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Exxon: activist fund wins two board seats

2021-05-29T14:08:43.638Z


Exxon changes its board of directors after pressure from a hedge fund that has criticized the company's inaction on climate change.


They ask oil companies to warn for fossil fuels 1:11

(CNN Business) -

A hedge fund that has criticized ExxonMobil's strategy in the face of the climate crisis has won enough shareholder support to replace at least two directors on the oil giant's board, a major loss for the once powerful company.

For the first time in modern history, America's largest oil company faced a credible challenge from an activist investor, Engine No. 1. Annoyed with Exxon's financial results and poor action on climate issues, the hedge fund tried to oust four directors at the company's annual shareholders' meeting.

Engine No. 1 won two board seats in shareholder voting.

Two other spots were still too close to announce a winner Wednesday afternoon.

Despite restrictions, they warn of carbon emissions 0:54

The vote is an important milestone in the battle against the climate crisis, because it is the first fight for control of the board of directors in a major American company where the argument for change is the need to move away from fossil fuels.

The ousting of at least two Exxon directors sends a strong message to other fossil fuel companies at a time when the International Energy Agency has warned the world that it needs to immediately stop drilling for oil and gas to avoid a climate catastrophe.

Engine No. 1 has criticized Exxon's reluctance to diversify into renewable energy and steps to maximize oil production.

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Investors are no longer on the sidelines.

This is a day of reckoning, ”Anne Simpson, chief investment officer for the California Public Employees Retirement System (CalPERS), said in a statement.

CalPERS is among the top investors and pension funds that supported the activist campaign.

"Investors sent a warning to Exxon, but its impact will reverberate across the boards of all major fossil fuel companies," Mark Campanale, founder and CEO of the Carbon Tracking Initiative, said in a statement.

Exxon's board will reconsider two shareholder proposals that received majority shareholder approval, according to the company.

The proposals include the request for a report on lobbying and a report on lobbying on climate issues.

"We have been actively engaging with shareholders and have received positive feedback and support, particularly for our announcements regarding low-carbon solutions and progress in efforts to reduce costs and improve profits," said Darren Woods, President and CEO. ExxonMobil CEO in a statement.

"Today we heard from shareholders about their desire to further drive these efforts and we are well positioned to respond."

The stumbling blocks opened the door to rebellion

This fight with the activists comes after a period of dismal performance by Exxon.

Exxon, which was the world's most valuable company in 2013, has lost nearly $ 200 billion in market capitalization since its peak.

Since 1928 it had been a non-stop part of the Dow Jones Industrial Average until it was expelled from the exclusive index last summer.

During the five years before the pandemic, Exxon's total return (including dividends) fell 17.5%, according to Engine No. 1. It was by far the worst result among the five largest oil companies.

In fact, Exxon was the only one to suffer losses, and the S&P 500 was up nearly 80% during the same period.

However, Exxon rebounded in 2021 as oil prices rose.

The stock price is up 41% this year, nearly quadrupling the advance of the S&P 500. Still, Exxon remains far from the all-time highs reached in mid-2014.

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'Questionable strategy'

Engine No. 1 argues that the climate crisis poses an existential threat to Exxon, an issue the company has not taken seriously enough.

Unlike BP, Royal Dutch Shell and other European oil majors, Exxon has bet even more on oil and gas despite growing concerns about the climate crisis.

"The refusal to accept that the demand for fossil fuels may decline in the coming decades has meant that even the first steps towards evolution have not been taken and that there has been confusion about long-term business risks rather than addressing them," wrote Engine No. 1 in its presentation to investors.

Institutional Shareholder Services has advised shareholders to vote for three of the Engine No. 1 candidates.

Citing Exxon's "questionable strategy" for the future and "diminishing returns," Glass Lewis, another influential advisory firm, urged shareholders to back two of the four candidates.

“We believe Engine No. 1 has made a compelling case, that without a more concerted response and well-developed strategy (…) related to Exxon's global energy transition, returns, cash flow and dividends, and thus both their shareholder value are increasingly in jeopardy, ”Glass Lewis wrote in her report.

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The big three have the key

Engine No. 1 owns only 0.02% of Exxon shares.

However, the hedge fund has gained the backing of major institutional investors, including the New York Common Retirement Fund, the Church of England, the California Public Employees Retirement System (CalPERS), and the Teachers' Retirement System. of the State of California (CalSTRS).

But like most proxy struggles, the war is likely to be won by the side that gains the support of the Big Three asset managers.

BlackRock, State Street and Vanguard collectively owned nearly 19% of Exxon's shares at the end of March, according to Refinitiv.

That is why it is very important for Reuters to report that BlackRock has voted for three of the four Engine No. 1 candidates to join the Exxon board.

A spokesperson for BlackRock declined to comment on the report.

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BlackRock, the world's largest asset manager, is coming under fire from activists who are demanding that it deliver on its own climate promises.

The campaign is led by BlackRock's Big Problem, a coalition that includes the Sierra Club, the Rainforest Action network, and Friends of the Earth.

“We question whether BlackRock is ready to hold the biggest polluters [the oil and gas companies] - and their funders - accountable.

Anything less is lip service and pretending that they do more for the environment than they are doing, ”wrote Roberta Giordano, one of the organizers, in a memo on Monday.

Beyond the board battle, Exxon also faces multiple climate-related shareholder proposals.

Both Glass Lewis and ISS recommend that shareholders endorse three separate proposals asking Exxon to issue reports detailing the financial impacts of the International Energy Agency's 2050 net zero emissions scenario, on payments and lobbying policies, and on the alignment of corporate climate lobbying with the Paris climate agreement.

Exxon promises to continue renewing its directory

Exxon has defended its strategy by pointing to projections that demand for oil and natural gas will continue, particularly from emerging markets.

The company has also signaled efforts to reduce emissions and invest in carbon capture and storage, as well as hydrogen.

Exxon has estimated that carbon sequestration alone could be a $ 2 trillion market by 2040.

"We believe that successful development of these technologies will be critical both in advancing society's ambitions for a lower carbon future and in generating long-term value for shareholders," wrote Woods and Exxon's chief executive officer. , Ken Frazier, in a letter to shareholders on Monday.

However, Glass Lewis said he does not believe that Exxon "has made a compelling case" that carbon sequestration will become economically viable or grow to the scale required to become the centerpiece of the company's energy transition strategy.

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"We are left with the feeling that Exxon is not doing enough in terms of preparing or investing for the future," wrote Glass Lewis.

In a sign of the pressure facing Exxon, the company also promised to add two new directors over the next 12 months, one with experience in the energy industry and one with experience in climate.

That would be in addition to the six new directors that have been added since 2017.

For its part, Engine No. 1 urged shareholders not to get carried away by what it called "cynical last-minute maneuvers" by Exxon.

"This is the same company that for years has refused to take even gradual steps to be better positioned for the long term in a decarbonized world," Engine No. 1 said in a statement.

Climate change CO2 emissions Exxon

Source: cnnespanol

All news articles on 2021-05-29

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