Our Take: No Time for Complacency

Shareholder support for stricter climate resolutions broadly retreated at Western majors’ annual general meetings (AGMs), but we caution against reading these votes as cause for complacency. Instead, proactive engagement with shareholders is more important than ever to navigate unprecedented divisions. Oversimplifying signals risks missing crucial signposts that could result in permanent capital flight if ignored.

• Resolutions demanding aggressive 2030 targets for absolute Scope 3 (end-use) emissions cuts saw reduced support at all Western majors, save TotalEnergies. Even there, “yes” votes barely crossed 30% despite reported backing by influential proxy adviser Institutional Shareholder Services (ISS) and others; Total’s own climate progress report received nearly 89% approval. Support at Chevron and Exxon Mobil fell toward just 10%.

• A year of reflection around the potential consequences of supply-led emissions reductions, as well as indications of still-rising demand for oil and gas and bumper returns, likely tempered some support. But the magnitude of the drop, particularly in the US, is striking, and more procedural considerations seem to also be in play.

• The country’s rising anti-ESG movement looms large, but distilling its exact impact is nearly impossible. Heavily targeted institutional investors such as BlackRock already abstained from supporting similar resolutions last year — ahead of concrete anti-ESG government backlash — deeming them “too prescriptive” despite the advisory-only nature of such proposals. Proxy adviser Glass Lewis indeed switched camps on its vote at Chevron this year, according to Responsible Investor; ISS did the same at both US majors. But while both have faced anti-ESG scrutiny, Glass Lewis has independently expressed new concerns on votes asking shareholders to have a say on material strategy decisions without sufficient information around the full business implications. It now favors greater disclosure resolutions over strategic ones.

• Given this complex landscape, companies would be wise to use closed-door conversations with myriad investors to build a more nuanced understanding of strategic support and intentions for long-term investing. Views likely fall across the spectrum, so gauging how much “no” votes came down to disagreeing with the specific asks rather than pushing against greater action is crucial to ensuring majors maintain access to the widest, most liquid set of shareholders possible.

• Failure to do so risks repeating the shareholder revolts of 2021 that caught Exxon and Chevron flat-footed. But the greater risk may be more shareholders going the direction of the Church of England, which is threatening disengagement and divestment. A more homogenous, less-critical shareholder base may bear short-term benefits. But this path heightens future threats of permanent capital flight as and when climate exposure risks are more fully priced into valuations and cost of capital. Already, European majors are talking up courting more US investors given waning shareholder interest at home. The pool of oil and gas investors is likely to only get smaller over time, in our view, no matter how much anti-ESG efforts restrict organized action. But continued engagement could at least slow attrition and help build investment case resiliency.