Why are BC pension plans using ExxonMobil as an example of effective climate engagement?
Faced with mounting calls from beneficiaries to stop financing fossil fuel expansion, the trustees of British Columbia’s public pension plans and their investment manager, the British Columbia Investment Management Corporation (BCI), have continued to highlight BCI’s efforts to engage with ExxonMobil on climate. Unfortunately, BCI’s repeated claims that it wields more influence over the infamous fossil fuel giant by continuing to hold its shares than by divesting do not stand up to scrutiny. Institutional investors have tried and failed repeatedly to engage ExxonMobil on climate, with little to show for it. The incompatibility of ExxonMobil’s core business model with climate obligations and its aggressive actions to block climate policy, attack shareholders, and mislead the public have long since undermined any pretense for shareholder engagement.
Engagement and divestment are not mutually exclusive
In many circumstances, engagement can certainly be an important way for shareholders to use their power to advocate for climate action. Strong investor engagement programs can move companies towards setting clear Paris-aligned commitments. They can also set timelines for meeting these expectations, backed by plans for escalation if these expectations are not met. Pension funds can and should also use their capital and influence to help decarbonize high-emissions industries such as electric utilities, heavy industry, transportation and mining. But there are obvious limits to engagement when it comes to fossil fuel companies.
Like all oil and gas producers, the only credible pathway ExxonMobil has to align its business model (which is extracting, refining and selling oil and gas) with climate goals is to rapidly wind down production and return capital to shareholders. There is no evidence that ExxonMobil has any intention of pursuing this path. By failing to establish consequences for companies in its portfolio that fail to align with climate goals, BCI is condemning its engagement team to endless, futile conversations with bad-faith actors that are aggressively obstructing the net-zero transition and exposing BCI’s beneficiaries to unacceptable levels of financial risk.
ExxonMobil has fought tooth and nail to prolong the use of fossil fuels
ExxonMobil has been fighting on multiple fronts to preserve and expand its core oil & gas business. But multiple levels of government are starting to wake up to the decades of climate delay and misinformation that ExxonMobil has supported. The company now faces lawsuits from city and state governments in New York City, Chicago and California that accuse ExxonMobil of misleading the public and investors about the risks of climate change and the company's role in exacerbating it. The legal actions seek to hold ExxonMobil accountable for climate-related damages and to recover costs associated with adapting to climate impacts, presenting material financial and reputational consequences for the company.
Examples of BCI’s bizarre commitment to engaging ExxonMobil
Given ExxonMobil’s ongoing battle against these looming regulatory, legal, reputational and transition forces, it’s difficult to see how BCI staff could actually believe the fund could influence the company’s behaviour. And yet BCI frequently references ExxonMobil as an example of its successful engagement program. In BCI’s 2021 Annual ESG Report, the pension manager highlights its support for a shareholder proposal asking ExxonMobil to provide a report assessing whether its climate lobbying activities were aligned with the Paris Agreement. BCI’s report states that this shareholder proposal led to ExxonMobil announcing “several climate-related targets since the meeting, including net zero by 2050 for operational emissions,” and that this outcome indicates that “persistent engagement can positively influence one of the largest GHG emitters in the world.” This is greenwash. Nothing in ExxonMobil’s commitments points to the company making good-faith efforts to align its business model with climate goals.
BCI once again emphasizes its belief in engagement in its 2023 publication Driving to Net Zero Through Our Influence. In this document BCI refers to ExxonMobil as an example of the power of proxy voting, highlighting BCI’s support of a high-profile 2021 shareholder action led by activist hedge fund Engine #1, which succeeded in electing three new candidates with “climate transition expertise” to ExxonMobil’s board of directors, yet utterly failed to alter the trajectory of the company on climate.
This messaging has trickled down to the pension funds managed by BCI. In January 2023, a member of the BC Public Service Pension Plan (BCPSPP) provided Shift with a letter from the BCPSPP, in which ExxonMobil was once again referenced as an example of successful BCI engagement:
“Through focused engagement, BCI has been able to influence positive changes. [A notable example was] the successful election of new board members to ExxonMobil. Investors had expressed concerns over the company’s lack of action on climate change and a slate of dissident board candidates were put forward for election at the 2021 annual meeting. BCI supported all four dissident candidates - three of whom were elected. BCI also supported the adoption of a shareholder proposal asking for a report to assess if climate lobbying activities by the company were aligned with the Paris Agreement. ExxonMobil has since announced several climate-related targets, including net-zero by 2050 for operational emissions.”
Engagement on Exxon Mobil has been unproductive at best
Unsurprisingly, however, ExxonMobil has since failed to take any credible steps to align its business model with climate goals and shift away from fossil fuels. Since the election of the three BCI-backed board members in 2021, the corporation has expanded its plans for fossil fuel production with no evidence of reform in sight. In 2023, all three of the BCI-backed board members voted for ExxonMobil to acquire Pioneer Natural Resources Co., an oil and gas exploration and production company—a clear indication that ExxonMobil intends to consolidate producing assets and extract more fossil fuels, in direct defiance of climate safety.
