ExxonMobil’s Shareholder Meeting Drama — Board Seats Contested By Pro-Climate Hedge Fund

A group of investors is attempting to displace four members of the ExxonMobil Board of Directors in the Board election at the annual meeting to be held on Wednesday — and according to Axios and The Washington Post, this challenge represents a battle for the future of the oil and gas giant.  The “revolt” is being led by a hedge fund called Engine No. 1, which is backed by large institutional investors. They argue in an 81-page PowerPoint that the company is underperforming its competitors because of its “refusal to accept that fossil fuel demand may decline in decades to come,” and the Board is leaving “ExxonMobil unprepared and threatens continued long-term value destruction.”

Why It Matters:  This election campaign is not driven by climate activists or political pressure — it’s about return on investment and long-term financial weakness.  That changes the dynamic.  According to Axios and Bloomberg, the IEA Report issued last week on the path to net-zero last week buttresses Engine No. 1’s financial analysis and gives these large investors ample grounds to vote for the “white card” directors who allegedly have more “relevant” climate experience.   The company must be worried — yesterday they reportedly announced they will add 2 new directors over the next 12 months.

Is It About Climate?

The Post reports that Engine No. 1 wants a pledge that ExxonMobil will reduce its emissions to net-zero by 2050.  But the point here is that the need to do that is inextricably linked with the company’s financial health over the long run.  According to Andrew Logan, senior director for oil and gas at Ceres, a nonprofit merging climate and financial activism, “What these campaigns suggest is we’re at a point in time where climate change is so fully part of the mainstream that you can’t separate financial performance from climate strategy. They’re one and the same.”  Investors and financial experts are now paying attention.  For example, Institutional Shareholder Services, the most influential proxy advisory firm, recommended that ExxonMobil shareholders elect three of the four Board challengers.  And three of the largest U.S. pension funds — the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, and the New York State Common Retirement Fund — are planning to vote for the dissident directors.

Exxon’s Poor Performance

ExxonMobil’s fall from the ranks of the corporate elite has been a huge story in and of itself — and a markedly worse one than other oil and gas majors. As the Engine No. 1 website — aptly called “Re-energize ExxonMobil” points out, ten years ago it was the largest company in the world by market capitalization and the #1 company in the Dow Jones Industrial Average (DJIA), but now it’s not even listed on the DJIA.  Compared to other oil and gas majors, ExxonMobil has been outperformed by BP, Chevron, Shell, and Total for the last decade.  According to The Post, ExxonMobil is counting on future oil and gas demand remaining high, even in the scenarios of massive cuts in emissions needed to hold warming to only 2 degrees C.  And as for how it will address reductions, The Post reports that the company announced on April 19th “a ‘bold plan’ of building a huge $100 billion carbon capture and sequestration project in Houston,” but it’s looking for the government and private backers to fund the project, and even industry experts have labeled it “underwhelming.” 

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