Activist investors face uphill battle at US majors

The US majors are on the front foot entering this year's shareholder proxy season, emboldened by record profits and a growing conviction that fossil fuel demand is not going away any time soon.

This may mean climate-minded shareholders who saw their 2021 proxy season successes — including the ouster of one-quarter of the ExxonMobil board — fade in 2022 will have an even harder time gaining ground. Support for environmental proposals waned last year as concerns around energy security trumped climate change following Russia's invasion of Ukraine, which sent oil prices spiralling and sparked a full-blown energy crisis in Europe.

This time around, the oil industry has regained its feel-good factor and is unashamedly investing in upstream production growth after highlighting the risks of an energy transition push that tries to abandon oil and gas before clean energy investments and policy ensure a corresponding shift in demand. The US majors will still be confronted with climate-related shareholder proposals at annual general meetings. Follow This, a Dutch activist group, is calling on ExxonMobil and Chevron to set medium-term reduction targets for Scope 3 end-use emissions — which account for the vast majority of their carbon footprint. Shareholder advocate As You Sow is pressing both to recalculate baselines to strip out emissions associated with divestments since 2016, to give a more accurate picture.

Climate activists counter that the crisis is only getting worse, as reflected in a UN IPCC climate report last week, and shareholder campaigns could see renewed support this year. "I don't think the energy security narrative is going to dampen that interest," think-tank Carbon Tracker's North American executive director Rob Schuwerk says. In any case, the "long-term trend in terms of energy security is to have localised supply and that's going to favour renewables".

But as a growing backlash against investing along environmental, social and governance guidelines in some Republican states gathers momentum, climate campaigners may have their work cut out. Larry Fink, chief executive of Blackrock, the world's biggest asset manager, wrote in his recent annual letter to shareholders that it is not the job of firms like his to be the "environmental police", in a shift in tone from recent years.

Transition balance

Both ExxonMobil and Chevron plan to ramp up spending on low-carbon initiatives in coming years, and have welcomed incentives provided by the Inflation Reduction Act, although they still lag their European rivals. Yet at industry gathering the S&P Global CERAWeek conference in Houston this month, executives talked about the need for more balance when it comes to the energy transition. "The issue of how we best move toward a lower-carbon energy system is one that is getting reframed as we get some real experience with the challenges of pushing some of these new technologies forward," Chevron chief executive Mike Wirth said. "The reality is that affordability and energy security actually do matter."

Although tracking Scope 3 emissions may make sense for measuring global progress on combating climate change, there are "significant downsides" to applying such targets at the company level, according to ExxonMobil's chief executive Darren Woods. "We are growing our LNG business," Woods said. "Every tonne of LNG we produce backs out coal somewhere in the world."

There is now a broad consensus that oil and gas will be required for decades to come, while lower-carbon sources take time to ramp up, bank HSBC Global Research analysts say. "This means oil majors cannot afford to step off the upstream oil and gas ‘treadmill' too soon," they wrote in a recent note.

By Stephen Cunningham