Exxon Mobil faces its biggest challenge yet from activist investors who have long pressured the U.S. oil giant to address more urgently the growing risk of climate change to its fossil fuels business.
Shareholders of the Texas supermajor will vote at their annual meeting Wednesday on two competing visions for the future of Exxon and the energy industry at large. Exxon believes the world’s insatiable thirst for fossil fuels will continue to grow in tandem with its population. On the other hand, activist investor Engine No. 1 believes fossil fuels’ heyday is over as public concerns rise over carbon emissions.
At stake in this fight is the future of the nation’s largest oil company and one of the most powerful titans of corporate America. The proxy fight between Exxon and Engine No. 1 has drawn particular interest in Houston, where Exxon employs some 12,000 workers and is a major driver of the local economy.
“This is a watershed moment for the oil and gas sector and for Exxon,” said Fred Krupp, president of the Environmental Defense Fund, a environmental advocacy group. “Exxon’s financial reckoning may have arrived.”
Exxon, the world’s most valuable company just eight years ago, faces mounting pressure from investors such as Engine No. 1 to change course as the oil giant emerges from the worst oil bust in decades caused by the coronavirus pandemic. The company last year lost $22.4 billion, froze its dividend for the first time in nearly four decades and laid off thousands of workers worldwide, including 1,900 in the United States, as demand crashed for crude and petroleum products such as gasoline and jet fuel.
Now, the company is confronted with one of the most significant campaigns from activist investors since Exxon and Mobil merged in 1999. Investors for years have tried to pressure Exxon to address climate change and adjust its business through nonbinding resolutions. Should Engine No. 1 win its proxy fight, the company will be required to make changes.
“Exxon has been long respected in the business that you wouldn’t even think to run a campaign against them. You wouldn’t have won,” said Andrew Logan, senior director of oil and gas Ceres, a Boston-based environmental advocacy group that works with investors and companies. “This proxy fight is just a sign of how far this company’s reputation has fallen.”
Engine No. 1, a small San Francisco-based hedge fund founded by technology hedge fund veteran Chris James, is seeking to replace four directors on Exxon’s board with new candidates promising to change the company’s course as public concerns rise over climate change. The four independent director nominees —z Gregory Goff, Kaisa Hietala, Alexander Karsner and Anders Runevad — have experience in oil and gas and renewable energy.
There’s momentum behind Engine No. 1. The activist investor has the support large institutional investors, including California and New York pension funds. Many of Exxon’s largest investors, such as Blackrock and State Street, have signed climate pledges to shift their portfolio toward companies prioritizing targets to reach net-zero greenhouse gas emissions.
More recently, proxy advisory firms ISS and Glass Lewis recommended that Exxon shareholders vote in favor of some or all of Engine No. 1’s candidates.
“All four of Engine No. 1’s nominees have the successful and transformative energy experience that the current board requires to help position Exxon Mobil for long-term success in a rapidly changing world,” an Engine No. 1 spokesperson said. “Since the start of our campaign, Exxon Mobil has made a lot of promises to shareholders about repositioning itself for the future, but its track record of failing to adapt to industry changes makes clear that real change is required on the board to make this effort a success.”
The change is coming quickly — faster than industry analysts and officials had previously expected. The International Energy Agency, on whose forecasts Exxon has relied heavily, warned last week that the world will need to stop drilling new oil and gas wells this year to meet net-zero emissions targets by 2050 and avoid the worst consequences of climate change. Also last week, Ford unveiled its F-150 Lightning, an all-electric version of America’s best-selling vehicle for more than a decade.
Exxon, which declined to comment for this story, appears to have put the worst of the pandemic past it. The company reported its first profitable period in a year, posting first-quarter profits of $2.7 billion, compared with a loss of $610 million in the same period last year. Its stock has climbed 44 percent since the start of the year to $59.61 at close Tuesday.
CEO Darren Woods in a conference call with analysts last month said Exxon’s board has added six new members since he became chairman in 2017, and has been actively listening and responding to shareholder concerns about climate change.
“If you look at the folks that we have on the board, a number of our individuals have really pertinent and relevant experience to managing large corporations successfully through a transition, albeit potentially in different industries,” Woods told analysts on April 30. “When you’re thinking about a transition with all the uncertainties associated with the challenges, how to best allocate your capital in that space and make sure that the one that you’re moving the business in ... we’re doing so in a way that protects shareholder value and generates returns.”
Even if Engine No. 1’s slate of directors fails to garner enough votes on Wednesday, environmental groups said activist investors have already pushed Exxon to acknowledge climate risks. The company earlier this year announced a $3 billion investment in carbon capture projects. Last month, Exxon floated plans for a $100 billion project to capture carbon dioxide emissions from Houston’s industrial facilities and bury them under the Gulf of Mexico. Most recently, Exxon on Tuesday promised investors it would add two new directors to its board over the next year, one with energy experience and one with climate experience.
“What the company has done so far is a clear sign that the campaign has had success,” said Logan with Ceres. “There has been real change at the company as a result of this pressure. But it’s small steps when the company needs a giant leap. It’s hard to see how this board will do anything more than incremental change unless there’s a shakeup on its board.”
