Exxon humbled by shareholder revolt: Update

Updates with shareholder vote throughout.

ExxonMobil suffered a historic defeat today after shareholders voted in favor of at least two of the four directors proposed by an upstart activist in the biggest challenge to date over how the oil and gas industry is preparing for a low-carbon future.

According to preliminary results, two nominees put up by activist investor Engine No 1 were voted onto the board: Gregory Goff, former chief executive of US refiner Andeavor, and Kaisa Hietala, a past head of renewable products at European refiner Neste. Eight existing ExxonMobil board members were re-elected.

But the results may change after the final votes are ready. Shareholders had the choice of voting between ExxonMobil's 12 current directors and four from Engine No 1 at the virtual annual meeting.

"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."

The outcome of today's vote, which followed one of the most hotly-contested proxy battles in recent years, will put pressure on rivals that are further ahead in their efforts to take climate change into account to do even more. A Dutch court earlier ordered Shell to slash net emissions by 45pc by 2030, while a majority of Chevron investors voted in favor of a proposal urging the oil giant to curb emissions from its customers.

ExxonMobil's showdown with investors today marked the culmination of a five-month campaign by Engine No 1, a San Francisco-based hedge fund, to overhaul the board amid criticism ExxonMobil has been slow to embrace clean energy while at the same time its financial performance has lagged others.

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.

The oil producer earlier today took investors by surprise by halting the meeting for one hour to allow more votes to be counted, drawing 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

The hedge fund, which accused ExxonMobil of having "no credible strategy to create value in a decarbonizing world," won support from some of the biggest US pension funds based in California and New York. Meanwhile, leading proxy advisory companies including Institutional Shareholder Services also backed some of its nominees.

A last-minute attempt by ExxonMobil to head off the investor revolt 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 earlier 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 unrest in the end.

And 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.

The results of the ExxonMobil vote will show "whether companies can justify any more having a slow roll strategy on pivoting to cleaner energy," Amy Myers Jaffe, a research professor at Tufts University, told the FT Energy Source Live conference this week.

By Stephen Cunningham