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https://www.barrons.com/articles/exxon-chevron-annual-meetings-51653425540

Big Oil shareholders have a new outlook, and it’s not just because the stocks are up.

A year ago, investors forced oil companies to change policies or directors with votes at annual meetings. This year, the atmosphere has changed. Companies have faced less pressure to change their direction, and climate proposals in particular have been faring worse than in the past. Energy companies are in a different place—they’re more financially sound than they have been in years and are now embracing more climate goals on their own.

The world has changed too. Russia’s invasion of Ukraine, which has rocked energy markets, has caused investors and policy makers to see energy as a national security issue. As Europe races to replace Russian oil and gas with other sources, government officials have been asking producers to drill for more oil instead of cutting back.

“The ESG movement, it’s a mega trend, it’s going to continue,” said Chevron CFO Pierre Breber in an interview last month with Barron’s. “But like anything, there’s ebbs and flows to it, and I think there’s been a bit of a recalibration that predated the Ukraine conflict.”

On Wednesday, Exxon Mobil (XOM) and Chevron (CVX) will host virtual annual meetings to update investors on their businesses and take votes on directors and proposals. A year ago, Exxon in particular was facing pressure for major changes from shareholders, including a proxy contest that sought to replace up to four directors. In the end, three of the challengers won seats, after activists backed by an investment firm called Engine No. 1 said Exxon had to turn around its financial performance and pay more attention to climate issues.

In the year since, oil and gas prices have nearly doubled and Exxon’s efforts to cut costs have paid off, allowing the company to reduce debt and increase its dividend. Exxon has also put more emphasis on its low-carbon efforts like investments in carbon capture, some of which had been launched prior to the board fight. It also announced a goal of reaching net zero emissions from its operated assets by 2050.

This year, Exxon faces another climate proposal from shareholders, though the chances of it passing appear to be relatively low given the outcomes of similar votes at other oil companies this year. Follow This, a Dutch organization that says it is backed by 8,500 shareholders, proposed that Exxon set targets for reducing its emissions in line with the Paris climate agreement. A similar vote at Shell (SHEL) garnered 20% of the vote on Tuesday, down from 30% a year ago. “Investors have given in to Shell ’s narrative that the crisis created by the war in Ukraine overrides the climate crisis,” Follow This founder Mark van Baal said in a statement after the vote.

Exxon says in the proxy statement that it agrees with the goal of combating climate change, and argues that it has laid out a plan that will achieve the goals in the Paris agreement with the emissions it produces from its own operations: “a 20-30% reduction in corporate-wide greenhouse gas intensity, including reductions of 40-50% in upstream intensity, 70-80% in methane intensity, and 60-70% in flaring intensity.”

But the company has a problem with part of the Follow This proposal, which addresses so-called Scope 3 emissions—the emissions that come from the use of the company’s products. Some definitions of Scope 3 emissions do not give the company adequate credit for its efforts, Exxon argues. For instance, Exxon’s plastics make cars lighter so they use less fuel, benefiting the climate—but that benefit isn’t part of many Scope 3 analyses, Exxon says.

“The present methodology does not provide the value, and meet the ultimate necessity, of an objective and accurate determination of benefits and emissions across the full product life cycle where investors will put forth proposals,” the company argues.

Exxon also faces other shareholder proposals, including two asking for climate-related reports that the company calls unnecessary, given its already-existing efforts. Another proposal says Exxon should order a report looking at whether it could reduce its plastics production, given the damage that plastics are doing to ocean life. Exxon urges shareholders to reject the proposal. The company says it agrees that plastic waste is a problem, but says it’s working on improving plastics recycling and responsible plastics manufacturing. Exxon also urged shareholders to reject a proposal to provide further detail on its political contributions. 

Chevron’s meeting this year is more notable for a proposal the company supports than for the ones it opposes. Chevron lost a shareholder vote last year on climate-related issues, though the proposal was relatively vague and difficult to enforce. Investors said Chevron should reduce its Scope 3 emissions, though allowed the company to define what that might mean.

This year, Chevron faces similar proposals to Exxon on climate change, including a request to set targets to adhere to the Paris goals. The company opposes that proposal. But Chevron is supporting a proposal to issue a report on its methane production. Methane, the main component of natural gas, is a significant contributor to climate change when it is vented or flared during production or transportation. A Stanford study released earlier this year showed methane emissions are far worse than prior estimates.

“Methane is 86 times more potent than carbon dioxide over a 20-year period, meaning reducing emissions now can buy valuable time to address the climate crisis,” the proposal says. If passed, Chevron would have to issue a report on the company’s disclosure of methane emissions. Chevron says investors should vote for the proposal, though it disagrees with some of the statements made by proponents.

Asked why Chevron is supporting the proposal, Breber, the CFO, told Barron’s that “we’re committing to advance the accuracy and reliability of methane emissions reporting.”

“And I’ll say the investor response to the position we’ve taken has been very favorable, and just reinforces that we constructively engage with our shareholders, and we have a strong commitment to achieving our greenhouse gas target reductions in a very transparent way,” he added.

Andrew Logan, senior director of oil and gas at shareholder advocacy organization Ceres, said that Chevron’s support is “an unusual twist,” given the oil industry’s historic opposition to climate-related proposals. He considers it a notable positive development.

“The big issue right now with methane is that nobody really knows how much methane is being emitted,” he said. “It’s hard to measure. You’ve got to get to the right place at the right time, and you’ve got to measure it directly with lots of different technologies. Increasingly, investors are asking oil-and-gas companies to measure their methane emissions directly, as opposed to estimating them, which is what the EPA currently requires you to do.”

Write to Avi Salzman at avi.salzman@barrons.com

Big Oil shareholders have a new outlook, and it’s not just because the stocks are up.

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