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Exxon vote shows disappearing line between social and economic issues

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As far as big investors are concerned, the line between economic and social issues no longer exists.

That’s the message from last week’s stunning vote at Exxon Mobil, where investors holding 62 percent of the oil company’s shares demanded better information on the cost of climate change policies.

Specific shareholders’ votes weren’t disclosed, but reports are focusing on investment heavyweights BlackRock, Vanguard and State Street as supporters of the resolution. It’s hard to imagine how the vote could have reached a majority without at least some mega-institutions signing on.

So much for deferring to management on social and environmental questions, as most giant fund managers used to do. They might challenge companies on a too-generous stock options package, for example, but never on a hot-button issue that could be seen as political.

That distinction had begun to blur even before the Exxon meeting. Resolutions on climate change reporting won majority shareholder votes at Occidental Petroleum and Pennsylvania utility PPL, and sizable support, though short of a majority, at other companies.

In St. Louis, 44 percent of Emerson shareholders supported a 2016 proposal that asked the company to produce a sustainability report. Emerson responded by adding an environmental chapter to its annual corporate responsibility report.

In April, Ameren investors gave 44 percent support to a resolution asking for a report on the effects of climate change policy, and 42 percent backed a request for a report on coal ash. Ajay Arora, vice president of environmental services, said Ameren already provides much of the information in its corporate responsibility report, among other places, but will continue to engage with shareholders who are concerned about the climate change issue.

All these resolutions are nonbinding, so even Exxon is under no obligation to deliver any more information to shareholders.

To fail to act, however, could push an already restive shareholder base toward open revolt. “It’s nonbinding, but that doesn’t really matter,” said Hillary Sale, a law professor at Washington University and an expert on corporate governance. “That is a very high vote.”

“They will have to think about a response to this, for sure,” adds Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance.

Exxon shareholders may have been galvanized by reports that the company was being investigated for underreporting the costs of climate change. (On Friday, New York’s attorney general accused the oil giant of misleading investors by keeping two sets of numbers, one public and the other secret, about how climate change might affect its assets.)

Heightened political controversy over the issue also may have swayed some investors. Exxon’s shareholder vote happened Wednesday, a day before President Donald Trump announced that he would withdraw from the Paris climate change agreement.

Mostly, though, big investors apparently have concluded that the old distinction between economic and noneconomic issues doesn’t make sense anymore. “Obviously the proponents were successful in making this an economic issue and not just a social issue,” Elson said. “When that happens, it becomes very pressing for company management.”

The Exxon resolution was submitted by a group of New York state pension funds. When social-issue proposals come from public, union and religious investors, some executives dismiss them as the work of activists pursuing a political agenda.

The big asset managers are saying that these issues are now about business, not politics.

“This is investors who want improved disclosure so they can understand the company’s true exposure to climate change,” Sale says. “It definitely affects the value of a long-run investment in the company.”

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David Nicklaus is a business columnist for the St. Louis Post-Dispatch.

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