With many people focusing on the pending decision of the Trump Administration regarding whether to withdraw the U.S. from the Paris Climate Agreement or remain within it (undetermined at this writing), another important development occurred yesterday that may set some very interesting and impactful precedents.

During ExxonMobil’s annual shareholder meeting, a company management-sponsored response to a shareholder resolution was roundly defeated, as 62.3 percent of the company’s shares were voted against management and for the resolution.  You can be excused if you think that this doesn’t sound like much of a headline, but for those who follow corporate governance matters and/or broader sustainability issues, you know that this is a very big, and quite unusual, deal.  Shareholder resolutions almost never garner a majority of votes, as most investors, including large institutions, have a strong tendency to put their trust in the judgment of senior management to know what is in the best interests of the company and its shareholders.

In the sustainability space, and particularly with respect to the issue of climate change, however, this is beginning to change.  The number of shareholder resolutions seeking company disclosure of the risks posed to the business by climate change and the strategies and tactical plans developed by management to address these risks has increased exponentially in recent years.  Moreover, the sponsors of many of these resolutions are no longer activists or people who could be dismissed as gadflies, but instead large mainstream financial institutions—think Fidelity, Vanguard, and Blackrock, as well as major pension funds such as CalPers.  They have a number of concerns, but are particularly worried about the prospect of stranded assets should limits on carbon pollution be limited by regulation or some form of taxation.

So it is particularly noteworthy that ExxonMobil, the world’s largest oil company and ninth-largest publicly traded company, not only found itself the target of a concerted effort to compel more disclosure about climate change, but that the effort succeeded.  You may recall that for many years, ExxonMobil actively denied that human activity (e.g., burning petroleum and other fossil fuels) was linked to climate change, provided substantial financial support to a nonprofit organization that attempted to debunk climate science and research findings, and in myriad other ways did what it could to impede recognition of the issue and public policy responses to address it.  In more recent years, the company has acknowledged the seriousness of climate change but promoted a limited and cautious approach, both in its own operations and in the public policy arena.

As reported in the Washington Post (https://www.washingtonpost.com/news/energy-environment/wp/2017/05/31/exxonmobil-is-trying-to-fend-off-a-shareholder-rebellion-over-climate-change/?hpid=hp_rhp-top-table-main_exxonmobile-115p%3Ahomepage%2Fstory&utm_term=.ab291a50fc77) and elsewhere, ExxonMobil’s major shareholders have grown impatient with this approach, to the point at which they decided that aggressive action was necessary.  ExxonMobil is not the first major oil company to capitulate to shareholder pressure to be both more proactive and forthcoming about its response to climate change (Occidental Petroleum took similar action last month), but it is certainly the largest and most influential.  When faced with a similar situation, Chevron opted to provide additional climate disclosures, leading sponsors of a shareholder resolution to withdraw it—a more typical outcome in matters addressing climate and broader sustainability issues.

I believe that we will see much more of this type of shareholder activism around climate change and other sustainability issues in the next few years, regardless of what occurs on the national political scene.  As pointedly noted by the institutional investors promoting more corporate disclosure, the global climate will not stabilize at a temperature of less than 2° C higher than pre-industrial levels without very large reductions in use of oil and other fossil fuels.  Oil and other fossil fuel producers must devise new business models to survive, and their share owners increasingly are insisting that they articulate how they will do so.