Climate-conscious investors are preparing to deliver two top U.S. energy companies an unprecedented rebuke at annual shareholder meetings Wednesday.

A month after world leaders came together to sign the historic Paris Agreement, cementing a promise to keep the Earth from warming more than 2 degrees Celsius, a record number of shareholder groups have backed proposals that would require Exxon Mobil and Chevron to say how they would adjust to that reality.

To date, America’s largest two energy companies by market share have given the cold shoulder to demands that they outline potential business impacts of policies designed to stave off catastrophic global warming, such as carbon taxes and emissions caps.

“The board is confident that the company’s robust planning and investment processes adequately contemplate and address climate change related risks,” Exxon told shareholders in a letter advising them to vote against the proposal there. 

“Such a report is unnecessary in light of the safeguards and oversight in place through Chevron’s business and project planning and enterprise risk management tools and processes,” Chevron wrote, adding that disclosure could put the company at a competitive disadvantage.

But a growing number of investors are warming to the idea that oil majors should be disclosing the full range of risks to their businesses posed by climate change and efforts to mitigate it. “The times are changing,” said Shanna Cleveland, senior manager of the Carbon Asset Risk Initiative at the nonprofit sustainability organization Ceres based in Boston. “Investors are really seeing climate change as a material financial risk now.”

The biggest risk is that a combination of regulations aimed at reducing carbon pollution and competition from renewable energy sources render oil companies’ extensive reserves unprofitable to develop, particularly high-risk, low-margin projects like deep-sea drilling. 

GettyImages-1948729 Energy firms such as Exxon Mobil and Chevron are being pressured by shareholders to say how they would adjust their businesses in a world altered by climate change. Photo: Mario Tama/Getty Images

Publicly backing the campaigns at Exxon Mobil and Chevron are dozens of money managers overseeing more than $10 trillion, according to Ceres. Among the supporters are the Church of England, major public pension funds in California and New York, multinational banks like BNP Paribas, and investment firms such as Amundi and Natixis.

The two leading shareholder advisory groups, Glass Lewis and Institutional Shareholder Services, have also come out in favor of the proposal at Exxon Mobil. Meanwhile, both Exxon and Chevron have advised investors to vote against the measures, arguing they have provided adequate guidance.

Big Money and Big Oil

Despite unprecedented support for the proposals, the list of money managers publicly backing them lacks some conspicuous names: U.S. investment companies that control billions of dollars in Exxon Mobil and Chevron stock.

The firms remaining silent — including BlackRock, State Street and the Vanguard Group — control enough shares to sway the outcome of the votes. The top 10 Exxon shareholders control 21 percent of its equity, and the top 10 Chevron owners control 26 percent of its stock.

Unlike many European money managers, few American investment companies disclose their proxy positions in advance of voting. Reached Monday, almost all of the top 10 shareholders in Exxon Mobil and Chevron declined to comment on the votes to be held this week.

Norway’s sovereign wealth fund, the eighth-largest holder of Exxon and Chevron stock combined, indicated its support for the proposals at Exxon and Chevron this month. 

“We encourage companies to consider the sensitivity of their long-term business strategy and profitability to different future regulatory and physical climate scenarios,” Norges Bank Investment Management, which manages Norway's wealth fund, said in a statement on the Exxon vote. “We encourage companies to outline their position on specific climate change regulation relevant to their business profitability and outlook.”

Despite the fact that American money managers have held their cards close to the chest, some of the largest industry players have newfound interest in climate-risk disclosures in their portfolios, as evidenced by a spate of new guidelines and reports they have published in recent months.

For example, State Street, with almost $27 billion combined in Exxon and Chevron stock, responded to queries by pointing to a report issued in March outlining the bank’s approach to climate change risk. In a post-Paris world, the report indicated that when it comes to proxy votes, investment managers should “review shareholder proposals that the company receives and evaluate the spirit of proposals in the context of the business risk.”

It’s not a full-throated endorsement of the types of proposals currently facing Exxon Mobil and Chevron, but it demonstrates a level of concern over climate risk not yet seen at many major investment companies. 

Oil companies are sitting on more fossil fuels than the atmosphere can safely hold.

State Street isn’t the only money manager taking a hard look at climate risks. Neither BlackRock, the world’s largest money manager, nor Capital Group, the parent of American Funds, comments on specific votes, but both pointed to newly released new guidance on climate risks in advance of the 2016 proxy season.

