Exxon Facing Off With Shareholders in Climate Showdown

This week will be a public trial by fire for new Exxon Mobil Corp. CEO Darren Woods.

Presiding over his first annual meeting since predecessor Rex Tillerson left to become U.S. secretary of state, Woods will be tested Wednesday on everything from climate change to his own paycheck. Analysts and investors will be watching to see if he proves as adept as his mentor in striking a welcoming tone with restive activists while gently disagreeing with just about everything they say.

So far, Woods has been a stabilizing presence.

“He represents a continuation of what Mr. Tillerson was doing and so far we’ve seen no strategic shift,” said Brian Youngberg, an analyst at Edward Jones & Co. In St. Louis with a “hold” rating on Exxon’s stock. That’s comforting “for long-term holders who own Exxon for the dividend and not much else.”

Woods faces a vote on a resolution requiring Exxon to provide a detailed analysis of whether the energy giant can prosper under strict greenhouse-gas limits. Backers of the measure, which are as diverse as the California Public Employees’ Retirement System and the Church of England’s investment fund, are striving to improve upon the 38 percent support a similar proposal received from shareholders last year. Exxon opposes the resolution because it says it already discloses enough data.

For Exxon, the shareholder-centered event it stages every May in a Dallas symphony hall has become a donnybrook over the environment and corporate governance. Activist groups have shifted in recent years from rowdy bullhorn protests on the sidewalks outside to delivering measured shareholder appeals inside the meeting hall arguing for more prudent financial stewardship.

Woods, an electrical engineer by training who’s spent his entire career at Exxon, will be confronted by investors demanding that Exxon cut new spending on oil fields and hand the cash over to shareholders in dividends instead. And less than five months after his promotion to the jobs of chairman and chief executive officer, Woods and the board he leads will face rising opposition to his $16.8 million pay package and the way it was calculated.

Activist shareholders are hitting Exxon, which produces about 2 percent of the world’s crude oil, with a version of the climate change accounting proposal for a second straight year. Despite the company’s steadfast opposition, the measure attracted more investor support than any of the four other environmental proposals put to a vote last year. This year there are almost 90 Exxon investors planning to support the measure, according to data compiled by investor advocacy group Ceres.

“Exxon’s business is extremely vulnerable to changes in climate regulation and consumer demand,” said New York State Comptroller Thomas P. DiNapoli, a lead sponsor of the climate impact resolution. The company “puts itself and its long-term investors at risk by failing to acknowledge this reality.”

The shares fell 0.5% to $81.16 in New York trading on Tuesday.

Disclosures Sufficient

Exxon says its current disclosures, which include forecasts of how caps on carbon emissions will affect long-term petroleum demand, are sufficient.

Even with the strictest scenarios envisioned under the 2015 Paris Agreement, global population growth and economic expansion will need vast quantities of oil and natural gas to fuel power plants, vehicles and industrial society, Exxon said in a May 19 letter to shareholders. The Paris accord calls on nations to prevent worldwide temperatures from rising more than 2 degrees Celsius (3.6 Fahrenheit) from pre-industrial levels by slashing fossil-fuel pollution.

“The world will continue to require significant quantities of hydrocarbons for which Exxon Mobil is well-situated to compete,” according to the letter. “Substantial upstream oil and gas investment will be required through 2040, even assuming a 2-degree Celsius scenario.”

Thus far, this annual-meeting season has been bruising for oil producers seeking to beat back activists on the climate and compensation fronts.

Occidental Surprise

A majority of investors in Occidental Petroleum Corp. broke with company leaders and approved a climate impact proposal on May 12 that was almost-identical to the Exxon resolution. Calpers, representing California state retirees, and other backers persuaded fellow investors to validate the resolution by a 58 percent margin, compared to a 40 percent “yes” vote in 2016. 

Such shareholder votes are advisory, and aren’t binding on the company.

In a significant change, the proposal was supported by Occidental’s largest shareholder, BlackRock Inc. The $5.4 trillion asset manager voted in favor of a climate-change resolution for the first time ever after Occidental exhibited a “lack of response” on the issue after last year’s vote, BlackRock said in a statement on its website.

Occidental’s result was historic because it was the first time a proposal of this type succeeded despite company opposition, according to Gregory Elders, a Bloomberg Intelligence analyst.

BlackRock hasn’t yet made a decision on its Exxon vote, Zach Oleksiuk, head of Americas for BlackRock Investment Stewardship, said in an email. Vanguard Group is evaluating the proposal in line with its proxy policies, Glenn Booraem, the firm’s investment stewardship officer, wrote in an email.

“Vanguard, like other investors, views direct engagement with the board as a critical channel through which important matters can be discussed,” Booraem said.

Executive Pay

At ConocoPhillips, the world’s largest independent crude explorer, a majority of shareholders rejected CEO Ryan Lance’s pay package, even after his total 2016 compensation was cut almost 10 percent to $19.2 million. It was the first time Conoco investors said ‘no’ on executive pay.

Sixty-eight percent of shareholders participating in the Houston-based company’s annual meeting either abstained or voted against the executive pay resolution.

Exxon holders have been urged to follow the lead of Conoco investors and turn thumbs down on executive pay. Proxy adviser Institutional Shareholder Services Inc. cited a mismatch between pay and performance as reasons to vote against the package. Exxon’s long-standing compensation system has remained unchanged even as “investors’ expectations around executive compensation” have evolved, ISS wrote in a May 18 report to clients.

“Our compensation program ensures that executives focus on the long-term performance of the business and is aligned with shareholder interests,” Scott Silvestri, an Exxon spokesman, said in a May 19 email. “Exxon continues to demonstrate strong business performance relative to industry peers.”

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