Investment Association fund managers who have exposure to ExxonMobil have been largely silent on an investor lawsuit against the fossil fuel giant, which argues it underplayed the risks of climate change to the business.
New York’s attorney general Barbara Underwood alleges Exxon Mobil Corp defrauded investors regarding the financial risks it could face from environmental regulations.
Underwood, said investors had put their money and trust in Exxon and the firm assured them of the long-term value of their shares, claiming to be factoring in the risk of increasing climate change regulation into its business decisions.
However, she added: “Our investigation found that Exxon often did no such thing.”
“Instead, Exxon built a facade to deceive investors into believing the company was managing the risks of climate change regulation to its business when, in fact, it was intentionally and systematically underestimating or ignoring them, despite public representations to the contrary.”
Former chairman and chief executive Rex Tillerson (pictured) is among management implicated in the lawsuit. Tillerson resigned from the firm to become US secretary of state under Donald Trump. He was ousted from the role in March.
FIDUCIARY DUTY FOR ESG
Fund managers have a fiduciary duty to investors to evaluate and account for all risks in portfolios, including environmental, social and governance (ESG) risks, said Hortense Bioy, director of passives and ESG at Morningstar. They should also push for changes that will increase shareholder value, she said.
Portfolio Adviser reached out the four funds in the Investment Association that have Exxon in their top 10.
Investment Association funds with ExxonMobil exposure
|Omnis Investments – Omnis US Equity||2.78%|
|LF Ruffer – Equity & General||2.30%|
|Janus Henderson Inst – North American Index Opportunities||1.30%|
|Aviva Investors – International Index Tracking||0.85%|
Source: FE Analytics
An Aviva Investors spokesperson said they were unable to comment on specifics of the case while it is ongoing. “At a general level, the extent to which companies are developing strategies to address climate change is an important factor in shaping our investment views and engagement policies,” the spokesperson said in a statement.
LF Ruffer, Omnis Investments and Janus Henderson declined to comment.
Bioy said: “Some critics say that engaging with oil & gas companies is pointless and they prefer to divest. The fossil-fuel divestment movement is certainly growing. But other fund managers, especially passive fund managers have no choice. They can’t divest. So they use their clout to influence and effect change.
“Last year, a shareholder resolution calling on Exxon to disclose more on its climate risk gained for the first time the support of a majority of shareholders, including from Blackrock and Vanguard, who, unlike other asset managers, hadn’t supported the resolution the year before.”
LITIGATION RISKS AGAINST OIL MAJORS
Litigation risks in the fossil-fuel industry are mounting due to growing discontent from asset owners, said Bioy.
“We’re seeing more and more lawsuits against oil & gas companies for a range of issues relating to climate change.”
Already this year, the cities of New York and Oakland filed lawsuits to claim damages against a number of oil majors, including BP, Chevron, ConocoPhillips, ExxonMobil, and Royal Dutch Shell. Bioy said the lawsuits are similar to those in the 1990s against the tobacco industry.
While the New York and Oakland lawsuits were dismissed, Bioy said the Exxon lawsuit is different because it targets financial issues.
INVESTORS CHALLENGE CORPORATE LOBBYING
Meanwhile, several large pension funds are taking action against companies whose rhetoric on environmental sustainability, particularly the Paris Agreement, does not match their lobbying activities.
Church of England and Swedish pension funds this week wrote to 55 companies on climate lobbying practices with the threat of filing shareholder resolutions later this year.
The letters said delay in action now with regulation is likely to result in the need for more drastic interventions later, leading to much higher costs for companies and delay in the implementation of the agreement increases the physical risks of climate change, which could cause a risk to economic stability and therefore introduce uncertainty and volatility into investor portfolios.
Additionally, companies may face backlash from their consumers, investors or other stakeholders if they or the organisations that they support are seen to be delaying or blocking effective climate policy.
Charlotta Dawidowski Sydstrand, Sweden’s AP7 Pension Fund, said: “At this point in time we find it unacceptable that companies counteract ambitious climate policy, either directly or through their business organisations. Lobbying on climate issues should be evaluated, managed and reported on transparently. We are hoping this will become a natural component of companies’ sustainability reporting.”
– This article first appeared on ESG Clarity’s sister website, Portfolio Adviser