Exxon Must Allow Climate Change Vote, SEC Says. Should Other Companies be on Notice?

ExxonMobil must allow its shareholders to vote on a climate change resolution, the US Securities and Exchange Commission has ruled. The resolution, which shareholders will vote on in May, would force the oil giant to disclose how climate change would affect its business.

New York comptroller Thomas P. DiNapoli co-filed the shareholder proposal in December, asking Exxon to publish an annual assessment of the long-term portfolio impacts of climate change policies.

Exxon tried to block shareholders from voting on the proposal. In a letter to the SEC Exxon’s attorneys said it was too vague and Exxon already provides its investors with sufficient information about how it manages its carbon-related risks. The letter cites Exxon’s 2014 report, Energy and Carbon — Managing the Risks.

This week the SEC rejected Exxon’s request to block the DiNapoli’s proposal from a shareholders’ vote at its annual meeting in May. “We are unable to conclude that the proposal is so inherently vague or indefinite that neither the shareholders voting on the proposal, nor the company in implementing the proposal, would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires,” the SEC wrote in a March 22 letter.

The SEC decision comes as Exxon is under investigation by New York attorney general Eric T. Schneiderman for possibly lying to the public and investors about climate change risks.

The attorney general also went after Peabody Energy — the largest publicly traded coal company in the world — saying the company had tried to cover up the effect that future carbon proposals would have on its shareholders. In this case, Peabody agreed to file revised shareholder disclosures that reveal such risks.

Exxon spokesperson Alan Jeffers would not comment directly on the SEC ruling. He emailed a statement to Environmental Leader that said: “We will provide the board’s position on the shareholder resolutions in our proxy document, which will be distributed to shareholders next month.”

DiNapoli called the ruling a “major victory.” In a statement he said: “Investors need to know if ExxonMobil is taking necessary steps to prepare for a lower carbon future, particularly now in the wake of the Paris agreement.”

Lux Research director Brent Giles notes that Exxon has taken steps to account for carbon costs. The company uses an internal carbon price, includes it in their Outlook for Energy report and requires business lines to include a proxy in their economics when seeking funding for capital investments.

“It isn’t clear whether shareholders generally will vote for including the information or not: they are essentially voting to make a stock they hold look more risky,” Giles told Environmental Leader. “I suspect also that major investors at ExxonMobil would not be too inclined to make a major statement about carbon or climate change right now, especially given their recent voting history.”

Giles says while in the short term, Exxon is “probably going to get off the hook,” in the longer term the political — or even moral — move to force Exxon to acknowledge its climate change risk does have the potential to reduce energy companies’ investor pool.

An example of this: this week the Rockefeller Family Fund said it will divest from all fossil fuel holdings “as quickly as possible.” In a statement, the charitable fund of the oil baron’s family singled out Exxon for “morally reprehensible conduct” and said the oil company worked to “confuse the public about climate change’s march.”

“The SEC ruling does mean that that the commission is taking investors’ concerns about climate change as seriously as it would other material issues,” Giles says. “Large institutional investors like the New York state comptroller are likely to continue to push for greater disclosure, which in the short term should drive greater reporting, and in the long term may drive changes in operations for many companies. In this respect the oil majors in particular are in a tight spot.”

Should the SEC decision put other companies be on notice?

In an earlier interview, Climate Trust executive director Sean Penrith told Environmental Leader: “Corporations are now aware of the risks climate change poses and disclosure of such is the new norm.”

Johnson Controls, for example, in filings with the SEC, says climate change poses a financial risk to its business. It says extreme weather conditions could affect demand for residential air conditioning equipment and car replacement batteries. “Climate changes could also disrupt our operations by impacting the availability and cost of materials needed for manufacturing and could increase insurance and other operations costs,” the filing says.

Additionally, supply chain disruptions, caused by climate-change related weather events, could result in product price modifications and affect resources needed to produce them.

“Johnson Controls is not an isolated incident of such reporting,” Penrith says. “This level of disclosure will become more commonplace.”

When asked about the SEC’s Exxon decision, Ceres’ Shanna Cleveland, senior manager at the business advocacy organization’s carbon asset risk initiative told Environmental Leader that these types of SEC rulings “tend to be extremely company-specific and resolution-specific. So it cannot necessarily be applied to other companies. However, the SEC did reject all attempts to prevent this kind of proposal from being included in the proxy statements this year.”

Environmental Defense Fund, however, says the decision could set a precedent as investors increasingly demand disclosure about climate-related risks to business.

“As investors better understand the significant risks they face from both carbon and methane emissions, they’re realizing the oil and gas sector isn’t providing this kind of information. Recent EDF research found that on emissions of methane, a powerful climate pollutant, less than a third of the 65 leading US oil and gas companies report emissions via accessible, investor-facing data sources,” says Sean Wright, manager on EDF’s corporate partnerships team.

Mark Brownstein, VP climate and energy and director of oil and gas program at EDF, adds that climate change is “the single biggest challenge to business as usual in the oil and gas industry. The SEC is clearly coming down on investors’ right to know how management is assessing and accounting for this challenge in investment decisions.”