CVX Chevron Corporation

By Bradley Olson and Nicole Friedman 

Shareholders at Exxon Mobil Corp. and Chevron Corp. narrowly voted down resolutions calling for stress tests to determine the risk that efforts to curb climate change pose to their businesses.

Despite the defeat, the proposals drew more support than any contested climate-related votes in the history of the two biggest U.S. oil and gas companies. Preliminary results showed 41% support from Chevron investors that cast ballots and 38% support at Exxon, an indication that more mainstream shareholders like pension funds, sovereign-wealth funds and asset managers are starting to take more seriously the threat of a global weaning from fossil fuels.

The number of shareholders supporting the climate-risk measures "is significant, and it will continue to grow," said Beth Richtman, investment manager at the California Public Employees' Retirement System, which manages about $290 billion. Calpers owns about $1 billion worth of Exxon shares and approximately $600 million in Chevron stock.

"There's a groundswell of share owners who are going to keep pushing this forward," she said. "We need to see them rise to the realm of best practices in terms of climate risk reporting, and we're not there yet."

While the shareholder votes aren't binding, supporters of the measures declared victory even in defeat after the oil companies' annual shareholder meetings Wednesday.

"You have to read this as a shot across the bow of the industry," said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based nonprofit group that advocated for the proposals.

Exxon and Chevron had fought to keep the measures off the ballot, a push that the U.S. Securities and Exchange Commission rebuffed.

Separately on Wednesday, the White House said it planned to propose a new rule that companies with federal contracts must disclose whether they share information about the risks that a changing climate could pose to their operations, as well as their goals to reduce greenhouse gas emissions.

That rule, expected to be completed this fall, would affect most federal contracts. The U.S. government is a major buyer of oil products, including jet fuel and diesel used by the military.

Exxon Chief Executive Rex Tillerson said Wednesday the company includes in its energy outlook a proxy cost on carbon.

"It's really the only way we know to accommodate in our financial decision-making the impacts of future policies that are yet to be formulated," he said. He added that most Exxon projects are either too short-term or too large for the theoretical cost of carbon they use in planning purposes to affect their decision-making.

Exxon has also noted it published a 2014 report on managing climate risks that said none of the company's oil and gas holdings are threatened by a global push to reduce carbon emissions.

Chevron told investors that the proposed climate measure was flawed. Efforts to limit warming could allow some energy producers, such as those who sell natural gas, to benefit while others fall out of favor, including coal-mining companies, Chevron said. The company is a large producer of natural gas and factors in a theoretical future price of carbon when deciding which projects to sanction, making a stress test unnecessary, the company said.

"We don't think this proposal will advance our thinking," Chevron Chief Executive John Watson said Wednesday.

Measures of this sort have been pushed in prior years by environmental groups and activist investors, but now more traditional shareholders are putting their muscle behind the proposals as concern spreads over the effect that policies to mitigate climate change could have on energy company financials.

Those who led the filing of the Exxon resolution were the Church Commissioners for England and the New York State Common Retirement Fund, along with others. The lead filers for the Chevron resolution were Hermes Equity Ownership Services and Wespath Investment Management, a division of the United Methodist Church.

Investors representing more than $10 trillion in assets pledged to support the climate proxy measures, which assert that Exxon, Chevron and other big oil companies should be transparent about how their drilling prospects would suffer if the world turned away from carbon-intensive fuels, including crude oil.

The New York State Common Retirement Fund, Norway's sovereign-wealth fund, the Church of England, Calpers and others actively campaigned for the proposals.

In December, nearly 200 countries pledged in Paris to hold the rise in average global temperatures to less than 2 degrees Celsius above preindustrial levels. This is the yardstick many shareholder resolutions have used to urge the companies to take greater action and show how such a goal will affect their business units.

Supporters of that effort say more investors want to see how companies are preparing for climate change impacts. A stress-test measure at Occidental Petroleum Corp. received 49% of votes, and similar proposals passed overwhelmingly last year at two other big oil companies, BP PLC and Royal Dutch Shell PLC.

In a report on climate released this month, Total SA, the French energy company, said it has reduced activity in Canada's oil-sands region and is avoiding Arctic exploration over concerns that some fossil fuels will have to stay in the ground if the goals set forth in Paris are achieved.

ConocoPhillips and Statoil ASA have issued projections that global oil demand could fall significantly by 2040 if measures to reduce climate risk are put in place. By contrast, Exxon's projection for global oil demand in that year is 28% higher than peers' forecasts.

"There's an awful lot of shareholder disquiet about how Exxon is approaching climate change," said Edward Mason, head of responsible investment for the Church Commissioners for England, which manages the assets of the Church of England.

At the Exxon annual meeting, shareholders did approve one shareholder proposal, giving investors greater power to propose director candidates. None of eight proposed shareholder measures passed at Chevron's meeting.

--Amy Harder contributed to this article.

Write to Bradley Olson at Bradley.Olson@wsj.com and Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

May 25, 2016 19:11 ET (23:11 GMT)

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