An activist investor that staged a coup at Exxon on Wednesday over the company’s mishandling of climate change and got two new board members elected has generated headlines around the world.
But that coup is a little more complex than it seems at first glance. Wednesday’s win was, in part, a victory because of just how terrible Exxon has been up until now at planning for its future, and demonstrates how far we have to go in terms of making real change at the world’s major fossil fuel companies.
First, there’s the issue of who, exactly, investors chose to put on the board from the list of four candidates proposed by activist investor Engine No. 1. Reading the new board members’ bios may make any climate activist’s eyebrows shoot up—ecosocialists, they definitely are not. Gregory Goff is a former vice president at Marathon Petroleum, while Kaisa Hietala transitioned from upstream oil gas exploration to biofuels at oil refining giant Neste. Both Goff and Hietala, in fact, have lots of experience in oil refining, and perhaps not coincidentally, Exxon posted a $1.1 billion loss last year in its refined products division. Goff in particular, one analyst told Reuters, will be “far more concerned with Exxon Mobil’s management structure and lack of entrepreneurship than some misguided attempt to target net-zero.”
Even the big investors who made yesterday’s coup possible don’t really deserve green kudos; they basically did the absolute bare minimum to keep Exxon functioning in a modern business landscape. It’s notable that the only Engine No. 1 board candidate BlackRock didn’t decide to vote for was Anders Runevad, the former CEO of Vestas Wind System and the only board candidate with renewable energy experience. BlackRock also voted against a separate motion that would have mandated Exxon provide a report to its shareholders on the environmental and health impacts of their products. Writing in its guide for how shareholders should vote, BlackRock said it “believes that efforts already undertaken by Exxon to protect public health and the environment have been genuine and produced actual benefits to shareholders and to society.” (Sure, Jan.)
But Wednesday, still, was a big deal. It shows that investors are sick of losing money and view the prospect of rampant oil production is untenable financially in a world finally starting to get real about addressing climate change.
“This was a moment where investors decided they were fed up with Exxon digging its heels in and acting like they could ignore their stakeholders and society as a whole—they were acting like they were untouchable,” said Ben Cushing, the financial advocacy campaign manager at the Sierra Club. “This was a moment where investors flipped the table on them and said, ‘we’re done playing nice, we’re coming for actual leadership change.’”
Even though they have roots in managing oil and gas companies, Cushing said the the Engine No. 1 candidates “ran on a platform that the company’s attitude of ‘drill, baby, drill, forever’ is not going to cut it.”
To contextualize the symbolic importance of getting some people who have thought for two seconds about climate change on Exxon’s board, it’s worth reiterating just how miserably behind the eight ball Exxon is, even in oil and gas land. The company has no net zero commitment at all, which its competitors like BP, Shell, and Total have all at least put a little thought into. Unlike BP, which has aggressively upped its investments in renewable energy, Exxon has barely dipped a toe into renewables at all, instead pouring almost all of its investment into carbon capture and storage and biofuels. And Exxon has basically seemed to convince itself that, despite mounting evidence to the contrary, oil and gas is going to keep being a thing.
“Under most third-party scenarios that meet the objectives of the Paris Agreement, oil and natural gas continue to play a significant role for decades,” the company’s website reads. Exxon’s vice president for Africa and Asia Pacific said as recently as March that continued oil and gas exploration was “very important” when considering a green energy future (sorry… what?).
It’s not hard to see how investors, who might still believe in the short-term profitability of oil and gas or in a long-term survival strategy for fossil fuel companies using aggressive carbon capture technology, are frustrated with Exxon. A report published by Oil Change International last fall compares and contrasts details of the climate plans for eight major international oil companies. While no one company scored high marks, Exxon was only one of two companies to get a “grossly insufficient” ranking in all categories. The other company that scored that low was Chevron, which faced its own investor insurrection yesterday after two-thirds of its shareholders bucked the company’s wishes and voted to mandate it provide more thorough accounting for its downstream emissions.
So what’s next? An International Energy Agency report published earlier this month said oil and gas production should basically end ASAP to keep the world on track to reach Paris Agreement targets. It also makes it pretty clear what needs to happen at Exxon and its ilk.
“For starters, no new investment in oil and gas exploration projects,” said Cushing. “Then we can turn to the question of how to phase out existing projects in a timely manner.”
But that’s a tall order for such a drilling-addicted company. It may hinge on whether shareholders, especially the big investors like BlackRock and Vanguard who have made net zero commitments for their investment portfolios, will keep up the pressure on the company.
“Let’s be clear: Exxon is still Exxon,” said Cushing. “There’s certainly hope that the new board members who get in there will be able to lay down new markers and have more conversations about change. I think we will see fig-leaf commitments from Exxon. They’re definitely going to come out with, ‘oh we’re going to set some targets, that kind of stuff’ because not doing that would invite shareholder backlash. The question now for investors is, are you looking for symbolic leadership change or are you looking for concrete changes that align with the long-term targets you want to hit?”
Ultimately, yesterday’s other one-two punches—along with the Chevron vote, Shell got its ass handed to it in court in the Netherlands after a judge mandated it needed to cut emissions 45% by 2030—may create a narrative that is more powerful than the board election alone. Two lone board members added to the leadership of an oil company can’t do too much, but Wednesday was a dark day for oil and gas companies (and a bright one for the climate). Big Oil should take what happened as a warning that major change is needed.
“It’s a huge narrative win and a symbolic victory,” said Cushing. “Time will tell how much of a material impact it actually makes on Exxon’s business plan.”