Environmental issues “have real and quantifiable financial impacts,” BlackRock CEO Larry Fink said in an annual letter this year. “For too long, companies have not considered them core to their business — even when the world’s political leaders are increasingly focused on them, as demonstrated by the Paris Climate Accord.”

It’s difficult to tell how the largest money managers will vote. But the momentum appears to be in the direction of disclosure. “There has been a building of pressure over several years,” said James Leaton, research director at the nonprofit Carbon Tracker Initiative, headquartered in London. “Now the investors are getting rather impatient to see some movement in the companies.”

GettyImages-57487206 Chevron is one of several energy companies facing pressure from shareholders to explain how it will adapt to a warmer world. Above is the firm’s El Segundo Refinery in El Segundo, California. Photo: david mcnew/getty images

2 Degrees

The shareholder proposals at Exxon Mobil and Chevron revolve around the concept of the 2-degree scenario, a hypothetical future global economy where world leaders have made good on the Paris Agreement and sharply curtailed consumption of fossil fuels.

According to Carbon Tracker, more than $2 trillion in potentially “stranded” energy assets — from coal mines to untapped oil claimed by drilling companies — must be abandoned if humanity is to avert pushing global temperatures beyond the limit of 2 degrees Celsius (3.6 degrees Fahrenheit) that scientists have deemed relatively safe.

To put it another way, oil companies are sitting on more fossil fuels than the atmosphere can safely hold.

The ramifications for business are severe. “In the longer term, if companies find no viable alternative business model, the consequences could be extreme,” the business consulting firm Accenture noted in a recent report. “They would cease to exist, and the remaining net asset value would be given back to investors.”

The International Energy Association (IEA) has produced several scenarios mapping out how demand for fossil fuels would change in a world committed to a sustainable climate. But Exxon Mobil and Chevron have yet to fully account for the evolution of their oil-producing business activities in such a world.

“What does that mean for their business, what does that mean for their capital investment moving forward?” Carbon Tracker’s Leaton asked. “I don’t think they’ve really gotten to that level.”

Exxon has pinned its plans for climate-related adaptation to a scenario that sees demand for oil reaching 105 million barrels a day by 2040, a level 42 percent higher than the IEA’s 450 Scenario, considered by the international policymaking community to be one of the more stringent guides for future energy use.

In its 2016 Outlook, Exxon projected total carbon emissions twice those allowed by the 450 Scenario.

Chevron’s climate change policy outlook also hinges on a course less demanding than the 450 Scenario, building on a middle-of-the-road IEA estimate promulgated in 2013 that sees 37 billion tons of energy-related carbon emissions in 2035 — again, roughly twice what a scenario consistent with 2 degrees Celsius of warming might allow.

Chevron disputes that even a stricter carbon reduction regime would necessarily crimp its business. “We believe this proposal is based upon the flawed premise that a global agreement to limit warming to 2 degrees Celsius requires each individual fossil fuel producer to curtail development of resources proportionately,” the company said in its shareholder letter. “A decrease in overall fossil fuel emissions, however, is not inconsistent with continued or increased fossil fuel production by the most efficient producers.”

Even before Exxon Mobil and Chevron told shareholders that the proposals were unnecessary, the companies appealed to the U.S. Securities and Exchange Commission for permission to discard the measures at the annual meeting, arguing that they had already made adequate disclosures.

The SEC disagreed. “It does not appear that Exxon Mobil’s public disclosures compare favorably with the guidelines of the proposal,” the commission’s attorneys wrote in a filing requiring that Exxon put the proposal to a vote.

“This is not a fringe issue,” Ceres’ Cleveland said. “It’s a mainstream issue that not only investors but economic regulators are concerned about.”

Exxon and Chevron wouldn’t be the first oil giants to provide their investors with 2-degree scenarios. Amid increasing regulatory attention on the financial risks stranded assets might pose, the Australian BHP Billiton, the American ConocoPhillips and the Norwegian Statoil have all published low-carbon outlooks. Royal Dutch Shell has promised to follow suit.

“It’s important just to get the 2-degree scenario recognized and become a more commonplace discussion in the boards of these companies,” Carbon Tracker’s Leaton said. “This is a real test as to whether investors think they’ve responded adequately or whether they need to start ramping up the pressure even more.”