BlackRock, Vanguard Mull Pressuring Exxon to Disclose Climate Risks

Two of the world's largest asset managers are strongly considering a public rebuke to Exxon Mobil Corp. over climate change at the company's annual meeting next week, according to people familiar with the matter.

BlackRock Inc. and Vanguard Group are weighing a vote in favor of an investor proposal that would seek to pressure the oil giant to conduct a climate "stress test" to measure how regulations to reduce greenhouse gases and new energy technologies could impact the value of its oil assets, the people said.

Exxon has urged investors to vote against the resolution.

If the proposal passes at Exxon's annual meeting May 31, experts say it would be the strongest signal to date that investors are seeking greater disclosure of the threats that climate change could pose to businesses. Passage would also highlight the emerging power of money managers with large passive investing businesses -- and their willingness to wield it.

Five years ago, many investors weren't as attuned to how climate change could affect the value of assets, but "now the evidence just slaps you in the face," said Timothy Smith, a director at Walden Asset Management, which has pressured money managers on climate issues and is backing the Exxon measure.

BlackRock is still considering whether to support the proposal.

"No decision has been made regarding our vote at Exxon's Annual Shareholder Meeting. Our deliberations continue and we look forward to continued engagement with the company," Zach Oleksiuk, head of Americas for BlackRock's investment stewardship group, said in a statement.

Vanguard is also strongly considering a vote for the proposal, the people said. The asset managers could side with the company if Exxon offers certain concessions, including making further disclosures or agreeing to allow its nonemployee directors to meet with investors, the people said. Such concessions in the past have led BlackRock to side with companies and vote against proposals related to climate change disclosure.

"Directors at any company who don't engage with those on whose behalf they serve risk losing investor support," Glenn Booraem, a principal at Vanguard who works on its governance efforts, said in a statement.

While the votes are nonbinding, companies need to show their responsiveness to such measures or face potential backlash, including the prospect of institutional investors voting against their director candidates.

Exxon in recent years has stepped up its climate-related disclosures and voiced support for a carbon tax and the international Paris climate pact. But it has also come under investigation by the New York attorney general and the U.S. Securities and Exchange Commission, who are examining whether it has provided enough information to investors about climate impacts and the value of its assets.

The company's disclosures to date have concluded that its assets wouldn't be severely affected by climate change.

"Our view and those of all other credible forecasters show a continued role for oil and gas through 2040," said Exxon spokesman Alan Jeffers.

Investment products such as exchange-traded funds that track the performance of indexes often come at a lower cost than traditional mutual funds and have gathered assets at a clip in recent years. That growth has given firms like BlackRock and Vanguard increasing sway on shareholder votes. But the firms in turn have come under activist pressure to take stances on issues such as climate disclosure.

When BlackRock sided with Exxon and against a similar proposal at the company's annual meeting a year ago, it faced backlash from investors and environmental activists. This year BlackRock said the disclosure of climate risks would be among its key engagement priorities with senior executives.

About two weeks ago, the firm voted for a similar proposal at the annual meeting of Occidental Petroleum Corp. Vanguard also voted in favor of that proposal, a person familiar with the vote said.

Following this month's Occidental vote, Exxon stepped up its outreach to large shareholders, making executives available for extensive discussions, investors said.

"Exxon has been very, very active in lobbying over the past year," said Patrick Doherty, director of corporate governance at the New York state comptroller, which manages the state's pension fund and led the investor coalition that put forward the climate shareholder proposal at Exxon.

Exxon has consistently said for years that it believes demand for oil and gas will rise in coming decades as people in emerging economies move into the middle class and drive cars or use air conditioning. Chevron Corp., the second-largest U.S. oil company, has made similar statements.

But the issue has grown into a hotly debated topic in the industry, with some European oil companies acknowledging the potential for demand to peak by the end of the next decade.

In December, a task force commissioned by the Group of 20 richest nations, and representing major asset managers, laid out new guidelines for how companies should be more forthcoming about climate risks. BlackRock played a role in creating the recommendations.

The Exxon vote appears to be shaping up as a litmus test for sustainability, governance experts said.

"At the end of the day the outcome will turn on what do the big fund managers and mutual funds do," said Anne Simpson, investment director for sustainability at the California Public Employees' Retirement System, a backer of the proposal. "The question there is, are they going to step up?"

Write to Bradley Olson at Bradley.Olson@wsj.com, Sarah Krouse at sarah.krouse@wsj.com and Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

May 25, 2017 05:44 ET (09:44 GMT)