BlackRock and Vanguard Played Key Roles in Exxon's Shareholder Proxy Vote

BlackRock and Vanguard were among the major shareholders whose votes helped to install two new members on ExxonMobil's board of directors, dealing the oil giant a major defeat in the election of board members at this year's annual (virtual) shareholders meeting.

The two fund giants, which together own approximately 14% of ExxonMobil shares, according to reports, supported portions of a dissident slate of board nominees brought by a Engine No. 1, an activist, purpose-driven investment firm that sees ExxonMobil's response to the global climate crisis as far too weak to help achieve net zero emissions by 2050, putting shareholder value at risk. Engine No. 1 put forth a slate of four nominees, all with experience in the oil and gas or renewable energy industry.

BlackRock supported three of the nominees. Vanguard supported two of them. State Street Global Advisors, another large institutional owner of ExxonMobil shares, did not respond to requests about their proxy votes.

In its Investment Stewardship Vote Bulletin, BlackRock, which has equated climate change risk with investment risk, said "more needs to be done in Exxon's long-term strategy and short-term action in relation to the energy transition in order to mitigate the impact of climate risk on long-term shareholder value."

It noted its support for Engine No.1's advocacy for more investments to meet more ambitious long-term emission targets and the need for new board members with fresh perspectives and experience relevant to energy transition.

Vanguard, on its Investment Stewardship Insights website, noted that the lack of energy sector experience on Exxon's board as well as questions about board independence and the "pressing need for Exxon to to better align its climate strategy with target setting in line with global peers and public policy efforts related to climate risks."

Both firms also supported other shareholder proposals (not from Engine No. 1) disclosing Exxon's lobbying payments and lobbying efforts, and BlackRock voted in favor of a proposal for analysis of the impact of the International Energy Agency's Net Zero 2050 scenario on Exxon's financial position and long-term strategy. The proposals on lobbying were approved by shareholders, according to preliminary results released by Exxon. The proposal connected to the IEA's net zero scenario did not.

Shareholders Take On Big Oil

Jackie Cook, director of sustainability stewardship research for Morningstar, said the dissident slate of Exxon board members was the first time she's seen a proxy context waged over an ESG issue.

"We're seeing a company that is failing to turn its business around to navigate the energy transition … amid a "huge tidal wave of investor activism on environmental and social issues," said Cook, co-author of a a recent report, Hints of Sea Change in Big Fund Company ESG Proxy Votes.

In addition to Exxon, ConocoPhillips and Phillips 66 were also the targets of climate-related shareholder proposals that won approval. Resolutions seeking emission reduction targets were approved by shareholders of the two oil companies, along with a resolution requirement to issue an annual report on whether its lobbying activities are consistent with the goals of the Paris Climate Agreement.

Earlier this week, Royal Dutch Shell was ordered by a Dutch court to reduce its carbon emissions, which is considered an unprecedented ruling. The decision stemmed from a lawsuit brought by environmental groups.

"This has been an eventful year," said Danielle Fugere, president and chief counsel of As You Sow, a nonprofit advocacy group which represents investors on critical and material issues such as climate change.

She noted initiatives from the Securities and Exchange Commission requesting public comment asking investors, SEC-registered companies, and other market participants for input on the agency's review of corporate disclosure requirements concerning climate change and the SEC Enforcement Division's enhanced focus on climate and ESG-related risks.

"It's clear the financial system is starting to recognize massive climate risk and starting to price that in, she said. "We will look back on and say this is the year everything has changed and we got serious about climate change."