A Tale of Two Resolutions: Exxon versus Coterra, What Investors Got Wrong
A Tale of Two Resolutions: Exxon vs. Coterra, What Investors Got Wrong
By Dominic Watson and Andrew Howell
This summer, many of the world’s largest asset managers publicly disclosed their voting records from this spring on climate shareholder resolutions, and the results indicate a worrisome trend. Many failed to support ambitious climate proposals – and some stumbled even on the simple ones, like calling for better methane emission data.
Among climate solutions, reducing methane emissions from the oil and gas industry is the lowest of the low hanging fruits. We have the technology to virtually eliminate oil and gas methane emissions, and much of those reductions would come at no net cost (methane emissions are, after all, wasted product). Given methane’s climate potency, these reductions make for the quickest way to slow warming.
Yet, to date global action by the energy industry has fallen short, in large part because of poor data. Companies have for too long relied on antiquated desktop based “emissions factor” estimates that have been shown to consistently undercount emissions and regularly miss major leaks. As the saying goes, you can’t manage what you don’t measure.
Investors have recognized this risk and, over the last few years, major U.S. and European financial institutions have called for standardized accounting and reporting of methane emissions through the Oil and Gas Methane Partnership, which has emerged as the gold standard for disclosure. Federated Hermes, Blackrock, UBS, Legal & General, and JP Morgan, and investor groups including the $10 trillion Net Zero Asset Owner Alliance and IIGCC’s Oil and Gas Net Zero Standard, representing €60 trillion, have stated support for this standard, which now has more than 115 member oil and gas companies covering more than 35% of global production.
This steady buy-in has culminated in a wave of shareholder resolutions pointing to OGMP membership as a best practice. These proposals have largely been successful, with investor requests leading to acceptance by companies to join OGMP, commitments to improve direct measurement, or receiving strong levels of support during votes at annual general meetings. This includes a successful 74% vote for a methane resolution at Coterra Energy – the strongest result of any climate resolution from last season – and a notable 36% vote in favor of a nearly identical resolution at Exxon, a company notorious for its opposition to climate-related resolutions.
Methane Measurement Resolutions Filed in 2022-23
| Company | Filer | Results |
|---|---|---|
| ExxonMobil | Seventh Generation Interfaith Coalition for Responsible Investment | Vote: 36.4% support |
| Coterra Energy | Vermont Pension Investment Commission | Vote: 74.4% in favor |
| EOG Resources | Mercy Investment Services, Inc. | Withdrawn: Joined OGMP |
| Williams | Proxy Impact | Withdrawn: Joined OGMP |
| Marathon Oil | Mercy Investment Services, Inc. | Withdrawn |
| Ovintiv | Proxy Impact | Withdrawn |
| Targa | Miller/Howard Investments, Inc. | Withdrawn |
| Marathon Petroleum | Seventh Generation Interfaith Coalition for Responsible Investment | Withdrawn |
But the differences in voting across companies highlight a missed opportunity and may be indicative of an overly cautious approach that is not aligned with prudent stewardship of investment risks.
Exxon and Coterra: A split ticket
Exxon’s methane resolution garnered support from major global investors, including State Street, Capital Group, Morgan Stanley, and Legal & General. But others who voted for the Coterra resolution did not support its Exxon twin – including Blackrock, Vanguard, and JP Morgan Asset Management. Meanwhile Goldman Sachs Asset Management, BNY Mellon and T. Rowe Price voted against both. What’s to explain these divergent voting records?
Methane Vote Results for 15 Largest Investors Holding Coterra and Exxon
| Investor | AUM (Trillion USD) |
Exxon Vote | Coterra Vote |
|---|---|---|---|
| BlackRock Inc. | $8.5 | ❌ Against | ✅ For |
| Vanguard Group, Inc. | $6.6 | ❌ Against | ✅ For |
| State Street Corporation | $3.5 | ✅ For | ➖ Abstain |
| J.P. Morgan Asset Management | $3.0 | ❌ Split; >95% Against | ✅ For |
| Capital Group | $2.6 | ✅ Split; 70% For | ✅ For |
| Goldman Sachs Asset Management LP | $2.5 | ❌ Against | ❌ Against |
| BNY Mellon | $1.9 | ❌ Against | ❌ Against |
| Invesco Advisers, Inc. | $1.4 | ✅ Split; 60% For | ❌ Against |
| Legal & General Investment Management | $1.3 | ✅ For | ✅ For |
| T. Rowe Price | $1.1 | ❌ Against | ❌ Against |
| Northern Trust Investments | $1.0 | ✅ For | ✅ For |
| Geode Capital Management | $0.8 | ❌ Against | ❌ Against |
| Charles Schwab Investment Management | $0.8 | ✅ For | ✅ For |
| Dimensional Fund Advisors | $0.7 | ❌ Against | ❌ Against |
| Morgan Stanley Investment Management | $0.5 | ✅ For | ✅ For |
Resolutions typically must meet certain criteria to garner investor support – and Exxon and Coterra clearly met all three:
Materiality. There is little doubt that methane risk is material to oil and gas company operations. It is estimated that if companies emit at or near U.S. average emissions rates, methane can make up half or more of their scope 1 and 2 emissions depending on the amount of operational CO2 emitted.
Non-Prescriptiveness. These resolutions were not calling for companies to reimagine their business models, as they will certainly have to do in the coming years, but to “issue a report analyzing the reliability of [their] methane emission disclosures” and to compare the results to “recognized frameworks such as OGMP.” This is simply a clear first step for any company looking to get a handle on their methane emissions and demonstrate progress to shareholders, so much so that Coterra has since joined OGMP and Exxon may be in talks to become a member.
Targeted at laggards. The companies have taken some steps to address methane emissions. Both, for example, report efforts to monitor leaks, replace leaky equipment, and reduce flaring.[1][2] There is also evidence, thanks to a study from EDF, that Exxon has made progress in reducing methane emissions in the Permian Basin (though with emission rates still above the 0.2% threshold standard set by industry). However, these resolutions were targeted squarely at a specific lagging indicator: Exxon and Coterra’s continued reliance on desktop-based emission factor reporting, which are notoriously unreliable, provide limited transparency, and make it impossible to credibly compare performance across operators.
What’s ahead?
Large asset managers face challenging decisions in today’s environment, pressured by some policymakers and pension funds to drop ESG initiatives altogether, while other asset owners and corporate clients continue to ask for climate-related risks and opportunities to be integrated into the investment process.
In spite of the noise, investors must stay committed to sound portfolio stewardship or face significant financial and reputational risks down the road. If large asset managers cannot drive results on relatively simple near-term energy transition issues like methane, their long-term net zero pledges may ring hollow.
Methane resolutions will likely be on the docket again for a number of oil and gas companies in 2024, meaning next year will offer additional opportunities for investors to make good choices – for their businesses and the climate.
[1] https://corporate.exxonmobil.com/-/media/global/files/advancing-climate-solutions-progress-report/2023/2023-advancing-climate-solutions-progress-report.pdf
[2] https://coterra.com/wp-content/uploads/2022/11/2022-Coterra-Sustainability-Report.pdf
