Exxon’s Climate Fight With Investors Won’t Be the Last

ExxonMobil's multi-front tussle with investors over the company's positioning on climate change escalated last week when CalPERS, the largest U.S. pension fund, announced it would vote against every member of the company's board of directors at its annual meeting on May 29.

The divergence between how Exxon and some of its investors view their financial interests demonstrates a new dynamic bound to grow as climate change becomes a more urgent societal challenge.

The fight between Exxon and its investors dates back to 2021, when a majority of investors rejected several of management’s board nominees in favor of candidates who promised to push the company to take a more proactive approach to the energy transition—an historic repudiation of the company’s leadership. Since then, some investors have pushed shareholder resolutions calling on the company to do more. This year, the company took the offensive with a lawsuit targeting two investor-activists. Exxon’s aim is to limit resolutions filed by shareholders.

Anyone who reads the newspaper’s Business pages will know that battles between investors and corporate leadership are nothing new. Investors often seek to shake up management in pursuit of strategies they believe will deliver better returns. Indeed, finding ways to achieve higher returns is the legal obligation—known as the fiduciary duty—of both corporate executives and investment managers.

So why do some of Exxon's investors see their financial interests differently than the company's management? To some degree, the gap might be explained as a simple difference in strategy. But there's a bigger question at play here that cuts to the core of what it means to be a fiduciary. In short, the risk climate change poses to the economy broadly is of much greater financial consequence to investors concerned about the performance of the entire market than to individual firms that think they can continue to rake in profits no matter how the climate changes. “We’re too big to just take all of our hundreds of billions, and try to find a nice safe place for that money,” Anne Simpson, then-director of board governance and sustainability at CalPERS, California’s nearly $500 billion state pension fund, told me in 2019. “We’re exposed to these systemic risks, so we have to fix things.”

The story behind ExxonMobil’s current tiff began last December when Arjuna Capital and Follow This submitted a resolution calling on the company to accelerate its emissions reduction plans. Instead of putting the resolution to shareholders for a vote at the company’s annual meeting this month, Exxon sued Arjuna and Follow This, arguing that the shareholder resolution process had “become ripe for abuse.” Even after the investors dropped the resolution, the company has persisted in its lawsuit.

Arjuna and Follow This are relatively small players, but the litigation has riled a broader group of investors with much deeper pockets. The New York State Common Retirement Fund, which manages around $250 billion in assets, said it would vote against 10 out of 12 Exxon board members citing the company’s climate positioning. On Monday, CalPERS, which has a $1 billion stake in Exxon, said it would vote against the entire Exxon board in response to the company’s litigation against investors. “ExxonMobil's real agenda here seems to be intimidation, empowering corporate leaders at the expense of the investors who own the company and provide capital,” CalPERS said in a letter explaining the decision. “We can't let that stand.”

CalPERS insists that its vote is a governance matter rather than strictly a climate-related issue. But the two are connected. CalPERS has a legal obligation to serve the financial interests of its beneficiaries and provide consistent returns long into the future. Given its enormous size, it invests across the entire market and will almost certainly suffer in any economic downturn—including a climate-driven one. Research has suggested that global economic output could be tens of trillions of dollars smaller by 2050 than it would have been otherwise as a result of climate change.

On the other hand, barring vast new regulation that raises the cost of its product, Exxon will make the most money by simply continuing to produce very profitable oil and gas. Finding ways to continue doing so is in the company’s narrow best interest—even if it contributes to a long-term climate-driven economic decline.

Having said that, it’s possible to change how Exxon’s management views its fiduciary duty. New policies that crack down on emissions, for example, would signal that their product may not be in as high demand as had previously thought. And lawsuits trying to make fossil fuel companies pay for the costs of their climate damage could shift the thinking at firms like Exxon. But, for now at least, all indicators suggest that the company doesn’t see demand for its core product going away anytime soon.

Exxon may be early in this fight with investors, but the interests of investors and companies may continue to diverge as the costs of climate change mount.

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