Bloomberg
Big Oil’s climate change pullback comes with superb rebuke
(Bloomberg) – Freshly hammered in the boardrooms of the world’s biggest oil companies, the climate movement has a clear message: the energy transition is underway and there is no turning back Just five years ago, environmental activists were limited to waving signs outside of annual meetings and the bizarre shareholder proposal, inevitably rejected by boards and management teams. On Wednesday, however, stock market investors ousted two directors of Exxon Mobil Corp. considered insufficiently aware of the threat of climate change, while shareholders of Chevron Corp. voted in favor of a proposal to force the company to reduce pollution from its customers. Royal Dutch Shell Plc has been ordered to cut emissions harder and faster than expected by a Dutch court, and it was a humiliating loss for Exxon, the Western world’s largest oil company, made worse by the fact that the effort was backed by an activist with just 0.02% stake. CEO and Chairman Darren Woods fought the tiny fund for weeks, calling its candidates “unqualified” and offering concessions hours before the annual meeting. The council even delayed the vote in a final attempt to garner more support, but to no avail. The climate movement is now so widespread that the world’s largest institutional investors were ready to back Engine No. 1, a group of little-known activists who created their fund just six months ago, on one of the biggest corporate titans in America. BlackRock Inc., the second largest holder of Exxon with a 6.6% stake, voted for three of the four new directors appointed by the No.1 engine, according to a ballot released Wednesday. The asset manager said he was “concerned about Exxon’s strategic direction” and could benefit from the addition of new directors. “It’s a big deal for Exxon, but it’s a watershed moment for the oil and gas industry,†said Fred Krupp, chairman of the Environmental Defense Fund. “It is no longer tenable for companies like Exxon Mobil to defy calls to align their business strategies with the decarbonization of the economy.” A failed revolution Tuesday’s events mark a rude awakening for powerful Big Oil executives, who have long walked to the beat of their own drums with little need to take advice from shareholders on how to run their business. For much of the decade leading up to the 2014 oil crash, energy companies were among the biggest cash cows in the stock market and the lifeblood of most major pension funds. century: the developed world’s thirst for energy was growing, and Big Oil had it. But over the past decade, the American Shale Revolution and the climate movement have disrupted this trend on the supply and demand side, respectively. For too long, Exxon – and to a large extent, its rivals – the both missed. It wasn’t just that the supermajors were behind in the shale, but they didn’t understand what the massive new supply meant for the global crude market. From 2008 to 2014, the world went from a perceived scarcity of oil to an abundance of oil. But as old Texas fields were rekindled by hydraulic fracturing, Big Oil continued to pursue capital-intensive projects in Canada’s Arctic and tar sands, which not only hurt financial returns in the long run. term, but also put Exxon and its peers in the crosshairs of a movement that increasingly targeted US companies. “The link between climate change and financial investments is undeniable,†said Aeisha Mastagni, fund manager at the California State Teachers’ Retirement System, the second largest pension fund in the United States. one of the first backers of the No.1 engine. While the environmental activist movement has successfully targeted Big Oil and its allies, it has yet to solve the much bigger problem of tackling global crude consumption. Exxon, Chevron, Shell, BP Plc and Total SE together produce less than 15% of the world’s crude oil supply. Even if they opt out, others may step in to close the gap unless consumers are prepared to make tough choices about their lifestyle. Lightning rod Even compared to its peers, Exxon has long been a lightning rod for critics. Former CEO Lee Raymond strongly opposed the 1998 Kyoto Protocol, one of the first globally coordinated agreements to reduce carbon emissions, citing “uncertainty” surrounding climate science. While the company’s position has evolved over time – it supported the 2015 Paris Agreement – under Woods, it has always clung to the belief that demand for oil and gas would persist and that Exxon would be the one to provide it. the oil titans and their rivals in Europe have widened in recent years as Shell, BP and Total pledged to achieve net zero emissions targets by mid-century. In 2020, Woods dismissed these goals, some of which rely on asset sales, as a “beauty pageant” that would do little to stop climate change. Later that year, internal Exxon documents leaked to Bloomberg News revealed that Woods’ seven-year, $ 200 billion expansion plan was expected to increase annual emissions by 17% by 2025, which is equivalent to the entire production of Greece. much of its expansion plan, cutting capital spending by about a third until 2025. But by then the damage was done. Exxon’s debt rose 40% to around $ 70 billion in 2020, and it recorded its first annual loss in at least four decades, resulting in the largest depreciation in modern history. The company was also pulled from the Dow Jones Industrial Average. Investor dissatisfaction Exxon’s financial performance may have been behind the No.1 engine campaign, but it was the company’s environmental record. which weighed heavily during the vote. Environmental, social and governance investments have gained increasing importance among the nation’s largest asset managers, in part due to demand from climate-conscious clients Vanguard Group, BlackRock and State Street Corp., the three Exxon’s main investors are all members of the Net Zero Managers Initiative, which supports the goal of eliminating net greenhouse gas emissions by 2050. The CEOs of BlackRock and State Street were keen to introduce themselves as catalysts for the energy transition since they themselves become targets of environmental activism. No.1, who grabbed investor dissatisfaction with yields and used it to amplify his criticism of Exxon’s reluctance to adapt. “The refusal to accept that the demand for fossil fuels may decline in the decades to come has led to a failure to take even the first steps towards evolution and to obscure rather than tackle long-term business risk.” , the activist said in a recent presentation. To appease investor dissatisfaction, Exxon must separate the roles of CEO and chairman and increase transparency on its future plans, according to Iancu Daramus of Legal & General Investment Management, one of the top 20 shareholders. The company must also set “ambitious emissions targets suitable for an iconic company of this scale and stature,” he said. more renewable energy to finance its operations. But the company still seemed deaf to investor demands. “When we met the company, the senior management team did most of the discussion,†said Mastagni of CalSTRS. “They were unwilling to listen to the concerns of shareholders.†More articles like this are available at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP
