Two “green-tinged” directors joined ExxonMobil during its May 26 company’s shareholder meeting. This move is made possible by Engine No.1, a small hedge fund leading a coalition of activists’ investors, reports the Economist.
Why is this report so significant, and most importantly, can these two green directors steer the giant oil company into a greener path?
First of all, ExxonMobil is an American multinational oil and gas corporation based in Texas and one of the world’s largest big oil companies. Among the top 5 oil companies: ExxonMobil, Total, Chevron, BP, and Royal Dutch Shell, ExxonMobil has the largest 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 that centres 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 in 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 the company to confront the climate issue. The company’s response has lagged other oil majors who have cut back on their fossil fuel investments.
The campaign happened at the back of the company’s years of underperformance. The company was expelled from Dow Jones Industrial Average in August 2020 after being a member since 1928. Since 2015 the company shows a poor return in the capital due to some 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, the plan is for these two new directors to promote a lower carbon strategy similar to what is adopted by European major 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 even just one dissenting opinion can make a big difference, says Charles Elson, a corporate-governance expert of the University of Delaware.
A growing activist movement that initially 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 emission by 45% between 2019 and 2030 to comply with the Paris Agreement. Shell is expected to appeal this.
The unrelenting pressures from activists have 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 the end-use of its product.
Big oil companies’ recognition of climate change and decisions to reduce emissions is a big win 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 ratification, the world’s largest oil companies still have to disclose how they will achieve the target of becoming net-zero by 2050.
ExxonMobil loses a proxy fight with green investors. (2021, March 29). The Economist. Retrieved from https://www.economist.com/business/2021/05/23/what-a-proxy-fight-at-exxonmobil-says-about-big-oil-and-climate-change
Hiller, J. & Resnick-ault, J. (2021, May 27). The two new Exxon board members poised to shake up insular culture. Reuters. Retrieved from https://www.reuters.com/business/sustainable-business/exxon-shareholders-elect-two-outsiders-board-shake-up-insular-culture-2021-05-26/
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