Indeed, with US$55.7 million of British Columbians’ contributions invested in ExxonMobil as of March 31, 2024, BCI should be concerned that it is gambling pensioners’ savings on one of the world’s largest polluters—an oil and gas company infamously known for waging a decades-long campaign of misinformation against climate science and lobbying against climate action. In recent years, ExxonMobil has been repeatedly called out for failing to deliver a credible climate plan. Climate Action 100+, an organization of major investors, including BCI, seeking to engage with the world's largest greenhouse gas emitters, has said ExxonMobil's climate plan fails to meet 9 out of its ten criteria for alignment with Paris Agreement goals. In a similar vein, in Oil Change International’s 2023 Big Oil Reality Check report, Exxon’s climate performance was rated as “grossly insufficient” in every category for meeting the bare minimum for alignment with the Paris agreement. Even worse, ExxonMobil recently served its own shareholders with a lawsuit after investors filed a shareholder proposal requesting that ExxonMobil set targets to reduce its emissions.
ExxonMobil has even acted in opposition to BCI itself. Since 2017, BCI has collaborated with Climate Action 100+ to engage with Imperial Oil, a Canadian oil company that is majority-owned by ExxonMobil. In 2023, BCI became the first Canadian pension fund to file a climate-related shareholder proposal, calling on Imperial Oil to increase its disclosure of climate risk. However, in keeping with its track record for opposing climate action, Exxon used its 70% stake in Imperial Oil to shut down BCI’s proposal. BCI itself acknowledged in its 2022 ESG Annual Report, released in April 2023, that “large gaps in climate disclosure remain a concern” with ExxonMobil.
Time and again, ExxonMobil has chosen oil and gas expansion over doing what’s necessary to prevent catastrophic global heating outcomes. Yet despite ample evidence of the company’s inability to change its business model in the face of a global crisis to which it is a major contributor—and despite ExxonMobil’s aggressive silencing of its own shareholders—BCI continues to pretend that engagement with ExxonMobil is effective. How long will BCI wait before it finally admits that engagement is futile and ExxonMobil has no credible plan for decarbonization and no intention to develop one?
Other pension funds realize engaging with ExxonMobil is futile
Other pension funds have recognized that engagement with ExxonMobil and other fossil fuel companies is futile. Notably, last year the Church of England Pensions Board divested from oil and gas companies, including Exxon, stating,
“The decision to disinvest was not taken lightly. Soberingly, the energy majors have not listened to significant voices in the societies and markets they serve and are not moving quickly enough on the transition.”
The New York State Comptroller announced a restriction on investments in ExxonMobil due to the company being “substantially behind their peers,” for example by failing to set a goal for reducing so-called scope 3 emissions.
Additionally, PFZW, the €237.8 billion Dutch pension fund, divested from most of its fossil fuel holdings earlier this year after observing limited results from its two-year targeted engagement program. The Chair of the PFZW board stated:
“The intensive shareholder dialogue over the past two years with the oil and gas sector on climate has made it clear to us that most fossil fuel companies are not prepared to adapt their business models to ‘Paris’. While the largest companies in this sector do invest in sustainable forms of energy, the switch from fossil to low carbon is not nearly fast enough”
CalPERS, the US$462.8 billion pension fund for California’s public employees whose COO is the Chair of Climate Action 100+’s Steering Committee, is now acknowledging that engaging a company like ExxonMobil is impossible. CalPERS’ President recently said:
“I don’t think engaging with [Exxon] will work. I think we need a plan...To say that we are very disappointed [is not enough]...Our members were just in here talking about how important this is to them. We have to be more adamant about this… All the work we have done for 20 years is being pushed back on… I think we need a plan and that plan needs to include whether or not we keep these companies in our fund.”
Most recently, ABP, Europe’s largest pension fund announced that it has sold its liquid oil, coal, and gas assets, totalling €10 Billion in fossil fuel. ABP noted that the returns have been “easy to replace” and that: “Anyone who looks back about 10 years will see that investments in oil and gas producers did not perform exceptionally during that period.’”
BCI’s climate strategy commits the investment manager to supporting “the global goal of achieving net-zero emissions by 2050,” yet investing in ExxonMobil and other fossil fuel companies stands in direct opposition to that promise. BCI has a legal responsibility to its pension members, who have continually called for climate action, to protect the financial integrity of the fund and the stable climate on which it depends. It has a responsibility to follow through on its commitments to climate action, by placing time-bound limits on its engagement with companies without credible climate plans. BCI acknowledges that it “may selectively divest if [its] evaluation of a company…reveals that the risk-return characteristics are no longer appropriate”. It’s past time for BCI to get on with it.
Based on its own policies, BCI should be asking hard questions about the efficacy of its engagement strategy. BCI can’t gamble the pensions of British Columbians on futile engagement processes with the most deceptive and recalcitrant climate polluters in the world. Engagement requires reciprocity between two parties united through mutual interests. Exxon, however, has shown no interest in genuinely engaging with its stakeholders’ concerns.
For the sake of everyone involved, it’s about time BCI breaks up with ExxonMobil.