Not a fire, but an opportunity

The annual meetings of Exxon and Chevron, two of the world’s largest oil companies, are seldom controversial. Most agenda items, like director re-appointments and reviews of the financial statements, are routinely rubber-stamped by the participants. Management can customarily count on the support of the shareholders to out-vote any objections to their performance and plans.

Not this year.

At Exxon’s annual meeting, climate change activists led by Engine No. 1, a sustainability-focused hedge fund, successfully replaced 2 of the sitting Board Directors with 2 of their own independent candidates over the objections of Darren Woods, the company’s CEO. And at Chevron’s annual meeting, 61% of the shareholders voted in favor of a proposal that compels the company to cut their carbon emissions.

These events are a culmination of years of dedication and hard work by organizations such as Proxy Impact, ICCR, As You Sow and several others that utilize the access provided by owing shares in corporations. Many more ESG focused resolutions are on other corporate annual meeting agendas and with the recent support of funds such as Engine No. 1, BlackRock and Vanguard, they also stand a good chance of passing.

While some have characterized this as a “bad day” for the oil and gas industry, these events actually bode well for these companies. Despite the public rhetoric, a large number of corporate CEOs support the Business Roundtable assertion that companies have to focus on the social and environmental impacts of their business decisions in order to create long-term value. Because management is beholden to shareholders who are often more concerned about short-term capital gains, CEOs have been reluctant to risk their jobs by supporting ESG considerations that could negatively impact the quarterly financial statements. The successes at Exxon and Chevron, combined with the recent Hague court ruling that requires Shell to cut its carbon emissions by 45% in 10 years, can provide both the impetus and political cover for corporate management to prioritize ESG within their corporate policies.

But much like trying to turn an aircraft carrier, progress will be slow. And there will undoubtedly be many forces aligned against these changes, both within and outside of these corporations. Shareholder advocacy definitely works, but its overall effectiveness depends upon the sustained support of other stakeholders, including the general public, who will provide the pressure required to compel corporations to become more socially and environmentally responsible.