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Activist shareholders had a field day 26 May when they were able
to force two oil majors—Chevron and ExxonMobil—to accept
climate-friendly outcomes.
Activist investor Engine No. 1 won seats for two of its four
nominees to the board of ExxonMobil in a rebuke for the company's
management and its policies. The same day, some 61% of Chevron
shareholders voted to force the company to reduce "Scope 3" GHG
emissions generated by the use of its carbon-intensive
products.
And if that wasn't enough, a district court in the Netherlands
ordered Royal Dutch Shell to reduce its GHG emissions by 45% by
2030 compared with 2019 levels, marking a first-of-its-kind ruling
that adds pressure to oil and natural gas companies to do more.
Kaisa Hietala, a former executive vice president of renewable
products at Neste -- a Finnish refiner and marketer -- was elected
to the ExxonMobil board, as was Gregory Goff, former chief
executive of Andeavor, a US refiner now part of Marathon Petroleum,
according to a preliminary count announced at the company's annual
general meeting.
In December, Engine No. 1 nominated Hietala and Goff, along with
Alexander Karsner, senior strategist at X (formerly known as Google
X) and Anders Runevad, former chief executive of Vestas Wind
Systems, a turbine manufacturer. After vote certification,
ExxonMobil said it would report later on the outcomes of the
remaining votes, including those cast for Karsner and Runevad.
No credible strategy
Since forming in November 2020, Engine No. 1 has been leading a
proxy campaign against ExxonMobil, contending the company has "no
credible strategy to create value in a decarbonizing world."
Prior to Engine No. 1's campaign, ExxonMobil's market
capitalization halved and "ExxonMobil had been kicked out of the
[Dow Jones Industrial Average]," the investment group said, adding
this "historical underperformance occurred with growing oil and gas
demand."
Engine No. 1, which holds a $54-million stake in a company with
a $248 billion market capitalization, wants ExxonMobil to slash its
capital spending and focus on the energy transition.
Shareholders didn't just vote for adding new directors to
ExxonMobil's board. They also voted to support two other
climate-related proposals on the proxy, including one asking
ExxonMobil to report on how its climate lobbying aligns with the
goals of the Paris Agreement and the other seeking disclosure of
the climate change risks the oil major faces.
Rebuilding the balance sheet
The results of the votes were announced after the company took
an unusual hour-long intermission and an equally prolonged
question-and-answer session with CEO Darren Woods, who also was
reelected to the board, as he welcomed the two new directors on
board.
Woods maintained the company in the coming days would remain
focused on "rebuilding its balance sheets" and would not divert any
capital to new projects.
At the same time, Woods reiterated that ExxonMobil would
continue to invest in low-carbon solutions, notably hydrogen,
biofuels, and carbon capture, utilization and storage (CCUS).
During the same question-and-answer session, Woods also
dismissed the notion that the recently issued International Energy Agency (IEA)
report detailing a net-zero carbon emissions roadmap would
cause the company to change its course.
Calling the IEA report "helpful," Woods took a swipe at critics
who "are only reading the headlines. It is important to read the
full report."
Half of the emission cuts identified in the report are dependent
on technologies "that are not yet commercial," Woods said.
He also said the IEA understands that oil and gas companies will
have a role to play in the net-zero future. What Woods did not say
was that the IEA's net-zero carbon scenario envisions no new oil
and gas field exploration, but it does see a role for them in
promoting and developing CCUS technologies as well as hydrogen and
offshore wind.
Woods said ExxonMobil has not yet found an opportunity to
deliver "unique value" to the company's shareholders in the wind
and solar space, though it remains the world leader in purchases of
these energy sources.
Energy portfolio assumptions upended
Meanwhile, clean technology analysts, climate proponents and
scholars, thrilled at the ExxonMobil vote, said they expect a
change in the company's direction with the inclusion of the new
board members.
"Wow. Engine No. 1 beat Exxon management. Times are changing.
Faster and faster," Michael Wara, climate and energy program
director and a senior research scholar at the Stanford Woods
Institute for the Environment, tweeted 26 May following the
vote.
IHS Markit CleanTech Executive Director Peter Gardett said the
ExxonMobil shareholder vote has changed the assumptions of every
energy investor's portfolio.
"What was previously theoretical or low-probability about a
fast-moving energy transition is now being reflected in today's
corporate governance and strategy," Gardett said. "Investors will
need to model a new future operating environment, and we can expect
a broad reappraisal of asset values."
In a 21 May blog, Environmental Defense
Fund President Fred Krupp wrote that a "financial reckoning has
arrived" for companies like ExxonMobil that he said had refused to
align their strategies to a decarbonizing economy.
Krupp noted that 20% of ExxonMobil's stock is held by asset
managers BlackRock, Vanguard, State Street, and Fidelity.
BlackRock, Vanguard, and State Street are among the companies that
have joined the Net Zero Asset Managers
Initiative, an international effort to limit investments to
projects and companies aiming for net-zero carbon footprints.
Ahead of the vote, Krupp said three major proxy advisory firms
-- Glass Lewis, ISS, and Pensions and Investments Research
Consultants -- had come out in support of some or all of Engine No.
1's board nominees. Legal & General, the UK's largest asset
manager, also pledged its backing.
In addition, CalPERS, CalSTRS, and New York State Common
Retirement Fund — three of the largest public pensions in the
US and responsible for providing retirement security to millions of
people — also backed Engine No. 1 candidates.
"How they vote will be evidence of whether these shareholders
are willing to act now to address the
serious emerging risks to the US financial system and to
transition the firm toward cost-competitive and rapidly innovating
clean energy technologies," Krupp wrote.
Change is coming
Following the ExxonMobil shareholder vote, Aeisha Mastagni,
portfolio manager for CalSTRS' sustainable investment and
stewardship strategies unit, said: "We called for change at
ExxonMobil, and change is coming."
"While the ExxonMobil board election is the first of a large US
company to focus on the global energy transition," Mastagni
cautioned, "it will not be the last."
Shareholder proposals revolving around environment, social and
governance concerns are increasingly being offered as climate
impacts make themselves felt.
In April 2020, the Harvard Law School Forum on Corporate
Governance reported that the number of
environment and sustainability proposals and support for them "hit
an all-time high in 2019, a trend that has continued for three
consecutive years."
"The votes at ExxonMobil and Chevron were the capstone to a
stunning proxy season for investor action within the oil and gas
industry," Ceres, a sustainable investor network, said in a 26 May
statement.
Earlier in the proxy season, Ceres said, three climate-related
proposals received majority votes at ConocoPhillips and Phillips
66, while a majority of non-Exxon shareholders at Imperial Oil
voted for a proposal requesting that the company set net-zero
targets.
With the votes, "the center of power at ExxonMobil and Chevron
has shifted and oil and gas companies can no longer afford to
ignore outside pressure. Policy takes time to create change, but an
election is instantaneous," Andrew Long, Ceres senior director for
oil and gas, said in a statement.
Posted 26 May 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst