Our Take: US AGMs Present Crucial Litmus Test

The strategic models embraced by leading US producers will face a critical test at upcoming annual general meetings (AGMs). US investors have warmed to nonrenewable power-based transition strategies over the past year. But we see key climate-related shareholder resolutions offering a crucial signal as to whether enough investors accept the scope and pace of those plans.

• Last year’s AGMs were a wake-up call for US oil and gas. Shareholders successfully lobbied for more ambitious emissions targets, while a board coup at Exxon Mobil demonstrated the potential consequences of running afoul of investors. Exxon, Chevron, ConocoPhillips and Occidental Petroleum responded with accelerated low-carbon spending, expanded emissions targets, greater shareholder engagement and routine, detailed strategic updates. And yet all face fresh resolutions demanding Paris-aligned medium- and long-term emissions targets (Scope 1-3).

• We would caution to not view these resolutions as an inherent sign that investors are itching to reject US transition strategies, which favor carbon capture and storage, hydrogen and biofuels over renewable power, and boast varied (and often limited or nonexistent) commitments to Scope 3 emissions reductions. The US Securities and Exchange Commission (SEC) is almost universally allowing climate resolutions to face a vote. And while resolution sponsor Follow This insists on significant absolute emissions reductions — and falling production — this decade, the resolutions only generically call for targets given SEC criteria preventing “micromanaging.” We note recent months have seen key US investment voices like Jamie Dimon and Larry Fink express support for “olive” strategies, while just 18% of oil and gas institutional investors surveyed by BCG see Scope 3 targets as “very important.”

• US firms are better positioned to take their case to shareholders following a year of significant investor outreach. Some of this has been to sell investors on low-carbon strategies not rooted in solar and wind. But executives have told us they understand the stakes and are seeking to respond to investor needs outside the proxy ballot box. ConocoPhillips’ board notes “some” investor demands for additional disclosure and accelerated reductions in methane emissions and flaring — but “very few specific requests for additional targets or changes to our overall strategy.” The company does not have Scope 3 targets.

• Still, it would be incorrect to view such resolutions as a distraction, even if they fail to pass. It has been the most aggressive asks on oil and gas companies that have led to climate “wins” to date. And while Energy Intelligence’s base case outlook for the energy transition has the world on a 2.5°C climate path, we note the aspiration for 1.5°C guides stakeholder conversations and decision-making. All the aforementioned companies have expressed an understanding they must not sit still, must listen, and must embrace adaptive strategies. Should these resolutions pass — or at least garner support from heavyweights like BlackRock and Vanguard — all three will have to be done to greater effect.