Recapping the Historic Week for Sustainable Investing in the Oil and Gas Industry

   By Jake Barnett
   Director, Sustainable Investment Stewardship
 
   June 3, 2021

The past week has been an incredibly interesting period in the global financial markets—and I am not just talking about the latest trending cryptocurrencies or Reddit-driven stocks.

Indeed, we have seen a number of headlines that likely piqued the interest of anyone paying attention to the intersection of climate change and finance. More specifically, I want to point out three stories from the oil and gas industry that create what some are calling a "watershed moment" in the transition to a net-zero greenhouse gas (GHG) economy.

The first comes from ExxonMobil, which held its annual shareholder meeting last week. Heading into the meeting, climate-aware investors had grown frustrated with ExxonMobil due to a lack of responsiveness regarding climate concerns and poor financial performance.

This tension came to a head when ExxonMobil's shareholders approved two new directors from a dissident slate of candidates proposed by Engine No. 1, an activist hedge fund with a sustainability lens. Engine No. 1 held just a 0.02% ownership stake in ExxonMobil, which is well below the 3% - 5% ownership levels typically needed to lead a successful activist campaign. Nevertheless, the fund was able to build enough support throughout the investment community to succeed in shaking up ExxonMobil's board of directors. This disruption of Exxon's existing corporate practices was further reinforced by a majority vote from shareholders on two proposals related to lobbying.

The dissident board slate at Exxon is an example of "Activist Stewardship"—a technique championed by California-based public pension giant CalSTRS (who supported Engine No. 1's campaign). The term describes the process of incrementally heighted engagement at companies where typical engagement efforts have failed. These engagements are usually focused on environmental, social and governance (ESG) issues.

The success of Engine No. 1's Activist Stewardship campaign coincided with other major news regarding ExxonMobil's peers. At Chevron's annual shareholder meeting, a proposal calling on the company to reduce its Scope 3 emissions passed with 61% support from investors. Scope 3 emissions include those associated with the use of a company's products.

Meanwhile, Royal Dutch Shell faced judicial pressure, as a court in the Netherlands ruled that the company must reduce its Scope 3 emissions 45% by 2030. The ruling was described by proponents as the first time a company has been legally obliged to align its policies with the Paris Climate Agreement, while journalists covering the case described the decision as a "precedent setting judgement."

We at Wespath have closely watched all these developments in the oil and gas industry. We continually seek to better understand the trajectory of the financial markets and to discern what actions are needed to contribute to the transition to net-zero. Climate change has long been a focus area of our sustainable investment initiatives, and we believe environmental health is an integral pillar of a sustainable global economy. In fact, we voted in favor of the dissident director slate at ExxonMobil and for the aforementioned shareholder proposals at both ExxonMobil and Chevron.

We also believe that engaging with businesses on the urgent need to transition to net-zero is the most effective method to support our climate-related ambitions. The success of the engagement initiatives at ExxonMobil and Chevron lends strong evidence to this belief. Likewise, our "Low-Carbon Transition" Investment Belief states that, among other things, public policies—such as the judicial ruling in the Netherlands—are contributing to investment risks and opportunities related to climate change.

These recent notable achievements do not mean that those of us in the shareholder engagement community can rest on our laurels. Just the opposite, actually. The latest news out of the oil and gas industry motivates us to keep going—and to do more. We look forward to further engagement opportunities with oil and gas majors through our leadership in Climate Action 100+, and we are encouraged by the chance to influence the broader economic community through initiatives like the Net-Zero Asset Owner Alliance.

I send my sincerest congratulations to Engine No. 1, CalSTRS and all the investors and advocates alike who contributed to the historic week we just witnessed. We are excited to support more historic weeks for climate in the near future!