(AP) — ExxonMobil is facing a major challenge from a group of investors in one of the most contentious battles a corporate boardroom has seen over its stance on climate change
, an issue that many shareholders see as growing in importance.
The investor group is pushing to replace four of the oil
giant's board members with executives they believe are better suited to both strengthen the company's finances and lead it through the transition to cleaner energy
. The battle represents a turning point for major publicly traded companies dealing with a global crisis.
The hedge fund behind the challenge, Engine No. 1, owns only a sliver of Exxon's stock, but the dissident slate of board members it has put forward has the backing of some of the country's most powerful institutional investors, including the largest public pension funds.
Regardless of the outcome of the shareholder vote, which will be announced following the annual shareholder meeting on Wednesday, the challenge reflects a global trend among consumers, investors, and government leaders to shift away from fossil fuels
and invest in a future where energy needs are increasingly met by renewable sources. To that end, President Joe Biden
has set the lofty goal of reducing greenhouse gas emissions
“We’re at a tipping point,” said Aeisha Mastagni, portfolio manager at the California
State Teachers’ Retirement System, or CalSTRS, one of the country’s largest pension funds and one of the major institutional investors that backed the alternative board of directors.
Engine No. 1 wants Exxon to replace its board of directors with directors who have a track record of managing change in the energy sector. The group claims that Exxon has underperformed its peers, losing market value even when demand for oil and gas was increasing. It also claims that the company lacks a credible strategy for creating value in a de-carbonizing world, and that its board lacks people
with experience managing change in the energy sector.
Exxon says it has continually refreshed its board with directors with expertise in energy, capital allocation, and transitions, and that it has been investing in low-carbon solutions, including a recent proposal to transform the Houston
Ship Channel into a hub for carbon capture and sequestration.
Exxon proposed a $100 billion investment by government and industry, with Exxon pledging $3 billion in carbon capture and other low-carbon initiatives through 2025.
Other major oil companies, from British Petroleum and Shell to Conoco Phillips and Chevron, have done more to satisfy shareholders, according to Anne Si. Investors want more corporate disclosures of climate-damaging emissions, and they expect energy companies to diversify their portfolios to include more renewable sources, according to Anne Si.
“What we're discovering with other oil companies is that we're making progress, and Exxon needs to catch up; Exxon is still saying one thing and doing another,” Simpson said.
CalPERS, a heavyweight in the investing community, supported Engine No. 1′s slate of candidates, claiming that through its engagement and proxy voting
, it has compelled hundreds of companies to appoint new directors to their boards.
“Normally, we have a collaborative approach where we work
with companies,” Simpson explained. “I would say it’s in rare circumstances that investors feel the need to actually put their own candidates forward, but that is because the nominating committee hasn’t been able to fulfill investors’ expectations. Exxon has had several years attempting to address this issue.”
In 2015, Glass Lewis, an institutional investor advisory firm, reviewed 14 shareholder proposals that requested additional disclosures on climate-related issues, such as the companies' levels of greenhouse gas emissions.
According to Glass Lewis, there were 21 such shareholder proposals put to a vote by 2017; three of them received more than 50% approval, whereas none had previously received majority support.
According to the Institute for Shareholder Services, 25 climate-related shareholder proposals have appeared on ballots this year, with those that have been voted on receiving support from 59% of shareholders on average.
This month, the International Energy Agency issued a warning that immediate action was required to reshape the world's energy sector, recommending a halt to new oil and gas wells and coal mine investments.
“Even if you love fossil fuels, you have to acknowledge that they are no longer being manufactured, and any company that wants to be sustainable in the long term has got to figure out what their next step is going to be,” said Nell Minow, vice chair of ValueEdge Advisors, an influential figure in corporate governance who voted in favor of Engine No. 1.
The nation's most powerful proxy advisory firms, including Institutional Shareholder Services, Glass Lewis, and Egan Jones, also supported most or all of the candidates proposed by Engine No. 1. These firms conduct research
and advise institutional shareholders on how to vote on such matters.
The New York State Common Retirement Fund, which argued that Exxon failed to properly manage its exposure to climate risks, also supported the alternate slate of directors.
According to some experts, pressure from Engine No. 1 and other shareholders appears to be having an effect at Exxon. The company's carbon sequestration proposal was not a major part of the conversation at Exxon a few years ago, but now management is talking about committing $3 billion to low-carbon ventures, according to Stewart Glickman, energy equity analyst at CFRA.
“Climate change and carbon capture more dollars than anything else,” Glickman said, “so the writing is on the wall that more money
is shifting in this direction.”