Hedge fund Engine No.1 won an unlikely victory to reshuffle the Exxon board, in a sign of growing shareholder unrest over climate issues
Exxon chief executive Darren Woods said he looks forward to working with the new board members (Credit: askarim/Shutterstock)
Exxon has confirmed a third new director nominated by an activist investor will be appointed to its board, following a tumultuous AGM last week where shareholders made a clear statement of discontent with the company’s direction on climate change.
Alexander Karsner, a senior strategist at tech giant Alphabet, joins two other candidates already confirmed in the board shake-up – meaning a quarter of Exxon’s 12-member committee has now been replaced with activist appointees.
Engine No.1, a small and relatively young US hedge fund, launched a high-profile pressure campaign against the oil major late last year, calling for new voices on the board of directors who would better steer the company through the choppy waters of the energy transition.
The fund said its nominees would “help the board chart a new value-creating path, including better long-term capital discipline, strategic planning, and management incentives”.
Repositioning the company to better meet the demand of a low-carbon economy “will not be easy”, it added, “and will require a board with a diversified level of insight into the evolving trends, technologies, markets, and policies shaping the future of the industry”.
Engine No.1’s surprise success in challenging the upper echelons of one of the industry’s most famous names was cheered by environmentalists and investors, and delivered the clearest indication yet of the growing momentum behind climate-focused shareholder activism.
Exxon’s confirmation of Karsner’s appointment was delayed from last week, with the company suggesting a closely-run contest that needed to be independently verified.
Election of the two other nominees – Gregory Goff, former CEO of Andeavor, and Kaisa Hietala, formerly of Neste – was confirmed at the meeting on a preliminary basis.
In a statement, Exxon now confirms all three nominees are expected to join its board of directors, pending final legal certification and notification to the US Securities and Exchange Commission.
“We look forward to working with all of our directors to build on the progress we’ve made to grow long-term shareholder value and succeed in a lower-carbon future,” said Exxon CEO and chairman Darren Woods. “We thank all shareholders for their engagement and participation, and their ongoing support for our company.”
Engine No.1 said: “We are grateful for shareholders’ careful consideration of our nominees and are excited that these three individuals will be working with the full board to help better position ExxonMobil for the long-term benefit of all shareholders.”
Exxon board change a sign of growing shareholder unrest over climate
Exxon has faced mounting criticism for its sluggish response to climate issues, and for failing to align itself with the goals of the Paris Agreement while many industry rivals launch long-term strategic plans to cut their emissions, lower oil production, and diversify their energy offerings to include more renewable sources.
While the Texas-based company has pledged to reduce its emissions intensity and invest in emerging technologies like carbon capture and hydrogen, it has so far resisted calls to go further and plan for a future where less oil and gas is produced.
Aside from concerns raised about the impact on climate change, investors have expressed worries that such an approach will damage the company’s financial performance as its core businesses diminish alongside waning demand for fossil-based products as the global energy system decarbonises.
Engine No.1’s pitch for a change of personnel on the Exxon board expressed as much, with the hedge fund saying “for ExxonMobil to avoid the fate of other once-iconic American companies, it must better position itself for long-term, sustainable value creation”.
“The company has little material exposure to newer growth areas and has shown little inclination to materially alter this position,” it said in a letter to the board announcing its nominees last December.
Dmitry Loukashov, an equities analyst at VTB Capital, said the concerns raised against Exxon and the resulting shareholder reaction “are not isolated”, and can be expected to be followed by further external pressure on publicly-traded Western oil companies.
“If such sentiment on oil consumption persists, this might signify a bleak outlook for global oil demand in the not-so-distant future,” he added.
The International Energy Agency, in its roadmap for reaching net zero published last month, piled further pressure on major oil producers by calling for an end to new upstream oil and gas projects, saying they are not needed in a net-zero pathway.
Aeisha Mastagni, portfolio manager at California State Teachers’ Retirement System (CalSTRS), which backed the Engine No.1 nominees last week, said: “While the ExxonMobil board election is the first of a large US company to focus on the global energy transition, it will not be the last.
“We believe change is necessary for companies that do not have a long-term strategy for a responsible transition to a net-zero emissions economy.”