ExxonMobil faces the “winds of change” when the climate battle hits the boardroom

ExxonMobil, a corporate American titan, is facing a crucial moment this week as repairing shareholders express their opinion on what critics call an inadequate response to seismic changes caused by climate change.

Wednesday, the most watched proxy battle in a few years it will end with a vote to decide who is on the board of ExxonMobil. The company is trying to defend itself from a challenge from the No. 1 engine in the newly created hedge fund, and after a series of recent endorsements, activists think victory is within reach.

“This will have an impact,” said Anne Simpson, head of government and sustainability at the board of Calpers, a U.S. pension fund that supports activists. “The winds of change are blowing through companies that are reluctant, fearful or unknown about how to act [on climate]”.

The battle has been going on since December, when the No. 1 engine appointed four new directors to Exxon’s board and called for “deliberately repositioning the company to succeed in a decarbonizing world.”

Exxon, which was previously notoriously far from shareholders, has been in listening and response mode since the activist threat appeared. appointing new directors and to announce new emission plans.

Darren Woods, the chief executive, told the Financial Times that he was willing to lead the elected shareholders.

“We will work with whatever comes out of the annual meeting,” he said.

Voting will be limited to controversial proxies season in which Shell, Conoco, BP and other fossil fuel producers have faced investor criticism of their climate strategies. Chevron’s board of directors is also facing shareholder resolutions related to emissions at its annual meeting, which will begin just after Exxon’s on Wednesday.

Calpers, Calstrs and the New York State Retirement Fund, the three largest pension funds in the United States, will support proposals for the No. 1 engine, as will Legal & General Investment Management and the Church Commissioners for England.

By contrast, Norway’s huge sovereign wealth fund, which has talked extensively about companies climate risk, said he would retain his vote for Woods, but would support the rest of the board’s list.

Voting will depend on BlackRock, Vanguard and State Street (the three large funds together hold more than 20% of Exxon’s shares) and the supermajor’s large retail investor base, which accounts for nearly half of its outstanding shares.

The big three funds have not said how they will vote, but they all emphasize the growing importance of climate change for their investment decisions.

The head of BlackRock, Larry Fink warned general executives earlier this year that companies that are not preparing for the shift to cleaner fuels “will see their businesses and valuations suffer.”

Activists have been hooked on a fight they portray as a battle between David and Goliath that will reveal the true climatic colors of Wall Street.

Fred Krupp, chairman of the Environmental Protection Fund, urged shareholders to “meet the moment” by supporting the campaign, arguing that “massive changes in clean technologies, government regulations and consumer preferences … demanded a more strategic response. strong “.

But even Wall Street equity analysts have seen the activist campaign plausible, citing the fund’s four board candidates with experience in the energy industry and the No. 1 engine pedigree.

“This isn’t just your $ 200 million average hedge fund,” said Sam Margolin, managing director of Wolfe Research, referring to his support for large pension funds. “People’s reputation [it] the nominees are very strong. ”

Earlier this month, the two top U.S. CEOs Institutional services for the shareholder and Glass Lewis, respectively, endorsed three and two of the nominees for the No. 1 engine board.

While activists have talked about the “Existential” risk to Exxon raised by his they focus on oil and gas, have also taken advantage of investor frustration over Exxon’s financial performance in recent years.

Exxon, the most valuable company in the world just a decade ago, was from boot the Dow Jones industrial average last year, when it also lost its AAA gold-plated credit rating and endured four consecutive quarters losses.

The company has shown little flexibility under pressure from investors this year, reducing capital spending plans, paying off some debt and maintaining the sector’s most aggressive oil production growth plans.

The implicit dividend yield has fallen by almost half since it rose above 11% last year, when the market was priced down on one of Wall Street’s most estimated payments.

Exxon’s share price, up 40% this year, has outperformed rivals, though some analysts attribute it to the activists’ commitment.

In response to climate pressure, the company began reporting its “scope 3 emissions” of the products it sells this year, announcing a low-carbon, new line of business previous emissions targets, and recently floated in $ 100,000 million in carbon capture and storage (CCS) in Texas.

The supermajor has also appointed three new board members, including activist investor Jeffrey Ubben.

Woods told FT that the council focused on developing a strategy to “address a future with less carbon and the associated challenges,” while “providing the products society needs.”

But Exxon will not follow European super-majors by pledging to issue zero net, targets that Ubben recently described as irresponsible.

For some financial analysts, the moves Exxon has made have been too little, too late.

Jason Gabelman, director of Cowen, argued that Exxon still had a lot more to do to “prove its business in the future” and that its carbon plans were too modest.

Glass Lewis argued in his representation recommendation that CCS, a key technology for Exxon’s plans, did not have “the scale and economic viability” to serve “as a central piece of an energy transition strategy.”

Meanwhile, the company’s faith that an increasingly prosperous world population would increasingly need more Exxon oil was challenged this week by the International Energy Agency, a forecaster often cited by the supermajor.

The agency said no new oil and gas projects would be needed if the world reduced emissions enough to prevent global overheating.

“Long-term risk continues to grow, threatening the company’s existing business model,” Glass Lewis said.