the vote.

"We didn’t expect a whole lot," said Danielle Fugere, president and chief counsel at As You Sow, regarding the dividend resolution, which received 4 percent of votes, in a call after Chevron’s meeting. Chevron employees had a slideshow ready in preparation for her proposal, and the company seems to be taking her request seriously, Fugere said.

"It’s a new issue," she said. "The world is changing. Markets are changing. Demand is changing."

Energy companies like Chevron, she said, should be thinking about how climate change affects their businesses and long-term plans.

This is the third year that As You Sow has filed proposals on carbon asset risk — the concept that regulations, competition and other economic factors could block energy companies from tapping their reserves, in turn devaluing the firm.

The "underlying concern," Fugere said, is how energy producers are planning to adapt in a warming world.

Climate change and adjacent topics, such as energy security, natural gas flaring and emissions targets, are common themes this proxy season. Out of roughly 900 shareholder resolutions filed with U.S. companies, a little under half concern environmental or social issues, with climate change and energy use driving a large portion of the glut (ClimateWire, May 27).

If company leaders want to block a shareholder proposal from a vote at a company meeting, they can write a letter to the SEC.

Companies want the SEC to block petitions

An analysis by ClimateWire of the letters requesting the SEC to block petitions, covering available correspondence between companies and the agency from May 2014 through April, found U.S. firms attempted to derail shareholder proposals of all topics 337 times.

Of those instances, energy companies — extractors and utilities — wrote to the SEC 62 times. In half of those cases, the proposals dealt with climate change. And 65 of all the proposals — a little less than 20 percent — were related to climate change.

The SEC only tracks proposals that companies wish to exclude, not the complete pool of active resolutions.

Yesterday’s results hint at growing differences between European and U.S. energy companies in their approaches to climate risks.

At the annual meetings of BP PLC and Royal Dutch Shell PLC, earlier this year, shareholder resolutions asking the firms to plan for long-term, low-carbon energy scenarios and stress tests of their investments passed almost unanimously after both boards announced their support.

Investors cast roughly 98 percent of BP votes and 99 percent of Shell votes for the resolutions, which requested improved transparency about emissions and climate planning (ClimateWire, Feb. 19).

"We have a thought-through and pragmatic strategy to position your company in the long-term energy transition that is underway," said Ben van Beurden, Royal Dutch Shell’s CEO, at the company meeting last week.

Statoil ASA, the Norwegian oil major, supported a similar measure — "regarding Statoil’s strategic resilience from 2035 and beyond," as the company explained — last week. After board support, the proposal received 99.95 percent of the vote.

"This trans-Atlantic divide is something that investors are picking up, as well," said Mary Beth Gallagher, acting director of the Tri-State Coalition for Responsible Investment, a network of Catholic investors in Connecticut, New York and New Jersey.

‘You’ve got no voice,’ says shareholder

"Rex Tillerson did not mention climate change or renewables once," said Crosby, who attended the Exxon meeting. "It was a non-issue," he added. "He didn’t even address it."

Toward the end of Exxon’s meeting, Crosby pressed Tillerson, the firm’s CEO, asking why the company isn’t investing in renewables.

"The train was on the tracks, and the only destination was more fossil fuels," said Crosby, who plans to file the same resolution next year.

After Crosby told Tillerson that Exxon receives government subsidies, the CEO denied that charge, responding that wind and solar power are loss leaders.

"We choose not to lose money on purpose," Tillerson said. Many of the standard climate models and emissions projects, Tillerson told the audience in Dallas, "are not that scientifically sound," Crosby recalled in an interview.

"You’ve got no voice," he said when asked if he would consider selling Exxon holdings. "You have a voice when you’re part of reality."

Investors who care about climate change and the connected financial risks are often bundled into two categories — those who divest and those who engage. And recent announcements about fossil fuel divestment from colleges, religious groups and pension funds have fueled what some see as a divide.

If an investor sells its financial stake — divests — it gives up the access it had to negotiate with company leaders.

"I think the two are frequently pitted against each other," said Aaron Ziulkowski, an analyst at Walden Asset Management, a financial firm specializing in sustainable and responsible investment, of the debate. The discussion is publicly seen in a binary format, he said, while it’s actually more intricate.

Trying to send a message to investors

"They’re much more complementary," Ziulkowski said of both methods. "It’s any easy way to frame something," he added of the debate. "Underlying that is the sense that engagement to date hasn’t worked."

Trained as a human rights lawyer, Gallagher said divestment has framed climate change as a financial risk, not just an environmental cause, to a growing group of investors. But, she said, divesting "shifts the burden" to endowment committees rather than boards of directors — the leaders responsible for long-term energy planning.

Will Lana, an investment management partner at Trillium Asset Management, a sustainable finance firm, works with companies to lower emissions, often negotiating with access only available through ownership.

"A hands-on engagement process can be just as effective at getting the message out there as divestiture," Lana said in a call from San Francisco last month. "They’re both sending a message as investors."

Private equity firms with a seat on corporate boards probably have more clout than common stockholders, Lana said, but investors can still have a say.

About half of Trillium’s clients are entirely divested of fossil fuels, he said, but Trillium helped clients with engagement and divestment actions. Walden’s Ziulkowski said his company has clients pursuing both routes, too.

After Trillium recently engaged with Home Depot Inc. and 3M Co., both companies began moving toward renewable energy targets, Lana said. Energy-producing companies, he added, are often harder to negotiate with than businesses in other sectors.

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