ExxonMobil faces what may be a landmark shareholder vote today as an activist investor seeks to unseat a third of its board of directors in the biggest challenge to date over how the oil industry is preparing for a low-carbon future.
The hotly-contested proxy battle is being closely watched by peers as a test of the industry's plans for navigating the energy transition, initially through voluntary measures. The company routinely faces pressure from small shareholders over its environmental record — including its role for many years funding climate change skeptics. But this year's efforts appear to have greater momentum, following the disastrous financial performance of ExxonMobil in 2020 and its self-declared pivot to better emissions management.
"If you can win a board campaign at Exxon, you can win anywhere," says Andrew Logan, sustainable investment advocacy group Ceres' senior director for oil and gas. "They've been the least willing to acknowledge that the world around them is changing."
Engine for change
The showdown with investors marks the culmination of a five-month campaign by Engine No 1, a San Francisco-based hedge fund, to overhaul the board amid criticism ExxonMobil has been slow to embrace clean energy while at the same time its financial performance has lagged others.
It follows a stunning fall from grace for the oil major which was forced to write down billions of dollars in bad bets on natural gas, saw debt levels balloon and investor returns shrink. While the company's finances have improved of late as oil prices rebounded, detractors say shareholder pressure should take the credit rather than management.
Shareholders will have a choice of voting between ExxonMobil's 12 current directors and four from Engine No 1 at the virtual shareholder meeting today. The nominees put forward by the activist include Gregory Goff, the former chief executive of US refiner Andeavor, and Alexander Karsner, a past US assistant secretary of energy and strategist at X, Alphabet's innovation lab.
The hedge fund, which has accused ExxonMobil of having "no credible strategy to create value in a decarbonizing world," has already won support from some of the biggest US pension funds based in California and New York. Meanwhile, leading proxy advisory companies including Institutional Shareholder Services are backing some of its nominees.
Although the oil major's largest investors have yet to disclose how they will be voting, fund managers including Blackrock and Vanguard may find it hard to back the company given their support for net zero emissions goals. One wild card could be a retail investor base that holds as much as 50pc of shares.
11th-hour concessions
A last-minute attempt by ExxonMobil to head off the investor revolt by promising to add two new directors with energy and climate experience over the next year was given short shrift by the dissident shareholder.
"What the Board needs are directors with experience in successful and profitable energy industry transformations who can help turn aspirations of addressing the risks of climate change into a long-term business plan, not talking points," Engine No 1 said in a statement.
In response to the activist campaign, ExxonMobil has laid out modest emissions targets, announced plans to invest $3bn in a low-carbon business, and appointed climate-conscious investor Jeff Ubben to its board.
But these measures have failed to win over the aggrieved investors, given other oil companies — such as smaller US rival ConocoPhillips which have set out far more ambitious greenhouse-gas reduction targets — have recently faced shareholder calls to go even further.
Just last week the IEA warned that new fossil-fuel investments must stop if the world stands a chance of cutting emissions to zero by 2050 — putting even greater pressure on companies.
The results of the ExxonMobil vote will show "whether companies can justify any more having a slow roll strategy on pivoting to cleaner energy," Amy Myers Jaffe, a research professor at Tufts University, told the FT Energy Source Live conference this week. Other items up for a vote today include calls to split the chairman and chief executive roles, which are currently held by Darren Woods, as well as provide greater disclosure on lobbying related to climate change.
