Do you have a nagging feeling your company is not moving quite fast enough on climate change? Are you worried your strategy is mostly warm words and long-term targets, without the substance in place to deliver on them? Are you hoping your shareholders will continue to be patient, and overlook the fact that your board does not really understand what it will take to reach net zero?

If so, the 26 May votes at ExxonMobil and Chevron should send an electric jolt through your boardroom. Shareholders voted against management on climate change resolutions at the two oil majors – installing two independent members at Exxon and demanding that Chevron “substantially reduce” its greenhouse gas emissions.

The votes will send shockwaves through the oil and gas sector. Concerned shareholders have been filing such resolutions for years but – apart from the occasional resolution requiring increased disclosure around climate risk – they have usually failed to win majority support.

Logo of US oil and gas giant ExxonMobil. (Photo by Eric Piermont/AFP via Getty Images)

So what has changed? The direct cause of these votes is that large, US-based institutional shareholders have come in off the sidelines; BlackRock and Vanguard, for example, voted for independent directors at Exxon. In the past, they have declined to support the vast majority of ESG resolutions, giving company management broad latitude over their handling of environmental and social issues. Now, they are putting their votes behind climate action.

Why now? It is not, as climate change-denying commentators on the right would have it, because they have been browbeaten by ‘woke’ activists or are in conspiracy with the global liberal elite. These institutions are quite capable of protecting their own interests when it matters.

Cold calculation

Instead, their calculations are hard-headed and grounded in a determination to protect shareholder value. They are convinced by the climate science of the need for a decisive response to the climate emergency. They note the direction of regulatory travel. They see a rising tide of litigation which, coincidently, saw Shell ordered by a Dutch court to increase its emissions targets on the same day the US oil companies’ shareholders defied their boards. They recognise the groundswell of public concern around climate change that will underpin the low-carbon transition.

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Ultimately, they recognise the enormous threat that climate change poses to the value of companies, like Exxon and Chevron, that they own. There is growing evidence that the energy transition is destroying value in some sectors – US coal, German utilities, oil and gas majors – as it creates the next generation of industrial giants, in renewable energy and electric vehicles. Trillions of dollars are at stake.

So where next? Of course, Exxon was a high-profile target. One of the world’s largest emitters, it has been a hold-out against climate action. Its limited disclosures of climate risks and climate plans that involved increasing emissions have been slammed by green groups, investors and think tanks such as Carbon Tracker.

Chevron, similarly, has lagged its European peers when it comes to responding to climate change. The oil and gas sector as whole has been in the crosshairs for concerned shareholders – but their focus is broadening. The Climate Action 100+, one of the largest investor engagements on climate change, is putting pressure on 160 companies across sectors including metals and mining, industrials, transportation and consumer products.

Momentum is growing

Successful engagement campaigns are resource intensive. Despite the huge volumes of assets they manage, big institutional investors have limited capacity. They have to choose their targets carefully. However, with many more investors joining these efforts, and with their understanding building of what credible climate action looks like, we can expect shareholder pressure to be brought to bear across many more carbon-intensive companies, across a wider range of industry sectors, in the months and years to come.

So how should companies respond? As a starting point, investors want data. They need to see companies transparently reporting on climate impacts. They want to see targets, and a plan in place for how to achieve them. As with the Exxon vote, they want to know that management has the skills, at board level, the company will need to navigate the energy transition.

For too long, most investors have ignored climate change, considering it immaterial to, or a distant issue for, the companies they own. No more. A critical mass of institutions have decided they need credible action on climate change – and are prepared to vote accordingly if they do not see it from the managers of the companies they own. Today, at ExxonMobil’s AGM. Tomorrow, at yours.