Shareholder activism faces test over high fuel costs

Climate activists still giddy from high-profile wins at US oil and gas producers such as ExxonMobil in the past year may be challenged to overcome the recent drumbeat for more production to counter sky-high fuel costs.

Consumers and governments sensitive to higher prices will be pushing back on green campaigners' hopes for more action in the wake of a supply crisis sparked by the Russian invasion of Ukraine that has sent oil prices surging above $100/bl and reignited concern over runaway inflation. "The pressure will be on for more oil, not less," corporate governance expert Charles Elson says. "The environmental issue takes a backseat, like it or not."

That has not stopped Dutch activist group Follow This from filing climate resolutions at companies including ExxonMobil, Chevron, ConocoPhillips, and Occidental Petroleum that call for more sweeping emissions-reduction targets in line with the 2015 Paris agreement. Only Occidental has sought to have a climate proposal being pushed by the activist group thrown out on the grounds that the company had already "substantially implemented" the motion.

Its attempt was rejected by the US' top financial regulator, the Securities and Exchange Commission (SEC), clearing the way for a vote. What is significant is that Occidental is alone among its US peers in setting out a target to reach net zero emissions — including Scope 3 emissions from the use of its products — by 2050.

Fewer firms are attempting to keep climate proposals off the ballot after the SEC recently signalled a crackdown. The failed Occidental petition "proves the winds of change in the SEC under the Biden administration", Follow This founder Mark van Baal says. The regulator last week released long-awaited proposals that will force publicly traded companies to disclose more information about climate risks, a move opposed by industry, but welcomed by climate groups. The SEC's new approach has "created an environment of greater awareness and likely greater support for resolutions", ValueEdge Advisors vice-chair Nell Minow says.

Chevron has found itself in the sights of shareholder advocacy group Majority Action, which is urging investors to strip chief executive Mike Wirth of his chairman role. It argues that the firm has failed to take meaningful steps to curb its carbon footprint, even after 61pc of shareholders last year voted for it to "substantially" cut Scope 3 emissions. "We will address matters related to the upcoming annual stockholders meeting in our proxy statement, which will be issued in early April," the company said.

Climate, crude or cash flow?

Activists are hoping to tap into growing investor angst over climate change, which should not be underestimated as companies gear up for their annual general meetings. Few expected a tiny hedge fund would last year succeed in ousting a quarter of ExxonMobil's board, a result that sent shockwaves through the rest of the industry. But last year's backlash at ExxonMobil was as much driven by investor unease over years of financial underperformance as climate concerns. And now firms are sitting on huge cash piles thanks to higher oil prices, and their finances are on a far more solid footing.

Even investors that may have seemed like climate campaigners' best friend last year appear to be pushing the other way. One of the founders of Engine No 1, the hedge fund behind the ExxonMobil campaign, recently argued in a Wall Street Journal op-ed for domestic output to be prioritised over imports from "less desirable" foreign suppliers. Still, green campaigners say any short-term need for more oil output should not distract from the need to accelerate the move away from fossil fuels as soon as possible.

By Stephen Cunningham