Activist shareholders reach a ‘watershed moment’ in their ESG fight

After small investment firms managed to topple the might of oil giants ExxonMobil and Chevron at their recent AGMs, could these latest shareholder rebellions signal a change in the way environmental and social governance issues are tackled at the largest companies?


A year and a half after its launch, impact investment firm Engine No. 1 recorded its first major victory. In a battle of David-and-Goliath-proportions, the small hedge fund successfully staged a boardroom coup of oil and gas giant ExxonMobil, installing three rebel directors who have committed to speeding up the company’s energy transition. 

The ExxonMobil decision followed another upset at oil major Chevron, where Dutch activist shareholder group Follow This tabled a climate resolution which received a 61% backing from investors. While shareholders have often talked about the need for companies to take action on environmental, social and corporate governance issues (ESG), these latest rebellions show a new willingness from large investors to punish executives who have been resistant to change.

Follow This founder Mark van Baal tabled his first rebel resolution at a Shell shareholder meeting in 2016, but he looks back on the victories of the past two months as a tipping point for groups like his. “When we started filing resolutions, it was very unusual to use voting power because the companies did a very good job of convincing investors that it would damage their relationships,” he says. “Now, investors realise that climate change is such a big threat to their other assets that it needs to be stopped.”

Getting backing from big investors

With only a 0.02% stake in ExxonMobil, winning over the company’s largest shareholders was crucial for Engine No.1. The US oil company opposed the board changes requested by the small hedge fund, with ExxonMobil CEO Darren Woods stating: “We respectfully disagree with Engine No. 1’s conclusion and proposed approach. Our current board of directors is among the strongest in the corporate world.” 

However, with the backing of some of the world’s largest investment funds, including BlackRock, Vanguard and State Street, the resolution passed when put to a shareholder vote at the end of May. Explaining the decision in its vote bulletin, BlackRock says: “We continue to be concerned about Exxon’s strategic direction and the anticipated impact on its long-term financial performance and competitiveness. In our view, the board would benefit from the addition of diverse energy experience to augment existing skillsets.” 

The backing of larger investment groups strengthens the hand of these dissident shareholders and increases the likelihood of further upsets at future annual general meetings (AGMs). Many are increasingly paying attention to the risk that the environmental crisis and other long-term threats represent to their investments, with BlackRock CEO Larry Fink directly linking climate change and a lack of diversity to investment risks in his 2021 letter.

Natasha Lamb, co-founder and managing partner of US investment advisory organisation Arjuna Capital, was buoyed by Engine No. 1’s victory and claims it represents a “watershed moment” for activist shareholders. “The big difference now is that the largest investors, such as Blackrock and Vanguard, are no longer sitting on the sidelines, they understand the greater commercial risks of not taking sufficient action on climate change,” she adds.

Other causes taken up by activist investors

London Business School professor and member of the World Economic Forum’s sustainable development expert network Ioannis Ioannou believes a change in focus has also helped bring activist shareholders greater success.

“These recent proposals represent a step change in terms of the sophistication of the methods used to bring about change at companies,” he says. “Shareholder votes are not binding, even if they get a majority, so we’ve seen a shift to proposals where votes do matter, such as deciding the board of directors.”

He believes that this could lead to a rise in the number of shareholder proposals of a similar nature, especially within companies that have been less responsive to climate change. He adds: “The clearer the requests on the company, the easier it will be to form investor alliances because you can agree on precisely what it is that you’re trying to achieve.” 

The growth of social movements, such as the Black Lives Matter, are also issues that activist shareholders are increasingly likely to take up with the boards of major companies. “I expect to see this pressure expand into a number of other areas,” Ioannou says. “Investors are increasingly interested in, not only understanding and pricing the risk of today’s ESG issues, but also the risks of tomorrow. And the ESG issues of tomorrow can already be seen in the social movements of today.” 

Arjuna capital has raised gender equality proposals with the likes of Apple, Intel and Amazon, while shareholder advocacy group As You Sow has lobbied for American Express, Campbell’s and Monster Beverage to publish diversity and inclusion reports. 

As You Sow’s president Danielle Fugere says: “We’re seeing tremendous social unrest at the moment and these social risks create economic risk as well.

“Markets are not necessarily good at anticipating these types of long-term risks, so we have an important role to play in bringing these issues to the attention of companies, to help make them more resilient and increase their value.” 

A fast-track to change?

Although many activist shareholders claim to have the long-term interests of these companies at heart, they are still regularly met with opposition from the c-suite and board of directors. Shell CEO Ben van Beurden recently questioned why shareholders had backed a climate resolution from Follow This, when the company had already put forward its own energy transition strategy.

The resolution, which calls for stronger action on climate change, went on to receive 30% of shareholder votes – more than double the amount it gained the previous year. While Follow This led the campaign, van Baal claims “the real heroes are the individual investors who had the guts to vote against one of the most powerful companies in the world”. 

Despite not winning a majority, he believes the vote “still sends a very strong message” to Shell. “The strength of our resolutions are that they’re attracting a growing minority,” he says. “Until shareholders convince the executives that they need to change or one of the oil CEOs has an epiphany, they need to be supported – or in some instances forced – by shareholders to change.” 

Ioannou adds: “The major positive now is that business leaders should be unafraid to take on these ESG change management challenges because they might find their investor base not only legitimising the process but actually supporting it.”