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Green Sharks are circling ExxonMobil: Active Shareholders become Activist Shareholders

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Summary

For decades, ExxonMobil was an unstoppable machine and the envy of the oil industry. Now that machine has broken down -- and Exxon's critics are pouncing. Activist shareholders are demanding seats for climate-experts on the board. More clean tech is seen as the key driver for value creation.

"We understand ExxonMobil is aware of many of the points we have raised and has fundamental differences of opinion with respect to many of them. We also acknowledge that there are good faith debates to be had about these topics, as is the case in every industry facing long-term change. We believe, however, that given the Company’s long-running underperformance and the challenges it faces, it is time for shareholders to weigh in. While the idea of ExxonMobil prioritizing returns over growth, diversifying its strategic options, and reevaluating its role in the energy transition may have seemed farfetched in years past, our conversations with many energy industry executives, analysts, and public and private investors have given us confidence that the time for change at the Company has come." Engine No.1 and CalSTRS, Activist Shareholders

What is it about Shareholder dissent has been percolating in recent years at Exxon, especially on the climate front, as activists pushed proposals seeking to force Exxon to disclose emissions targets, stress test its climate risk and separate the CEO and chairman roles. But unlike those fights, Exxon is now facing a campaign to take control of board seats. Activist investors revealed four individuals with strong energy industry credentials who have agreed to be nominated to the Exxon board. Read the full shareholder-letter.

Why is it important

Shareholder Engagement is seen as one of the most important activities for investors to strive for positive impact. Going beyond “friendly” conversations behind closed doors, some of the most important (institutional) investors are relying on the rulebook of activist shareholders (“sharks”) who have long known how to pressure companies. Engine No. 1 joined forces with CalSTRS, the California State Teachers’ Retirement System, which holds more than $300 million of Exxon shares. This escalation highlights the dramatic economic consequences of climate change on oil majors: The move on Exxon Mobil comes as its shares are down more than 40% this year, and while some of the drop can be attributed to weakness in oil prices, Exxon has also lagged behind peers. Exxon announced last week that it was writing down up to USD 20 billion of its natural gas assets. Furthermore, Exxon had to resort to increased debt in order to be in a position to maintain its dividend payments.

The Globalance View

Financial "sharks" or "locusts" are feared for their uncompromising approach, which can break up companies or drive them to ruin. It is remarkable that responsible investors are now using the activists' rule book: in the case of Exxon, the strategic issue of climate or clean tech is explicitly seen as the decisive driver to increase the value of the company in the long term. It will be exciting to follow the next developments in this story.

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