US majors caught between duelling ESG agendas

ExxonMobil and Chevron will face renewed calls to double down on climate commitments at shareholder meetings next week, just as a backlash against environmental, social and governance (ESG) pressures is building.

The pushback has been underpinned by such seemingly stalwart supporters as BlackRock, which said many shareholder proposals this year are too "prescriptive", and unexpectedly garnished by firebrands such as tech entrepreneur Elon Musk, who saw his electric vehicle (EV) maker Tesla penalised this week.

Resolutions this month urging Occidental Petroleum and ConocoPhillips to pursue more ambitious emissions-reductions plans in alignment with the Paris Agreement failed to gain much traction among shareholders. And a climate resolution at BP's annual meeting was backed by just 15pc of investors, down from the 21pc who supported a similar proposal last year.

The lack of support may reflect increasingly urgent concerns over energy security sparked by the war in Ukraine, which has pushed up fuel costs amid tight global supplies, and overshadowed climate issues for the time being. Investor criticism of the specific climate measures being promoted this year is growing.

"Our early assessment is that many of the proposals coming to a vote are more prescriptive and constraining on management than those on which we voted in the past year," BlackRock, the world's biggest asset manager, said in a recent investment stewardship update. The firm, which played an instrumental role in backing an investor revolt at ExxonMobil last year, argues that attempts to lessen reliance on Russian fuel exports are changing the dynamics of the energy transition and will drive the need for "companies that invest in both traditional and renewable sources of energy" for some time to come.

Climate measures on the ballot when the top two US producers hold their annual meetings on 25 May include calls for ExxonMobil to reduce sales of oil and natural gas and slash emissions, as well as report on its low-carbon business planning. Chevron is being pressed to report on the impact of a net zero 2050 scenario. Both boards recommend investors vote against the proposals.

A year ago, shareholder angst at the perceived lack of urgency with which ExxonMobil was treating the climate crisis sparked a rare investor revolt that unseated a quarter of its board. And a majority of votes cast at Chevron's annual meeting backed action to tackle emissions from customers. The ensuing backlash prompted both to beef up their climate commitments, with expanded targets to curb emissions and pledges to invest billions of dollars in low-carbon technologies such as carbon capture and hydrogen in coming years. While both moves were far beyond what might have been expected of the firms just a few years ago, the measures were dismissed by the green lobby as being insufficient, especially compared with more transformative efforts undertaken by their European peers.

Musk smells a rat

The annual meetings come as ESG issues are drawing increased scrutiny at the federal and state level. Proposed rules at the US Securities and Exchange Commission — calling on companies to disclose their emissions and assess future risks from climate change in financial statements — are also being contested in Washington. Former vice-president Mike Pence railed against what he called "capricious" ESG regulations that are choking off financing for fossil fuels, as well as activist investors who are pushing "left-wing" causes. And Tesla's Musk last week lashed out at ESG principles after the EV manufacturer was booted from a top benchmark that tracks sustainable companies, while ExxonMobil made the list. "ESG is a scam," he wrote on Twitter. "It has been weaponised by phony social justice warriors."

By Stephen Cunningham