ExxonMobil, a titan of company America, faces a pivotal second this week as restive shareholders have their say on what critics name an insufficient response to seismic shifts introduced on by climate change.
On Wednesday, essentially the most watched proxy battle in years will finish in a vote to resolve who sits on ExxonMobil’s board. The firm is making an attempt to fend off a problem from upstart hedge fund Engine No.1, and after a string of latest endorsements the activists suppose victory is inside grasp.
“This will reverberate,” mentioned Anne Simpson, head of board governance and sustainability at Calpers, a US pension fund backing the activists. “Winds of change are blowing through companies that are reluctant, fearful or unsure about how to take action [on climate].”
The battle has been below means since December, when Engine No.1 nominated 4 new administrators for Exxon’s board and referred to as for “purposefully repositioning the company to succeed in a decarbonising world”.
Exxon, as soon as notoriously aloof to shareholders, has been in listen-and-respond mode because the activist risk emerged, already appointing fresh directors and unveiling new emissions plans.
Darren Woods, the chief government, advised the Financial Times that he was prepared to steer the board shareholders elected.
“We will work with whatever comes out of the annual meeting,” he mentioned.
The vote will cap a contentious proxy season by which Shell, Conoco, BP and different fossil gasoline producers have confronted investor criticism over their climate methods. Chevron’s board additionally faces emissions-related shareholder resolutions at its annual assembly, beginning simply after Exxon’s on Wednesday.
Calpers, Calstrs, and the New York state retirement fund, the US’s three greatest pension funds, will all again Engine No.1’s proposals, as will Legal & General Investment Management and the Church Commissioners for England.
By distinction, Norway’s big sovereign wealth fund, which has talked extensively of firms’ climate risk, mentioned it could withhold its vote for Woods however again the remaining of the administration’s board slate.
The vote will hinge on BlackRock, Vanguard, and State Street — the massive three funds collectively maintain greater than 20 per cent of Exxon’s inventory — and the supermajor’s big retail investor base, accounting for nearly half of its excellent shares.
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The huge three funds haven’t mentioned which means they are going to vote however all emphasise the rising significance of climate change to their funding selections.
BlackRock’s chief Larry Fink warned chief executives earlier this yr that firms not getting ready for the shift to cleaner fuels “will see their businesses and valuations suffer”.
Campaigners have been glued to a battle they depict as a David and Goliath battle that may reveal Wall Street’s true climate colors.
Fred Krupp, president of the Environmental Defense Fund, urged shareholders to “meet the moment” by backing the marketing campaign, arguing that “massive shifts in clean technologies, government regulations and consumer preferences . . . demanded a stronger strategic response”.
But even Wall Street fairness analysts have seen the activist marketing campaign as believable, citing the fund’s 4 board nominees with vitality trade expertise, and Engine No.1’s pedigree.
“This isn’t just your average $200m hedge fund,” mentioned Sam Margolin, managing director at Wolfe Research, referring to its backing from huge pension funds. “The reputations of the people [it] nominated are very strong.”
Earlier this month, the 2 greatest US proxy advisers, Institutional Shareholder Services and Glass Lewis, respectively endorsed three and two of Engine No.1’s board nominees.
Exxon, the world’s most beneficial firm only a decade in the past, was booted from the Dow Jones Industrial Average final yr, when it additionally misplaced its gold-plated AAA credit standing and endured 4 consecutive quarterly losses.
The firm has proven uncommon flexibility below investor strain this yr, slashing capital spending plans, paying off some debt, and reining within the sector’s most aggressive oil output development plans.
The implied dividend yield has nearly halved since spiking above 11 per cent final yr, when the market priced in a lower to 1 of Wall Street’s most cherished payouts.
Exxon’s share value, up this yr by about 40 per cent, has outperformed rivals, though some analysts attribute this to the activists’ engagement.
In response to the climate strain, the corporate this yr started reporting its “scope 3 emissions” from the merchandise it sells, introduced a low-carbon enterprise line and new upstream emissions targets, and just lately floated a $100bn carbon capture and storage (CCS) idea in Texas.
The supermajor has additionally appointed three new board members, together with activist investor Jeffrey Ubben.
Woods advised the FT that the board was centered on growing a technique to “address a lower carbon future and the challenges associated with that” whereas additionally “providing the products that society needs”.
But Exxon won’t comply with European supermajors in committing to net-zero emissions, targets that Ubben just lately described as “irresponsible”.
For some monetary analysts, the strikes Exxon has made have been too little, too late.
Jason Gabelman, a director at Cowen, argued that Exxon nonetheless wanted to do way more to “future proof their business” and its carbon plans remained too modest.
Glass Lewis argued in its proxy suggestion that CCS, a know-how crucial to Exxon’s plans, didn’t have the “scale and economic viability” to serve “as the centrepiece of an energy transition strategy”.
Meanwhile, the corporate’s religion that an more and more affluent international inhabitants would at all times want extra Exxon oil was challenged this week by the International Energy Agency, a forecaster regularly cited by the supermajor.
The company mentioned no new oil and gasoline tasks can be needed if the world had been to cut back emissions sufficiently to forestall international overheating.
“Long-term risk continues to grow, threatening the company’s existing business model”, mentioned Glass Lewis.