ExxonMobil and Chevron at annual meetings May 26 faced their strongest pushback yet from climate-focused investors urging the oil and gas drillers to "start facing the future" by shifting to lower-carbon technologies and preparing for sharply lower fossil fuel demand.
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Chevron's shareholders voted to approve new reduction targets for Scope 3 emissions or all upstream and downstream indirect emissions.
ExxonMobil's shareholders approved at least two new directors put forward by Engine No. 1, a small activist investor group aimed at forcing the company to take more aggressive action to slow climate change. The group argues the company has no plans for the energy transition and calls its carbon capture and other ESG-related proposals insufficient to lowering emissions.
The races for two other board seats Engine No. 1 challenged were too close to call when the preliminary votes were announced.
ExxonMobil and Chevron shareholders both rejected proposals that would have required the companies to respond to the International Energy Agency's recent scenario finding that no new oil and gas fields would be required beyond those that have already been approved for development to reach net-zero emissions by 2050.
The meetings highlight growing and well-organized shareholder pressure across the oil and gas sector to respond to net-zero targets and prepare for the energy transition.
"Platts Analytics Future Energy modeling indicates, in our Most Likely Case, that overall global oil demand will peak by 2040, with the peak earlier in the decade if not counting oil demand used as feedstock in petchems," said Roman Kramarchuk, head of future energy analytics at S&P Global Platts. "This is in contrast with our 2 Degree Outlook results, which show declining oil demand starting already in 2026, and dropping well below 2019 levels by 2040."
"The oil and gas industry has faced a true reckoning this proxy season," said Andrew Logan, senior director of oil and gas at Ceres. "With this vote, the center of power at ExxonMobil and Chevron has shifted, and oil and gas companies can no longer afford to ignore outside pressure."
'FEET TO THE FIRE'
Charlie Penner, head of active engagement at Engine No. 1, said during ExxonMobil's shareholder meeting that change was coming to the company and the sector regardless of the vote results.
"Since this campaign started, ExxonMobil has promised in a number of different ways that it will stop fighting and start facing the future," Penner said. "These are promises that it cannot easily walk away from, at least not if shareholders hold the board's feet to the fire."
CEO Darren Woods said that management "respectfully disagreed" with Engine No. 1's approach, but valued the engagement of the company's more than 2.8 million shareholders.
A proposal that failed would have forced ExxonMobil to issue an audited report within seven months on how a sharp reduction in fossil fuel demand, as envisioned by IEA's Net-Zero 2050 scenario, would affect its financial position and underlying assumptions.
'BREAD AND BUTTER'
John Geissinger, chief investment officer of Christian Brothers Investment Services, which holds $25 million in ExxonMobil securities, said investors deserve to know how the company views the possibility of a 55% decline in gas demand and 75% plunge in oil demand, according to the IEA scenario.
"This is our company's bread and butter, yet Exxon has not agreed to disclose to investors what a potential significant decline in demand will do to its financials," he said. "Even if the board doesn't share the IEA's assessment, preparedness for a range of outcomes and reporting on the implications of the IEA scenario is prudent.
"The fact is the landscape has changed. This report is required. We cannot simply assume that the fossil fuel sector will always be as it was."
Woods said the company's existing publications, and specifically the annual Energy & Carbon Summary, already cover a range of third-party scenarios, including others from IEA.
"Producing a separate report from a single scenario as recommended by the proponents would significantly diminish our existing disclosures, which contemplate a wide range of credible third-party energy transition scenarios," Woods said. "This report is unnecessary."
NEW EMISSIONS TARGETS
At Chevron's meeting, a shareholder proposal asking the company to substantially reduce medium- and long-term Scope 3 greenhouse gas emission received 61% of the votes cast, although another climate-change proposal fell short of a majority.
Scope 3 emissions arise indirectly from assets not owned or controlled and thus are considered hardest to monitor. By contrast, Scope 1 emissions are direct emissions from sources a company owns or controls, while Scope 2 are indirect emissions from purchased energy.
The proposal noted an increasing number of investors "insist" on reductions of all emissions types.
Going into the meeting, Chevron's board had recommended that shareholders vote down the Scope 3 emissions proposal.
During the meeting, Chevron CEO Mike Wirth said the company has established Scope 1 and Scope 2 metrics for upstream oil, gas, flaring and methane, and said the board believes the most appropriate approach for measuring the emissions performance of an upstream asset is greenhouse gas intensity by commodity on an equity basis, which ensures the company is accountable for all emissions from projects, even those it doesn't operate.
He noted Chevron has set emissions metrics for 2023 and 2028 and intends to do so every five years afterward, adding that achieving lower emissions intensities is linked to most company employees' variable compensation.
MANAGING CLIMATE RISKS
Wirth said Chevron's new slogan going forward is "higher returns, lower carbon."
"Chevron shares the view that managing climate risks is vital to delivering superior long-term value," he said. "[We believe] the future of energy is lower carbon."
Wirth said the company addresses Scope 3 emissions by supporting a price on carbon through "well-designed" policies, reporting Scope 3 emissions from the use of its products and enabling customers to lower their emissions through increasing its renewable products, offering offsets and investing in low-carbon technologies.
Through 2028, Chevron plans to spend about $2 billion in carbon-reduction projects, has increased renewable fuels and products in its value chains over the last 10 years, and plans to spend $750 million by 2028 in renewables and offsets. It also recently increased its commitment to low-carbon technologies that address Scope 3 emissions, said Wirth, such as carbon-capture utilization and storage by committing $300 million to the Future Energy Fund II.
"Many of [those low-carbon technologies] can provide dramatic opportunities to meet energy demand," he added.
Another Chevron shareholder proposal requiring a response to IEA's net-zero by 2050 scenario received 48% of the vote.