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The Transatlantic Gap-What To Do about Chevron and Exxon?

16th June 2015| Shareholders Mull Range of Engagement and Resolution Options for 2016 AGMs

The outcomes of shareholder resolutions at the May Chevron and Exxon AGM’s and the subsequent decision by EU oil and gas majors to form their own climate lobby group and call directly for the establishment of  global carbon pricing has seen the mooted transatlantic gap amongst oil and gas majors become a reality.


For active shareholders, there was only one bright spot amongst the various measures put at the big two US AGM’s in contrast to the recent significant  advances with BP, Shell and Statoil.


The most sophisticated of the shareholder-based proposals, a dividend-harvesting measure by As You Sow was disallowed by the SEC at Exxon and only gained 4% at Chevron, highlighting the low bedrock of shareholder support at present for an active climate risk hedging strategy.


‘When this resolution was put up, it was not with the expectation that it would be carried,’ Fiona Reynolds, head of the Principles for Responsible Investment told the Financial Times.  ‘It is very innovative and it may well be ahead of its time.’


Mainstream requests for both boards to consider greenhouse gas emission targets promoted by  Tri-State Coalition for Responsible Investment and ICCR disappointingly failed to receive more shareholder support than earlier years and at Chevron went backwards by nearly 10% when ISS inexplicably withdrew its support in sharp contrast to its previous recommendations.


Resolutions to appoint a director with climate expertise remained stable at around 20% support, significant but not enough to shift either board.


Resolutions on transparency around political lobbying fared slightly better attracting 21% at Exxon and 28% at Chevron, but again, both results are unlikely to immediately bring forth further disclosure.


However, proposals for “proxy access” gained 55% support at Chevron and 49.4% at Exxon. Scott Stringer, the comptroller of New York City Pension Schemes and one of driving forces behind the Boardroom Accountability Project described the Chevron vote as a ‘historic victory’ and ‘a vote for accountable and climate-competent directors.’


‘I would expect there to be intense discussions between Chevron and its leading investors, and we could see a director with climate expertise being nominated next year,’ was an optimistic view of Andrew Logan, from the investor network Ceres.


The ability of active shareholders to settle on a credible nominee, attract board and sufficient institutional support to be appointed and or elected and then positively influence the respective corporate directions on both climate and carbon risk may take some time.  Even more so given both boards have long-standing directors and combined Chair/CEO roles.


The long term record of all three companies, helpfully documented by the Climate Accountability Project and more recently the insouciant AGM responses by Exxon, and the post AGM Chevron view that carbon pricing is unworkable all demonstrate  a pattern of resistance to addressing shareholder concerns and the limited success to date of shareholder engagement with the US  giants.


In a year dominated by financial and investor acknowledgement of climate risks and preparations for the November Paris COP21 conference, it is clear the US companies are determined to remain outriders.


Seasoned observers like Forbes UK business contributor Dina Medland have pointed to the approaching Papal Encyclical on the environment due for release later this week as adding a new element of pressure on the energy companies.


US business and political sensitivity over intervention from the Vatican is obvious with lobbyists dispatched to Rome in an effort to convince the Pontiff to pray rather than proselytise on climate.  A Papal address to Congress later this year will increase the pressure.


Calls for a more forceful stewardship model are growing, as is popular support for the simple and easily understood message of divestment which has now worked its way from college endowments through to major sovereign wealth funds and some faith based and pension investors.  Based on current annual meeting voting patterns both may struggle to have any measurable effect on the US players within the next 12 months.


Kieran Quinn, Chair of the £165bn Local Authority Pension Fund Forum, one of the major asset owner groups behind the UK ‘Aiming for A’ coalition that coordinated the BP and Shell voting campaigns characterised the new Euro energy company resolutions as ‘setting a new global standard for climate risk transparency in the energy sector’


The onus remains with investors to cement it.


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