Norway’s Wealth Fund  Sides With Activists Against Exxon, Chevron

Climate activists have scored yet another victory against Big Oil after Norway’s giant sovereign wealth fund announced it will support proposals by ExxonMobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) shareholders at their annual general meetings (AGMs) on Wednesday to introduce emissions targets. With $1.4 trillion in assets, Norway’s wealth fund is the largest in the world, and its voice on matters like these carries plenty of weight. The fund is the sixth-largest investor in Exxon with a nearly 1.2% stake. The move comes barely a week after climate protesters unleashed chaos at TotalEnergies’ (NYSE:TTE) AGM in Paris which saw shareholders back a motion calling for the French energy giant to speed up cuts to its greenhouse gas emissions. Similarly, in what is now shaping up as another wave of climate fervor, protesters stormed Shell Plc’s (NYSE:SHEL) AGM last week, accusing the Dutch national oil company of “killing” the planet and calling for it to be “shut down”.

It’s a startling turn of events for oil and gas shareholders considering that last year, there was a palpable shift in sentiment with climate activism and ESG taking a back seat amid the global energy crisis.

Shifting Sentiment

The year 2021 proved to be a watershed moment for oil and gas companies in the global transition to clean energy, with Big Oil losing a series of boardroom and courtroom battles in the hands of hardline climate activists.

In May 2021, ExxonMobil lost three board seats to Engine No. 1, an activist hedge, in a stunning proxy campaign. Engine No. 1 demanded that Exxon needs to cut fossil fuel production for the company to position itself for long-term success. “What we’re saying is, plan for a world where maybe the world doesn’t need your barrels,” Engine No.1 leader Charlie Penner told the Financial Times. Engine No. 1 enjoyed a stunning victory thanks to support from BlackRock Inc. (NYSE: BLK), Vanguard and State Street who all voted against Exxon’s leadership.

Next was its close peer Chevron with no less than 61% of Chevron shareholders voting to further cut emissions at the company’s annual investor meeting and rebuffing the company’s board which had urged shareholders to reject it. 

Finally, a Dutch court ordered Shell Plc to cut its greenhouse gas emissions harder and faster than it had previously planned. Never mind the fact that Shell had already pledged to cut GHG emissions by 20% by 2030 and to net-zero by 2050. The court in The Hague determined that wasn’t good enough and demanded a 45% cut by 2030 compared to 2019 levels. The past two years have been especially challenging for Shell shareholders after the company announced a major dividend cut with the quarterly dividend falling to 16 cents from 47 cents, the first dividend cut since WWII. Meanwhile, the company’s debt had ballooned massively from $1bn in 2005 to $73bn in 2020.

Luckily for these oil and gas supermajors, last year, investor sentiment shifted in their favor.

In May 2022, Exxon recorded a major victory after its shareholders supported the company’s energy transition strategy at the annual general meeting. Only 28% of the participants backed a resolution filed by the Follow This activist group urging faster action to battle climate change; a proposal calling for a report on low carbon business planning received just 10.5% support while a report on plastic production garnered a 37% favorable vote.

Following in the footsteps of its larger peer, in June, Chevron shareholders voted against a resolution asking the company to adopt greenhouse gas emissions reductions targets, indicating support for the steps the company already has taken to address climate change.

Just 33% of shareholders voted in favor of the proposal, according to preliminary figures disclosed by the company, a sharp turnaround from last year when 61% of shareholders voted to support a similar proposal.

Encouraged by the previous year’s victories including rules that made it easier to put public policy-related questions on proxy ballots, an analysis by the Conference Board of data supplied by Esgauge revealed that last year, climate activists  filed nearly 400 environmental and social proposals with member companies of the Russell 3000 index. However, the share of support for environmental proposals dropped from 37% in 2021 to 33% in 2022, reflecting a growing aversion by asset managers to tying managers’ hands on climate-related issues. Russia’s invasion of Ukraine has also forced investors and companies to think more about energy security.

But it’s now becoming increasingly clear that climate activists are not about to go down without a fight. And, more and more institutional investors are becoming powerful climate advocates. Two years ago, New York City’s Mayor Bill de Blasio and Comptroller Scott M. Stringer sent shockwaves through the oil and gas sector after they announced that the city’s $226B pension fund plans to divest majority of its fossil fuel investments over the next five years and also cut ties with other companies that have been contributing to global warming.

Around the same time, Rockefeller Brothers Fund, a family foundation built on one of the world’s biggest oil fortunes, followed suit by announcing that it would ditch its oil and gas investments and cease making any new investments going forward. The $5-billion foundation was initially carved from oil money in the 19th century by John D. Rockefeller’s son of Standard Oil fame.

Finally, BlackRock Inc.(NYSE:BLK) CEO Larry Fink said he would start to pressure companies to do a lot more to lower their carbon emissions by leveraging the massive weight of his mammoth asset base. BlackRock is the world’s largest asset manager with $9.1 trillion in assets under management (AUM).

As you might expect, opponents of boardroom activism have dismissed the latest move from Norway’s wealth fund while clean energy buffs welcomed them as a beacon for the growing fossil fuel divestment movement. But at least oil and gas investors can take some comfort in that these companies are not likely to run out of backers any time soon, with private equity firms gladly stepping in as more traditional financiers balk.