Tuesday, 15 Jun 2021

Exxon Mobil faces off against activist investors on climate change

HOUSTON (NYT, REUTERS) – Exxon Mobil’s management will face a big challenge over its climate change policies at an annual shareholder meeting on Wednesday (May 26) as activists contest the election of one-third of the company’s board.

Analysts who follow the company said they could not recall an election in which board candidates nominated by Exxon had lost. A defeat for even one of its nominees would be a rebuke to Mr Darren Woods, Exxon’s chairman and chief executive.

Led by Engine No. 1, an activist hedge fund, a coalition of investors concerned about the environment has argued that Exxon has not invested enough in cleaner energy, which will hurt its profits in the future. These investors argue that the company should follow European oil companies like BP and Total that have begun investing heavily in renewables like wind and solar energy.

Much depends on whether much larger Exxon shareholders back Engine No. 1’s campaign. All eyes are on BlackRock, the world’s largest asset manager, which has cast itself as a leader in efforts to press companies to do more to reduce emissions of carbon dioxide and other gases that cause global warming.

BlackRock, Exxon Mobil Corp’s second largest shareholder, is backing several of Engine No. 1’s candidates to join the company’s board, Reuters reported, according to people familiar with the matter.

Engine No. 1 proposed four directors – Gregory Goff, Kaisa Hietala, Alexander Karsner and Anders Runevad – with expertise in energy, technology and regulatory policy. BlackRock supported all but Mr Runevad, the people said.

Exxon has said the four do not have the expertise needed for its board.

Some big pension funds, including the New York State Common Retirement Fund and the California Public Employees’ Retirement System, have joined Engine No. 1, which was started last year.

“We listen, and we hear,” Mr Woods said in an interview in which he tried to take a conciliatory tone. “We don’t always agree, but we always understand there is an opportunity to improve.”

Exxon has argued that it is addressing climate change via its investments in technology that captures carbon at factories, before it is released in the atmosphere, and stores it. This technology includes a proposal involving emissions from industrial plants along the Houston Ship Channel.

On Monday (May 24), it announced that later this year it would add two new directors to the board, including a climate expert, but it has not committed to investing in renewable energy.

Engine No. 1 dismissed Exxon’s Monday announcement.

“What the board needs are directors with experience in successful and profitable energy industry transformations,” the hedge fund said in a statement. “This vote is too important to be influenced by this type of cynical, last-minute manoeuvring.”

Energy analysts say the dissidents could win seats on the board, but that would not necessarily change Exxon’s direction substantially, at least not immediately given that most of the board would still be made up of directors picked by the company’s management.

“I don’t expect a meaningful change in strategy such as large investments in renewables,” said Mr Allen Good, a Morningstar analyst. But he said a victory for the dissidents “would be a signal that shareholders don’t think current initiatives have gone far enough, and that could spur further change”.

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There have been several challenges to Exxon’s management over the years, but the dissidents gained strength last year when the company did not increase its dividend and slashed its US$200 billion (S$265 billion) investment programme by a third.

And the company’s stock dropped by nearly half. Its share price has regained much of those losses in recent months but remains about 17 per cent lower than it was in January 2020, before the pandemic took hold.

Much depends on whether shareholders with large stakes in Exxon vote with Engine No. 1.

BlackRock said that last year it voted against 64 directors on the boards of companies that generate a lot of carbon emissions.

This year, BlackRock told The New York Times that its ambition was for its entire investment portfolio to be at “net zero” emissions by 2050 at the latest.

In other words, the companies and other entities in which BlackRock invests would, in aggregate, be adding zero planet-warming gases to the atmosphere because they took out as much as they put in.

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