What ExxonMobil’s Taking Two “Green Directors” Means for Climate Change

Two “green-tinged” directors joined ExxonMobil during its May 26 shareholder meeting. Engine No.1, a small hedge fund leading a coalition of activists’ investors, made this move possible, reports the Economist.

Why is this report so significant? Most importantly, can these two green directors steer the giant oil company down a greener path?

First, ExxonMobil is an American multinational oil and gas corporation based in Texas and one of the world’s largest oil companies. Among the top five oil companies, ExxonMobil, Total, Chevron, BP, and Royal Dutch Shell, ExxonMobil has the most significant GHG emissions.

The placement of these two directors, Gregory Goff and Kaisa Hietala, is a win for the activists’ shareholders in what seems like a David and Goliath contest centred on climate change.

Goff is a “prudent” risk-taker and disrupter poised to challenge the company’s insular culture, and Hietala is an executive well-acquainted with renewable fuels.

ExxonMobil’s CEO Darrin Wood failed this time to fill the 12-member board of directors with his handpicked candidates. Activist hedge fund Engine No.1, with the help of powerful allies, has succeeded in its campaign to demand that the company confront the climate issue. However, the company’s response has lagged behind other oil majors that have reduced their fossil fuel investments.

The campaign followed years of underperformance. The company was expelled from the Dow Jones Industrial Average in August 2020 after being a member since 1928. Since 2015, the company has shown a poor return on capital due to bad investment decisions that doubled its debts, and in 2020, it saw a $22 billion loss.

Investors and shareholders upset by the oil company’s weak performance have pushed the company to make some necessary changes in recent years. “Board refreshment is necessary due to the long-term financial underperformance at ExxonMobil,” says Anne Simpson of CalPERS.

According to the Economist article, these two new directors plan to promote a lower-carbon strategy similar to that adopted by major European oil companies such as BP, Royal Dutch Shell, and Total.

Although Engine No. 1 nominated four candidates for the board, getting two revolutionary voices is “extremely rare” for a company the size of ExxonMobil, observes David Larcker of Stanford’s Graduate School of Business.

But Charles Elson, a corporate-governance expert at the University of Delaware, says even one dissenting opinion can make a big difference.

A growing activist movement that started in Europe has forced big oil companies like BP and Shell to go greener.  BP promised to halve the carbon intensity of its products in the next 30 years, and Shell plans to create a carbon-neutral business by 2050, which includes emissions from its products when used by consumers. 

However, a judge in the Netherlands thinks this is not enough and ordered on May 26 that the company must cut its emissions by 45% between 2019 and 2030 to comply with the Paris Agreement. Shell is expected to appeal this.

Activists’ unrelenting pressure has led ExxonMobil to reveal a low-carbon solutions division that will develop a carbon capture and storage technology. The company has also vowed to cut the carbon intensity of its exploration and production operations by 15-20%  by 2025.

On the same day that ExxonMobil voted in two new directors, Chevron approved proposals to reduce emissions from its product’s end-use.

Big oil companies’ recognition of climate change and decisions to reduce emissions are big wins for the climate and the activists and investors pushing for more ambitious and speedy actions to tackle the climate emergency.

However, five years after the Paris Agreement’s ratification, the world’s largest oil companies still have to disclose how they will achieve the target of becoming net-zero by 2050.

PHOTO CREDITS:

• Exxon Mobil Building by WhisperToMe – Own work, Public Domain, https://commons.wikimedia.org/w/index.php?curid=7503714
• Exxon Mobil Logo by the original uploader was KUsam at English Wikipedia. – Transferred from en.wikipedia to Commons by Glacier Wolf using CommonsHelper., Public Domain, https://commons.wikimedia.org/w/index.php?curid=6984464