Investors reduce heat on big oil even as climate proposals climb 

Cli­mate-relat­ed ini­tia­tives were front and cen­tre dur­ing the 2022 proxy sea­son, but share­hold­er sup­port dwin­dled from last year amid a boom­ing oil mar­ket and a broad­er back­lash against envi­ron­men­tal, social and gov­er­nance (ESG) prin­ci­ples.

The num­ber of envi­ron­men­tal (includ­ing cli­mate) pro­pos­als filed at com­pa­nies list­ed in the S&P 500 and Rus­sell 3000 this year surged 71% from 81 to 137 through July, accord­ing to the Con­fer­ence Board, a non­prof­it busi­ness research group, using data from Esgauge. But over­all vot­ing sup­port for envi­ron­men­tal pro­pos­als slipped to 34% from 38%. 

A sep­a­rate analy­sis of share­hold­er vot­ing by US-based multi­na­tion­al law firm Gib­son Dunn in July found cli­mate change pro­pos­als alone jumped 57% to 130 from 83 last year. But only nine won major­i­ty approval ver­sus 11 last year, while the aver­age vot­ing sup­port fell to 33.4% from 49.9%. (The firm’s analy­sis was based on data com­piled by proxy advis­er Insti­tu­tion­al Share­hold­er Ser­vices.)

The upwelling of share­hold­er sup­port for envi­ron­men­tal issues last year was high­light­ed by activist investor Engine No. 1 suc­ceed­ing in hav­ing three new direc­tors vot­ed onto the board of Exxon­Mo­bil Corp for cli­mate-relat­ed rea­sons. 

Oil crunch overshadows climate concerns

But that remains a high point after the weak­en­ing of share­hold­er sup­port this year. Mark van Baal, founder of Dutch envi­ron­men­tal advo­ca­cy group Fol­low This, recent­ly even described 2022 as a “lost year” fight­ing cli­mate change as the major oil com­pa­nies can claim greater share­hold­er sup­port in the proxy wars. 

Indeed, it’s hard to ignore the impact record prof­its this year at oil giants such as BP, Exxon, Shell and Chevron may have had in soft­en­ing investor sen­ti­ment on cli­mate demands. “These pro­pos­als are about the long-term hori­zon but proxy vot­ing is affect­ed by cur­rent real­i­ties,” says Hei­di Welsh, exec­u­tive direc­tor of the non-prof­it Sus­tain­able Invest­ments Insti­tute in Wash­ing­ton DC, which tracks ESG-relat­ed pro­pos­als and vot­ing. 

The oil sup­ply shock fol­low­ing Russia’s inva­sion of Ukraine has put the focus back on fos­sil fuel pro­duc­tion. “Poten­tial nat­ur­al gas short­ages in Europe and pos­si­bly high­er oil prices have shift­ed pri­or­i­ties to secur­ing sup­ply – while wean­ing the EU off Russ­ian hydro­car­bons – from address­ing cli­mate change,” wrote S&P Glob­al ener­gy ana­lyst Simon Red­mond in a mid-year report.

BlackRock backs away from ‘prescriptive’ proposals

At the same time, asset man­age­ment giants like Black­Rock and Van­guard reject­ed cli­mate pro­pos­als they deemed over­ly pre­scrip­tive. Black­Rock, for exam­ple, report­ed vot­ing in favour of 27% of envi­ron­men­tal and social res­o­lu­tions in 2022, down from 43% last year, “as many cli­mate-relat­ed share­hold­er pro­pos­als sought to dic­tate the pace of com­pa­nies’ ener­gy tran­si­tion plans despite con­tin­ued con­sumer demand.”

That put the firm at odds with activists like Fol­low This, which intro­duced sev­er­al pro­pos­als call­ing for oil com­pa­nies to reduce emis­sions in line with the goal of the Paris agree­ment to lim­it glob­al warm­ing to 1.5 degrees Cel­sius above prein­dus­tri­al lev­els. 

At Shell, for exam­ple, that ini­tia­tive drew sup­port from 20% of share­hold­ers, down from 30% last year, while win­ning just 15% at BP, down from 21% in 2021. Until this year, sup­port had been increas­ing for the mea­sure at both com­pa­nies since Fol­low This first filed it in 2016.

Pro­pos­als set­ting more strin­gent tar­gets on green­house gas emis­sions, or net-zero tar­gets –request­ing com­pa­nies adopt poli­cies align­ing with the Inter­na­tion­al Ener­gy Agency’s Net-Zero Emis­sions by 2050 sce­nario – are nat­u­ral­ly going to be a hard­er sell than ones ask­ing com­pa­nies only for report­ing or dis­clo­sure, accord­ing to proxy experts.

“Dis­clo­sure res­o­lu­tions are get­ting the same lev­el of sup­port,” says Andrew Behar, CEO of envi­ron­men­tal and social advo­ca­cy non-prof­it As You Sow. “But it’s the new­er res­o­lu­tions that are a lit­tle more gran­u­lar which are chal­leng­ing the sta­tus quo.” 

In the for­mer cat­e­go­ry, As You Sow won major­i­ty sup­port this year for a nov­el pro­pos­al ask­ing insur­ance giant Chubb to report on how it plans to mea­sure, dis­close and reduce the green­house gas emis­sions asso­ci­at­ed with its under­writ­ing activ­i­ties. The aim is to make the insur­ance indus­try more account­able for the role it plays in financ­ing fos­sil fuel projects. 

But Behar says he expects share­hold­er res­o­lu­tions to increas­ing­ly focus on direct action fol­low­ing the adop­tion of a pro­posed US SEC rule that would require com­pa­nies to pro­vide detailed report­ing on their cli­mate-relat­ed risks, emis­sions and net-zero tran­si­tion plans.

Large com­pa­nies would have to dis­close that infor­ma­tion start­ing in fis­cal year 2023 under the new rule. 

Battling the ESG backlash

Even more than stricter demands, oth­ers attribute soft­er sup­port for cli­mate pro­pos­als to push back against ESG invest­ing more broad­ly. Con­ser­v­a­tive-lean­ing investors such as Peter Thiel, promi­nent busi­ness fig­ures like Elon Musk and the Repub­li­can par­ty in the US have late­ly tak­en aim at ESG as irre­spon­si­ble “woke cap­i­tal­ism”.

“I would not under­es­ti­mate the impact that the anti-ESG back­lash is hav­ing on some investors,” says Tom Pow­drill, head of stew­ard­ship at Lon­don-based proxy advis­er Pen­sions & Invest­ment Research Con­sul­tants. “There’s sig­nif­i­cant polit­i­cal and cor­po­rate pres­sure being exert­ed in some cas­es.” 

Despite its pull­back on cli­mate pro­pos­als this year, Black­Rock has come under attack by con­ser­v­a­tive groups and politi­cians as a lead­ing pro­po­nent of ESG invest­ing. Accord­ing to an Axios report, Repub­li­cans plan to haul in the CEOs of invest­ment firms such as Black­Rock before Con­gres­sion­al com­mit­tees if they retake pow­er in Jan­u­ary. 

For his part, Van Baal has no plans to change strat­e­gy in the wake of the ESG back­lash or soar­ing oil indus­try prof­its. That means con­tin­u­ing to push for reduc­tions in emis­sions aligned with the Paris accord and build­ing on the minor­i­ty of share­hold­ers its pro­pos­als have attract­ed. 

“Togeth­er with these investors, we must con­vince a major­i­ty of investors that big oil will not change unless they use the pow­er they have, the pow­er of the vote,” he says.