By Bradley Olson, Sarah Krouse and Sarah Kent
Two of the world's largest asset managers are strongly
considering a public rebuke to Exxon Mobil Corp. over climate
change at the company's annual meeting next week, according to
people familiar with the matter.
BlackRock Inc. and Vanguard Group are weighing a vote in favor
of an investor proposal that would seek to pressure the oil giant
to conduct a climate "stress test" to measure how regulations to
reduce greenhouse gases and new energy technologies could impact
the value of its oil assets, the people said.
Exxon has urged investors to vote against the resolution.
If the proposal passes at Exxon's annual meeting May 31, experts
say it would be the strongest signal to date that investors are
seeking greater disclosure of the threats that climate change could
pose to businesses. Passage would also highlight the emerging power
of money managers with large passive investing businesses -- and
their willingness to wield it.
Five years ago, many investors weren't as attuned to how climate
change could affect the value of assets, but "now the evidence just
slaps you in the face," said Timothy Smith, a director at Walden
Asset Management, which has pressured money managers on climate
issues and is backing the Exxon measure.
BlackRock is still considering whether to support the
proposal.
"No decision has been made regarding our vote at Exxon's Annual
Shareholder Meeting. Our deliberations continue and we look forward
to continued engagement with the company," Zach Oleksiuk, head of
Americas for BlackRock's investment stewardship group, said in a
statement.
Vanguard is also strongly considering a vote for the proposal,
the people said. The asset managers could side with the company if
Exxon offers certain concessions, including making further
disclosures or agreeing to allow its nonemployee directors to meet
with investors, the people said. Such concessions in the past have
led BlackRock to side with companies and vote against proposals
related to climate change disclosure.
"Directors at any company who don't engage with those on whose
behalf they serve risk losing investor support," Glenn Booraem, a
principal at Vanguard who works on its governance efforts, said in
a statement.
While the votes are nonbinding, companies need to show their
responsiveness to such measures or face potential backlash,
including the prospect of institutional investors voting against
their director candidates.
Exxon in recent years has stepped up its climate-related
disclosures and voiced support for a carbon tax and the
international Paris climate pact. But it has also come under
investigation by the New York attorney general and the U.S.
Securities and Exchange Commission, who are examining whether it
has provided enough information to investors about climate impacts
and the value of its assets.
The company's disclosures to date have concluded that its assets
wouldn't be severely affected by climate change.
"Our view and those of all other credible forecasters show a
continued role for oil and gas through 2040," said Exxon spokesman
Alan Jeffers.
Investment products such as exchange-traded funds that track the
performance of indexes often come at a lower cost than traditional
mutual funds and have gathered assets at a clip in recent years.
That growth has given firms like BlackRock and Vanguard increasing
sway on shareholder votes. But the firms in turn have come under
activist pressure to take stances on issues such as climate
disclosure.
When BlackRock sided with Exxon and against a similar proposal
at the company's annual meeting a year ago, it faced backlash from
investors and environmental activists. This year BlackRock said the
disclosure of climate risks would be among its key engagement
priorities with senior executives.
About two weeks ago, the firm voted for a similar proposal at
the annual meeting of Occidental Petroleum Corp. Vanguard also
voted in favor of that proposal, a person familiar with the vote
said.
Following this month's Occidental vote, Exxon stepped up its
outreach to large shareholders, making executives available for
extensive discussions, investors said.
"Exxon has been very, very active in lobbying over the past
year," said Patrick Doherty, director of corporate governance at
the office of the New York state comptroller, which manages the
state's pension fund and led the investor coalition that put
forward the climate shareholder proposal at Exxon.
Exxon has consistently said for years that it believes demand
for oil and gas will rise in coming decades as people in emerging
economies move into the middle class and drive cars or use air
conditioning. Chevron Corp., the second-largest U.S. oil company,
has made similar statements.
But the issue has grown into a hotly debated topic in the
industry, with some European oil companies acknowledging the
potential for demand to peak by the end of the next decade.
In December, a task force commissioned by the Group of 20
richest nations, and representing major asset managers, laid out
new guidelines for how companies should be more forthcoming about
climate risks. BlackRock played a role in creating the
recommendations.
The Exxon vote appears to be shaping up as a litmus test for
sustainability, governance experts said.
"At the end of the day the outcome will turn on what do the big
fund managers and mutual funds do," said Anne Simpson, investment
director for sustainability at the California Public Employees'
Retirement System, a backer of the proposal. "The question there
is, are they going to step up?"
Write to Bradley Olson at Bradley.Olson@wsj.com, Sarah Krouse at
sarah.krouse@wsj.com and Sarah Kent at sarah.kent@wsj.com
(END) Dow Jones Newswires
May 26, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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