May 26 was a day of reckoning for “Big Oil” and an indication that small socially minded shareholders have gained significant financial allies.
On that day, ExxonMobil lost three board seats to a small hedge fund that said the oil and gas producer “has no credible strategy to create value in a decarbonizing world.” Shareholders also voted to call on the company to issue a report on whether its climate lobbying efforts are aligned with the goals of the Paris Climate Agreement.
“The political, the social, and the economic have never been distinct spheres at all, but rather operate as an imbricated ecosystem.”
The same day, Chevron shareholders voted to request that the company substantially reduce greenhouse gas emissions from the fossil fuels it sells, and a Dutch court ordered Shell to reduce its carbon dioxide emissions by 45 percent by 2030. (Shell plans to appeal the decision.)
These high-profile actions, which happened within hours of each other, came after decades of grassroots shareholder activism, with proposals filed by organizations including several orders of Catholic nuns. In fact, nuns have been at the vanguard of pressuring fossil fuel companies on climate change through proposals they can submit because of their relatively small holdings of company shares.
“To some extent, they were in this space long before it became trendy,” Lila Holzman told me in early June. At the time of the votes, she was senior energy program manager with As You Sow, a shareholder advocacy nonprofit. “There is a long history of the sisters engaging with companies like Exxon and Chevron. They laid the groundwork for this movement, which is applying a great amount of pressure to these companies.”
Now, nuns and other shareholder activists are increasingly joined by Wall Street big guns concerned about how rising seas, devastating wildfires, floods, and droughts will affect their profits.
Engine No. 1, the hedge fund that gained three seats at ExxonMobil, had the backing of Blackrock, the world’s largest asset manager. Blackrock’s votes for three of the four board candidates put forth by Engine No. 1 “reflected [the] belief that Exxon’s energy transition strategy falls short of what is necessary to ensure the company’s financial resilience in a low carbon economy.” Now, Engine No. 1 is meeting with other oil companies to leverage changes.
Vanguard, one of the world’s largest investment companies, voted for two of the dissident board candidates, citing years of financial underperformance at ExxonMobil, an insular culture, and an increasingly pressing need for the company to improve its climate strategy.
“What we are seeing now are companies having to fight battles on two fronts,” Ian Schafer, CEO of social responsibility focused professional network Kindred, tells The Progressive. “They are fighting against activist investors, who can wield financial pressure as deftly as grassroots activists and nonprofits [wield] public pressure.”
While the ExxonMobil board vote involved economic parties attempting to protect the bottom line, the Shell ruling was a judicial effort to claim that shareholder value cannot be the sole consideration of the contemporary corporation, says John McGlothlin, financial planner with Southwest Retirement Consultants.
“The Shell ruling is an important reminder that political authority and non-economic value systems can and arguably should enter the economic sphere,” he says, adding that “the political, the social, and the economic have never been distinct spheres at all, but rather operate as an imbricated ecosystem.”
While the final outcome of the Shell case remains to be seen, what is clear is that Wall Street’s version of capitalism is adding another factor to its calculations.
“These developments are a clear indication about the future of capitalism and investment strategies,” says Craig Jonas, CEO of social and environment focused investing company CoPEACE. “It makes smart business sense to include the environmental and social impact of a company’s decisions, with relation to the bottom line."
Jeff Gitterman, co-founder of Gitterman Wealth Management, says that a “great repricing” is underway on Wall Street as asset managers demand more transparency from fossil fuel companies.
But not everyone on Wall Street thinks companies out-of-step with environmental trends will end up underperforming for shareholders in the long run.
“That was the initial hope when ESG [environmental, social, and corporate governance investing] rose in popularity in the mid-2010s,” says Fergus Hodgson, director of research organization Econ Americas. “However, hopes for ESG investments now tend to be just that ESG will keep up with regular stocks.”
Many investors believe that sustainable investing is a just a fad, says Peter Krull, CEO of Earth Equity Advisors. “They’re still willing to buy shares in these companies and will support them for the time being.”
Still, Krull sees most investors coming around due to the additional pressure of financial, if not ethical, considerations. The Energy Select Sector SPDR exchange-traded fund, a prominent investment vehicle, has lost 0.06 percent annually over the last decade as of September 9, while the broader stock market, as measured by the Standard & Poor’s 500 index, has returned more than 15 percent.
Of course, fossil fuel companies aren’t likely to suddenly change their core business models to appease activist investors. Meaningful greenhouse gas reductions will require government action and a consumer shift in addition to shareholder demands.
Yet, Jonas Kron and Elizabeth Levy of Trillium Asset Management say the teamup of activists and institutions is still a noteworthy development.
“Putting companies on notice that reliance on old business models will not satisfy investors is a powerful signal,” the two write in an email. But that “must be repeated annually at increasing numbers of companies until real change happens.”