Still, Frost said CalPERS would not divest from the roughly $1 billion in Exxon stocks and bonds the pension fund owns, mostly in passive strategies. As of Dec. 31, CalPERS had $907 million in Exxon stocks and $211 million in Exxon bonds.
"The problem with divestment when you are CalPERS, you could quickly lose your voice," Frost said. "How do we influence a company if we don't own it."
In January, Exxon sued two activist investors, Arjuna Capital and Follow This, to remove a climate-related shareholder proposal from its proxy ballot.
Their proposal asked Exxon Mobil to further accelerate its emission-reduction plans, including Scope 3 emissions, which are the indirect emissions generated from Exxon's supply chain. Exxon Mobil executives continued the lawsuit even after the two shareholder groups dropped the climate proposal.
“For almost four decades, CalPERS has used its investments in major corporations to hold shareholder-elected directors and top officials accountable” to help ensure long-term, sustainable investment returns for the pension fund, Frost and Taylor said in the open letter.
“Now, decades of shareholder rights are under threat from a lawsuit filed by the leaders of a powerful U.S. corporation,” the letter said. “If ExxonMobil is successful in silencing voices and upending the rules of shareholder democracy, what other subjects will soon be off-limits?”
CalPERS officials did not take this step lightly, Frost and Taylor said.
"We helped elect many of the directors we are now voting against,” they said. “But we have to act.”
CalPERS has been considering this decision for a while. Earlier in May, CalPERS said it was considering voting against Woods. CalPERS owned about 8.5 million shares (0.19% of the company) as of March 31. That’s down about 626,000 from the previous quarter.
CalSTRS also considering vote
California Treasurer Fiona Ma, who sits on the boards of both CalPERS and CalSTRS, urged a "strong response" from the two largest U.S. public pension funds to Exxon Mobil’s actions, which she called "a serious threat to shareholder rights."
In a May 8 open letter, California Common Good, an organization of unions, community groups and environmental groups called on CalPERS and CalSTRS to vote against Exxon Mobil's entire board.
For their part, CalSTRS officials are still “carefully considering” how the $336.2 billion California State Teachers' Retirement System, West Sacramento, will vote at Exxon’s annual general meeting, CalSTRS Spokeswoman Barbara Zumwalt said in an email.
“We are disappointed that Exxon has continued in its lawsuit against Arjuna Capital and Follow This to exclude a shareholder proposal on this year’s proxy,” CalSTRS said in a written statement. “We believe the SEC’s no-action process is an established and superior process, and do not support the use of shareholder capital to attack shareholder rights.”
CalSTRS is considering several factors in its deliberations, including its stewardship priorities, engagement with the company, and long-term ramifications of the lawsuit.
CalPERS is not the only asset owner to say it plans to vote against Exxon Mobil’s board.
New York State Common Retirement Fund, Albany, plans to vote against all but two of Exxon Mobil’s directors primarily due to the company’s failure to address climate risk and demonstrate minimal transition readiness, said Matthew Sweeney, spokesman for state Comptroller Thomas P. DiNapoli, sole trustee of the $259.9 billion pension fund.
"But the lawsuit against shareholders for exercising their right to file a proposal is certainly another factor informing our decision," Sweeney said.
At the May 20 news conference, CalPERS' Frost declined to discuss pension officials' assessment on how Exxon is doing to address climate change risk because the current problem is a governance issue and not related to climate.
How CalPERS officials interact with companies on climate is a different set of processes, Frost said. At risk here is investors' ability to engage on a company's ordinary business, she said.
The moment the two issues, climate and governance, are combined it leads "to speculation on the real intent of our opposition," Frost said. CalPERS' real intent is that it is a shareholder issue, she added.
