Introduction

Private capital is expected to play a pivotal role in the decarbonisation of the global economy, filling the multitrillion-dollar financing gap required to transform global industrial and energy systems. While capital markets drive innovations in green technology and lower entry barriers for new ventures, it remains unclear if they can effectively drive “brown-to-green” transitions in the fossil fuel sector. This research investigates whether capital markets can advance the clean energy transition in polluting firms, particularly given the sector’s outsize footprint in driving climate change and obstructing policy.

Theory

The study proposes that companies operating in contexts where climate commitments are voluntary and regulations are weak, such as the United States, are unlikely to make meaningful changes to their climate strategies despite increased shareholder pressure. This argument is built on three assumptions: firms prioritise short-term profits to maximise value for short-horizon investors; the costs and uncertainties of shifting to climate-friendly business models are high; and without mandatory regulations, firms can use symbolic actions to appear responsive without making operational changes. The research applies the concept of the “three faces of power”—direct control, agenda setting, and preference shaping—to theorise shareholder influence.

Measuring climate strategy using investor-facing reports

The authors addressed measurement challenges by analysing the annual filings (Form 10-K) of 530 publicly traded oil and gas companies in the US over a 22-year period from 2000 to 2021. Unlike promotional annual reports, 10-K forms are heavily regulated and subject to litigation, making “cheap talk” costly. A natural language processing (NLP) model, specifically a fine-tuned version of ClimateBERT, was used to classify text into distinct categories of climate-related risk and strategy based on standards from the Task Force on Climate-related Financial Disclosures (TCFD).

SEC rule 14a-8 and the limited power of shareholder resolutions

The study exploited an exogenous shock in September 2020 when the Securities and Exchange Commission (SEC) amended Rule 14a-8. This amendment raised the ownership bar for filing shareholder resolutions from a flat $2,000 holding for one year to a tiered system requiring holdings of either $2,000 for three years, $15,000 for two years, or $25,000 for one year. This change effectively empowered long-horizon investors, such as institutional pension funds, relative to short-term traders. The researchers used this shift as a test of whether increased agenda-setting power translates into changes in corporate climate strategy.

Analysis

Using a difference-in-differences approach, the study compared the climate strategies of firms based on their exposure to the rule change. The treatment group consisted of firms where the proportion of investors eligible to file resolutions was altered by the SEC reforms. For instance, Unit Corp experienced a negative 1.3 percentage-point difference in the proportion of investors able to file resolutions. This design allowed the researchers to isolate the causal effect of shareholder pressure while holding constant potential period effects such as the COVID-19 pandemic.

Results

The findings show largely null effects of increased shareholder pressure on deep climate reforms. For five of the seven measures of climate strategy, there was no statistically significant difference between firms exposed to increased pressure and those that were not. The magnitude of these null effects was small; for example, the estimated treatment effect for managing climate-related risks was only 0.01. While a positive effect was found for the declaration of “Net Zero” goals—a seven percentage-point increase—this result was not robust when applying firm-level fixed effects, suggesting it remains a weak signal of substantive change.

Resolution-filing power and the case of ExxonMobil

A case study of ExxonMobil illustrates why empowered investors often fail to overcome internal resistance. Despite significant pressure, including a 2013 advocacy campaign by institutional investors with $3 trillion in assets and the 2021 election of three activist board members from Engine No. 1, the firm’s core climate strategy remained largely unchanged. Exxon reported in 2014 that none of its reserves were at risk of being “stranded,” yet it wrote off 19% of its total oil reserves, including 3.5 billion barrels of Canadian tar sands, less than three years later.

Corporate counter-strategies against shareholder resolutions

Firms utilise procedural tools to limit shareholder influence, most notably SEC Rule 14a-8 “no-action” letters to exclude resolutions. In 2024, the exclusion rate remained high at 68%, with 139 proposals being excluded compared to 76 in 2023. Additionally, managers often issue strategic recommendations in proxy statements to shape shareholder opinion, arguing that specific climate demands constitute micromanagement or could distract from other corporate reforms, as seen in the 2022 campaign by Activision Blizzard.

Conclusion

The research concludes that investor pressure through filing resolutions is insufficient to drive meaningful shifts in corporate climate strategy among US fossil fuel firms. While such pressure can prompt surface-level announcements, internal stakeholder resistance and existing regulatory frameworks protect managerial discretion. The findings highlight a critical role for mandatory policy and regulation to ensure that capital markets can effectively advance the energy transition in polluting industries.