The Dawn of the Age of the Shareholder Rebellion

On 26 May 2021, two separate shareholder meetings at leading oil companies made major headlines, when they provided a theater for “shareholder rebellions” by climate activists and investors. At Exxon Mobil, the small, San Francisco-based hedge fund Engine No. 1 successfully campaigned to replace three of the company’s board members with its own candidates who are committed to pursuing a green business strategy. On the same day at Chevron, 61% of the company’s shareholders voted in favor of a proposal by the Dutch organization Follow This to cut carbon emissions.

A notable feature of both of these shareholder rebellions is the focus on the economic bottom line, and how—especially as the climate crisis worsens—green-conscious actions are also business-savvy actions. Although Exxon has long argued against shifting its focus to renewable energy, Engine No. 1 counters that a more environmentally-friendly business strategy is imperative for the long-term financial viability of the company. As Chris Brown, the founder of Engine No. 1, stated, “this isn’t really about ideology, it’s about economics.” Similarly, the founder of Follow This, Mark van Baal, argued that “institutional investors understand that no investment is safe in a global economy wracked by devastating climate change.”

The argument that green policy is good for business, appears to have persuaded a majority of shareholders of these big oil companies. For example, in order to secure the votes needed to appoint new board members, Engine No. 1 won the support of some of Exxon’s largest investor groups, including BlackRock, Vanguard, and State Street, which are typically reticent to adopt activist efforts unless there is a sound economic strategy behind them. A BlackRock representative noted that the demand for fossil fuels would likely diminish in the near future, which would inevitably impact the company’s profits and shareholders’ returns in the absence of significant changes to its business model. The stock market apparently agreed, and on the day of the vote, its stock prices, which have been lagging behind its peers for half a decade, rose 1.2%.

Engine No. 1 and Follow This’s strategy is successful largely because it bears truth: we have arrived at a tipping point, in which the potential profits of big oil may no longer outweigh the consequences of climate change, especially in light of emerging green technologies that offer better solutions for a sustainable future, sometimes even at a lower price. Climate disasters, including devastating droughts, wildfires, and floods, are increasing in frequency and impact, with the consequences sometimes costing upwards of a billion dollars. In accordance with the Paris Climate Agreement, governments are imposing measures to reduce greenhouse gas emissions, while at the same time investing in renewable energies, thereby driving down the cost—and profitability—of oil. In short, stakeholders are identifying economic opportunities in renewable energy sources, while at the same time identifying significant risks if the companies that they invest in continue to do business as usual.

In addition to the risks that climate disasters present, another recent development has the potential to tip the scales and render investments in fossil fuels unrewarding: on the same day as the shareholder rebellions at Exxon and Chevron, a Dutch court ruled in favor of environmental activists, and ordered Royal Dutch Shell to reduce its absolute carbon outputs by 45% percent by 2030 based on 2019 levels. This landmark case is expected to spark similar lawsuits against major oil companies all over the world, and has arguably set a new standard for how seriously companies should take their commitments to reducing greenhouse gas emissions if they want to avoid litigation and the fallout costs.

Can Shareholder Rebellions Work in the Context of Business and Human Rights Violations?

The strategy employed by environmental activists against large corporate carbon emitters appeals to the financial interests of those with decision making power—the shareholders. This blog questions whether a similar strategy might be available to business and human rights advocates.

Before answering this question, certain fundamental differences between the context of climate harms and human rights harms must be acknowledged. First, business-related human rights harms tend to take place in poor countries in the Global South against vulnerable communities. This is different from climate disasters, which know no borders and, whilst still having an unequal impact, affect all people in all parts of the world. Because shareholders and company executives at large transnational companies are overwhelmingly situated in the Global North, they are more likely to pay attention to the types of harm that take place in their own backyards—such as climate disasters—than distant human rights violations that are “out-of-sight, out-of-mind.”

A second point of comparison between environmental harms and human rights harms is the likelihood that a company will actually be forced to pay for the full cost of the harms that they cause or contribute to. While pollution provides a classic example of a negative externality,1 recent regulations such as carbon caps and emissions trading help mitigate the problem by forcing companies to internalize the costs of emitting greenhouse gases. Furthermore, emerging environmental cases, such as the recent Dutch Shell case that required the company to reduce its carbon emissions, also have the potential of forcing companies to bear costs for their polluting behaviors.

Conversely, in the business and human rights context, most companies involved in human rights abuses are never forced to pay the full cost of the harm, in part because holding them liable is extremely difficult. If all victims of business-related human rights abuses were fully compensated by the companies involved, the cost of human rights harms would undoubtedly be significant. However, most business and human rights-related victims are not (fully) compensated for their losses, and victims are forced to absorb the negative externality costs caused by wrongfully acting corporations. This is further exacerbated by the fact that many instances of business and human rights-related abuses arise from profit-maximizing efforts, which cut costs or increase production.

Given these realities, how likely is a shareholder rebellion in the context of business and human rights? This blog argues that while the tipping point has not yet been reached, some developing trends may move the needle closer to world in which a corporation’s involvement in human rights violations is effectively “bad for business”. First, emerging legislation such as human rights due diligence laws have the potential to increase the cost of human rights harms through administrative fines, avenues for tort litigation, and other mechanisms. When companies are forced to actually cover their negative human rights externalities, shareholder dividends will decrease and investment risks will increase, which could potentially spark a “rebellion”.

Second, increasing attention by consumers to the human rights track record of the companies they engage with can also move the needle toward a tipping point. However, for this to be effective, consumers must first be aware of how companies might be involved in human rights harms (a difficult feat given the companies themselves often do not know), and then also willing to change their behavior in order to avoid tainted products and services. While there have been some notable examples of consumer pressure changing corporate behavior, such as Nike’s commitment to combat forced labor in the wake of a scandal regarding their use of sweatshops, the majority of consumers still seek out preferred or cheap products without regard to the human rights track-records of the companies they purchase from.

In conclusion, a shareholder rebellion in the business and human rights context will be much more likely if a tipping point is reached, in which involvement in human rights harms is no longer profitable. While some examples do exist of shareholders pushing for human rights policies regardless of profitability, such as at an Apple shareholder meeting in February 2020, when 40% of shareholders supported a proposal by SumOfUs to compel the company to be more transparent about its dealings with China and uphold freedom of expression globally, such actions are scarce despite the urgency of the problem. Only when human rights policies are effectively “good for business”, similar to green policies now, will shareholder rebellions possibly take hold on a widespread basis.


1 A production cost that the producer does not pay for and is instead borne by the greater society.