Updates with further reaction on Engine No 1 board seats.
ExxonMobil suffered a historic defeat today at the hands of an upstart activist investor amid criticism the biggest US oil producer is moving too slowly to address climate risks.
In one of the most fiercely-contested proxy battles seen in recent years, Engine No 1 succeeded in getting at least two of its four proposed directors voted onto the oil titan's 12-member board. The final tally is not yet known.
The vote came on the same day that others in the industry faced renewed pressure to tackle their own carbon footprints. First, a Dutch court ordered Shell to slash net emissions by 45pc by 2030, and then Chevron's investors urged the oil giant to curb emissions from customers.
"Investors are no longer standing on the sidelines,'' said Anne Simpson, managing investment director for board governance and sustainability at the pension fund Calpers, which backed the activist. "This is a day of reckoning."
At the center of the tiny hedge fund's five-month campaign was the argument that a continued focus on fossil fuels created an "existential business risk" for ExxonMobil at a time when the need to reduce emissions and embrace a clean energy future has become all the more urgent.
With Engine No 1 drawing support from some of the biggest US pension funds based in California and New York, as well as leading shareholder advisory firms, including Institutional Shareholder Services, investors agreed with its thesis that the board was in dire need of a makeover.
Defeat for ExxonMobil also throws a question mark over the future of chief executive Darren Woods, who has long argued that continued investment in oil and gas will be needed for years to come to meet growing demand as populations increase and living standards improve, especially in developing nations.
The two Engine No 1 nominees that were voted onto the board at today's annual meeting are Gregory Goff, former chief executive of US refiner Andeavor, and Kaisa Hietala, past head of renewable products at European refiner Neste. Eight existing ExxonMobil board members were also re-elected.
Although ExxonMobil regularly faces pressure from smaller shareholders over its environmental record — including its role for many years funding climate change skeptics — this year's efforts gained greater momentum following a disastrous financial performance in 2020.
The shareholder battle follows a stunning fall from grace for the oil major which was forced to write down billions of dollars in bad bets on natural gas, saw debt levels balloon and investor returns shrink. While the company's finances have improved of late as oil prices rebounded, detractors say shareholder pressure should take the credit rather than management.
Engine No 1's campaign may not have been quite so successful had ExxonMobil been producing stellar returns for investors, says veteran energy analyst Phil Verleger.
"Investors are paying much more attention to the financial performance of every company and, if there's underperformance, it just won't be tolerated anymore," he said.
The oil producer took the unusual step of halting the annual meeting for one hour to allow more votes to be counted, prompting a strongly-worded rebuke from Engine No 1, which said shareholders shouldn't be fooled by the company's efforts to "stave off much-needed board change."
Support for dissidents grew
A last-minute attempt by ExxonMobil to head off the investor revolt this month by promising to add two new directors with energy and climate experience over the next year was earlier given short shrift by the dissident shareholder.
"What the Board needs are directors with experience in successful and profitable energy industry transformations who can help turn aspirations of addressing the risks of climate change into a long-term business plan, not talking points," Engine No 1 said in a statement this week.
In response to the activist campaign, ExxonMobil laid out modest emissions targets, announced plans to invest $3bn in a low-carbon business, and announced some changes to the board. But those measures were inadequate to thwart the shareholder rebellion in the end.
Just last week the IEA warned that new fossil-fuel investments must stop if the world stands a chance of cutting net emissions to zero by 2050 — putting even greater pressure on the industry.
