CalPERS Warns Exxon of ‘Strong Response’ to Lawsuit

Public sector pension giant notifies oil major of consequences to its decision to sue shareholders over climate shareholder resolution.

The California Public Employees’ Retirement System (CalPERS), one of the world’s biggest pensions schemes, has warned ExxonMobil it will face consequences for its controversial decision to sue shareholders over a climate shareholder resolution.

CalPERS issued the warning after a group of ExxonMobil investors, employees and unions wrote to the pension fund urging it to vote against two of the company’s directors, including CEO and chairman Darren Woods, in protest against what they called an “attack on shareholder democracy”.

The move is the latest twist in an ongoing battle between the oil giant and climate-conscious investors over smaller shareholders’ rights to file resolutions.

In January, Exxon made the unusual decision to take legal action to prevent a shareholder resolution – which called for the group to adopt mid-term emissions reduction targets – from going to vote at its annual general meeting (AGM) later this month.

The two small shareholders who led the resolution, Arjuna Capital and Follow This, subsequently withdrew it. But Exxon still decided to press on with legal action, which many interpreted as an attempt to frighten off other investors from attempting similar action in the future.

In the letter to Exxon shareholders CalPERS and its sister fund the California State Teachers Retirement System (CalSTRS), the group of asset owners, unions and environmental groups led by California Common Good asked the pension giants to “hold [the company] accountable for its unprecedented and extreme lawsuit against its shareholders and its ongoing undermining of the efforts to fight climate change”.

“We ask that CalPERS and CalSTRS predeclare a vote against Exxon’s Board of Directors and stop purchasing Exxon’s bonds,” the letter said.

CalPERS has not confirmed whether it will vote against the two directors, but Fiona Ma, California State Treasurer and a trustee of the pension fund said Exxon’s actions were “a serious threat to shareholder rights and require a strong response”.

“As the largest public pension fund in the country, we have a responsibility to lead on issues that threaten to undermine shareowners,” she said in a statement released on Thursday to coincide with the meeting of investors. “As fiduciaries to our members, we must consider labour practices, environmental impact, and anything else that has the potential to affect the long-term value of the companies we invest in.”

‘Vitriolic’ attack condemned

Banker Bonus Cap Removal Bursts Fair Pay Bubble

Academics question logic behind higher pay for talent retention, as further pay votes are set for AGMs later this month.

HSBC’s decision to scrap a cap on bankers’ bonuses at last week’s AGM could open the floodgates for rising executive pay, further aggravating investor concerns around fair pay.

The vote to remove the cap received 99.3% shareholder support, allowing the bank to set a new limit for bonus and significantly increase payouts. HSBC paid its top investment bankers an estimated average bonus of US$771,700 last year, while median employee pay at the bank sits at £63,000 (US$79,000).

“It’s reflective of the general direction of travel with senior management pay in the UK,” Lindsey Stewart, Director of Investment Stewardship Research at Morningstar, told ESG Investor. “There’s a conviction, certainly among companies, boards and management, that higher pay has to be part of the equation for talent attraction and retention.”

Before the meeting, Stewart suggested the vote would “likely become a focal point for the UK’s conversation on executive pay”.

Overall trend

Under the previous legal cap, an employee’s bonus could not exceed 100% of their annual pay, or 200% with shareholder approval. These limits were scrapped from 31 October 2023 by then-Chancellor Kwasi Kwarteng’s mini budget.

Similar votes are due to take place at Barclays’ AGM on 9 May and Lloyds’ on 16 May. Beyond the UK, proxy advisor Glass Lewis has urged Morgan Stanley shareholders to vote against an executive pay proposal at its AGM on 23 May.

“The overall trend is going to be preserved,” said Stewart. “With HSBC is having approved this, it’s unlikely that we’ll see a rejection of those decisions at Lloyds or Barclays.”

Last week, Goldman Sachs removed its bonus cap for UK bankers, meaning they can now earn more than the previous limit of double their base pay. The decision was criticised by British trade unions.

The median pay for S&P 500 chief executives rose 9% to US$15.7 million in the year to April 15, increasing the gap between top management salaries in the US and UK. UK executives have complained they are underpaid compared to US peers, with several warning of a talent exodus without more competitive pay.

Last year,

Take Five: Coal in the Whole

A selection of the major stories impacting ESG investors, in five easy pieces. 

This week’s G7 commitment on coal will have insufficient impact without a global response.

Coal in the whole – The Group of Seven committed to phasing out unabated coal by 2035, but was criticised for allowing continued use of the fuel in power plants that deploy carbon capture technology, as well as for the flexible deadlines it gave to Japan and Germany. The announcement came in response to the COP28 pledge for all parties to transition away from fossil fuel usage. G7 countries said they would submit nationally determined contributions (NDCs) that “demonstrate progression and the highest possible ambition”, including 2030 targets and demonstrating alignment with net zero by 2050 goals. But the Turin communiqué offered precious little detail on the elimination of oil and gas from the energy systems of G7 countries. There has been some action at the individual country level, admittedly, with the US Environmental Protection Agency last week outlining requirements for coal and gas-fuelled plants to capture 90% of emissions, among other measures. While the G7 stressed its adherence to the International Energy Agency’s Net Zero by 2050 scenario, members are not fully aligned with its ban on new oil and gas exploration or development. G7 environment ministers also encouraged other countries to follow their lead on NDCs, and stressed their continued support for Just Energy Transition Partnerships. Given the latter are focused on effecting the clean energy transition of intensive coal users such as South Africa and Indonesia, it is likely that getting these stalled decommissioning initiatives back on track will have more impact on the decarbonisation trajectory than the domestic actions of leading economies. China, it should be noted, added the most coal capacity last year, followed by Indonesia and India.

Plastic progress? – The fourth round of UN-sponsored negotiations on the Global Plastics Treaty were hampered by an inability to agree on all-important production cuts. As a result, “intersessional work” will be needed if a final draft text is to be ready ahead of the last planned round of discussions in Busan in November. Most progress was made on developing a global approach to extended producer responsibility, but reports suggested developed countries fought shy of committing to binding targets for lower production levels. Prior to the talks, 160 financial institutions called for binding rules and obligations to address plastics’