Oil pumpjacks near McKittrick, Calif. The International Energy Agency said new fossil fuel investments must end, but some oil and gas companies are continuing to expand production. |
The 2022 proxy season saw activist investors knocked back in their campaign to convince shareholders at the major European and U.S. oil and gas companies to vote for stricter emissions cuts.
For the first time, a smaller share of investors at the likes of Shell PLC, BP PLC and Chevron Corp. voted in favor of rival motions calling for stronger climate targets than in previous years, with activists attributing a large part of the decline to the ongoing geopolitical volatility and increased focus on energy security.
Meanwhile, Scope 3 emissions — those deriving from products oil and gas companies sell and which represent the majority of the sector's greenhouse gas footprint — continue to be a major sticking point.
At Exxon Mobil Corp., investment firm Engine No. 1 LLC said it voted against a motion calling for long-term climate targets because it was too focused on changing Exxon's business model and said oil companies cannot provide meaningful numbers on Scope 3 in the near-term.
"We believe that consumer companies need to set clearer Scope 3 goals given that Scope 3 is driven by consumer demand," a spokesperson for Engine No. 1 said in an email. "This will, in turn, enable [oil and gas] companies to have more meaningful and transparent Scope 3 goals over time."
More broadly, the 2022 voting results could also be a correction compared to 2021, according to Mary Minette, director of shareholder advocacy at Mercy Investment Services.
In 2021, activists notched a string of high-profile successes against Big Oil, including a landmark court victory forcing Shell to cut its emissions faster and majority support for three resolutions filed by Dutch activist investor Follow This in the U.S.
"After the craziness of the 2021 season, I think we were all expecting rainbows and ponies," Minette said in an interview. "This was more like a normal season."
'Still shareholder rebellions'
Despite the lower voting share, a significant minority of Big Oil shareholders continues to defy management and vote in favor of faster decarbonization, including 20% at Shell, 15% at BP and 32% at Chevron.
"These are still shareholder rebellions," said Mark van Baal, founder of Follow This, which has filed motions at multiple oil and gas companies since 2016 and increased its share of the vote each time until this year.
In 2022, Follow This had votes on the ballot at eight oil companies, in each case asking shareholders to support targets that are consistent with the Paris Agreement on climate change and its goal to limit global warming to 1.5 degrees C. Oil majors urged their investors to vote against the motions, saying they were either unrealistic or too prescriptive.
"This year, for the first year, I'm somewhat stronger in my words," van Baal said in an interview. "Investors who have voted [against the Follow This motions] ... are complicit in increasing emissions."
Follow This gave a range of possible explanations for its declining vote share, including the volatility caused by Russia's invasion in Ukraine. It added that investors may have also taken a "softer stance" on oil majors' climate targets due to the healthy dividends and share buybacks that companies had posted in the first quarter.
Still, comparing one year's results to the next is often not a like-for-like exercise.
"Who owns what is a river that moves every year, so you're never really stepping into the same base twice," Minette said. "Until we know how the big funds voted on some of these things, we won't have a full understanding."
BlackRock Inc., the world's largest asset manager and a major investor in Big Oil, voted for five out of six Follow This proposals in 2021, only voting against the motion at Shell. Of its 2022 votes disclosed so far, it rejected the shareholder climate motions at Shell, Equinor ASA, Chevron and Exxon.
In a note to investors ahead of the proxy season, BlackRock said it had become wary of some climate-related resolutions emerging in 2022 that it described as "more prescriptive or constraining on companies and may not promote long-term shareholder value."
The Scope 3 conundrum
The discussion around oil majors' emissions reduction continues to revert back to their approach to Scope 3. Net-zero emissions pledges by European oil majors all include Scope 3, whereas those by U.S. companies typically do not.
In 2021, Follow This resolutions calling on Chevron, ConocoPhillips and Phillips 66 to "substantially reduce" their Scope 3 emissions each secured majority support from shareholders and nearly 80% support in the case of Phillips 66. Motions in 2022, this time calling on the companies to set Paris-aligned goals, garnered less than 40% support.
About a quarter of Exxon's investors supported a similar proposal from Follow This in 2022.
Engine No. 1 led a proxy campaign at Exxon in 2021 aimed at preparing the company for a lower-carbon future, which resulted in three of its own nominees being added to Exxon's board. Since the campaign, Exxon has "made significant progress on having enhanced capital discipline on fossil fuel projects and developed a low-carbon business," the Engine No. 1 spokesperson said.
At U.S. oil refiner Valero Energy Corp., 42% of shareholders supported a motion filed by Mercy calling for Paris-aligned targets.
Valero, which is yet to start reporting its Scope 3 emissions, described Mercy's motion as "not properly designed for companies in the oil and gas sector," given they have "limited control" over the use of their products downstream. It added that its production of low-carbon fuels contributes to reducing Scope 3 emissions.
"I think that's a bit of a cop out, quite frankly," Minette said about such arguments. "Not everything that happens in the Scope 3 realm is something that [oil and gas companies] have control over, but they do have control over some of it."
A protestor outside Shell's annual general meeting in London on May 24, which was delayed by three-and-a-half hours due to activists. |
'Our patience is running out'
In among the voting setbacks, the 2022 proxy season was not a total loss of momentum for climate activism at Big Oil.
A shareholder motion at Chevron calling for improvements in the company's methane detection and management received 97% support, while 52% of Exxon's investors backed a resolution asking the company to detail the impact of a transition to net-zero carbon emissions by 2050.
In Europe, BP and Equinor followed Shell's lead from 2021 in putting their own energy transition plans to an advisory shareholder vote. Investor support for Shell's strategy fell from 89% in 2021 to 80%, while BP and Equinor both secured significant majorities, though not the near-total support that in-house resolutions usually receive.
"It has become normalized to vote on climate strategies put forward by management itself," Carlo Cuijpers, sustainability adviser at Dutch investment manager Van Lanschot Kempen NV, said in an interview. "We would like to see this trend continue."
However, investors may not stick around for much longer if they continue to deem climate progress by oil companies to be insufficient. Some producers are also planning to expand their oil and gas capacity, despite the International Energy Agency saying new investments in fossil fuels need to end.
"Our patience is running out," Cuijpers said, noting that some asset managers in the Netherlands and elsewhere had already decided to divest. That said, the prospect of divestment might be unpalatable in a buoyant market for energy stocks. Exxon's stock price has increased 51% year-to-date, while Shell is up 34% and Chevron is up 40%.
Follow This continues to push for engagement and is working to convince unhappy shareholders to stay invested in the companies, urging them to use their voting power to effect change.
"If the responsible investors divest and less responsible investors step in, I think the boards of these companies will be popping corks," van Baal said. "After seven years of campaigning, we can conclude that [oil and gas companies] won't change on their own accord."
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