Environmentally Conscious Shareholders Require Companies to Assess Climate Change Policies on Business Portfolios
Thu Jul 6th, On Environmental Law, by Bick Law LLP
On May 31, shareholders of ExxonMobil Corp. (“Exxon”) approved a proposal that would require Exxon to publish an annual assessment of the long-term portfolio impacts of global climate change policies (the “Proposal”). Exxon joins two other major companies, Occidental Petroleum (“Occidental”) and PPL Corp. (“PPL”), where shareholders approved similar proposals requiring additional reporting on the business impacts of climate change policies.
The proposals at Exxon, Occidental, and PPL all cite the Paris Agreement in their requests for heightened climate change assessment. The Paris Agreement, signed by 195 nations in December 2015, encourages signatory nations to limit global average temperature rise to below 2 degrees Celsius, often referred to as the “2 degrees scenario.” Although President Trump announced recently that he is withdrawing the United States from the Paris Agreement, a surge of companies, industries, and states have publicly announced that they will continue to adhere to goal of limiting global warming to well below 2 degrees Celsius.
The Proposal requests that Exxon annually perform analysis on how its portfolio performs under the “2 degrees scenario,” and aims to ensure that Exxon “fully evaluates and discloses to investors risks to the viability of its assets as a result of the transition to a low carbon economy, including a 2 degrees scenario.” Over 60 percent of Exxon shareholders backed the Proposal, up from under 40 percent from a similar proposal last year. Exxon’s board of directors opposed the proposals both times, stating that its existing climate disclosures were robust and more than adequate. This Proposal was listed on this year’s proxy after New York State Comptroller Thomas DiNapoli won a March SEC ruling that turned down Exxon’s request to exclude it.
This is not the first time that shareholders have voted in support of annual assessment of climate change portfolio risks. In May 2017, Occidental’s shareholders approved a proposal that requires the oil and gas exploration company to report on the business impacts of climate change. This vote was unprecedented, as it was the first time such a measure succeeded at a U.S. major oil and gas company. Further, BlackRock, Occidental’s largest investor—which only last year opposed a similar resolution—voted in favor of the resolution this year due to its concern about the lack of transparency and improvements to Occidental’s reporting practices on climate issues.
Almost immediately after the Occidental vote, shareholders of PPL Corp., Pennsylvania’s largest electric utility corporation, voted in favor of a proposal that asks PPL management to publish an impact assessment explaining how new climate change policies, such as the Paris Agreement, will affect the company’s portfolio. In the proposal, PPL investors noted concern that PPL was “not properly accounting for the risk of its current high reliance on carbon-intensive generation.”
Additionally, several of Exxon’s peers, including BP, Conoco Phillips, Royal Dutch Shell, and Total have endorsed the “2 degrees scenario” analysis. Major asset managers, including BlackRock and State Street Global Advisors, have also called for improved climate risk disclosures. Climate-related shareholder resolutions also received high support, though not a majority support, at other big U.S. utilities: Dominion Resources (47.8%), Duke Energy (46.4%), and DTE Energy (45%).
The Proposal, as well as those approved at Occidental and PPL, is non-binding, and Exxon has the option of declining to change their environmental reporting. However, Exxon CEO Darren W. Woods said the board would consider the vote because it reflected the view of the majority shareholders.
Given the current political attention to climate change issues and these successful shareholder votes, companies in the oil and gas industry, and other industries potentially affected by climate change regulations, should consider themselves on notice for similar proposals from shareholders and investors. Potentially affected companies might consider proactively introducing heightened annual reporting to reflect growing concerns about the impacts of climate change.
Bick Law LLP’s California Environmental Lawyers will continue to monitor this emerging trend in order assist and advise clients either facing a similar proposal, or who wish to proactively report on the impacts of climate change on their business portfolios.