In the end money talks, like it always does. If you skip through the financial and business pages of the newspapers as you head for the sport, or are still half asleep when Dominic O’Connell gives us the daily business news at 6.15am on the Today programme, a couple of weeks ago you might have missed a piece of financial news of genuine world-changing significance.
And what was this news of such import? It was that the board of ExxonMobil, the biggest of Big Oil & Gas, was forced against its will by a six-month-old tiddler activist hedge fund called Engine No.1, to appoint at least three new directors onto its board who are strong advocates in favour of introducing an urgent carbon reduction strategy at the lumbering oil giant.
Somehow this little hedge fund, with its own miniscule 0.02% shareholding in ExxonMobil and a paltry $240m funds under management, corralled some of the largest global institutional investors including BlackRock and the Vanguard Group, Exxon’s largest single shareholder worth $7tn, to vote in fresh blood onto the board.
The new board directors all have a track record in lowering carbon emissions in the industry and a commitment to bringing in a low-carbon future, and therefore have the wherewithal to help steer the company in a new direction. This a matter of ESG policy with teeth in action and credible governance leadership.
In short, these aren’t just directors with a brief to tackle climate change or say nice things about worthy environmental stewardship—they have real experience where it counts in renewable energy and will be on a mission to find ways of generating long-term, sustainable profits in the sector.
Commitment to renewables
BlackRock’s role in the board reshuffle has been pivotal. It was an early backer of Engine No.1’s boardroom coup to force in new blood. Once BlackRock was onside, it was much easier for other large investors to follow suit. Larry Fink, BlackRock’s CEO, has made a public commitment to wanting all the companies it invests in to become net carbon zero by 2050.
So while it would be nice to believe that altruism played its part in shaping the new board, and perhaps it did a bit, the more likely reality was that the oil majors have been bleeding value for the last decade and the rot needed to stop.
Bluntly put, pumping oil and gas is no longer the exciting investment it once was. Last year, ExxonMobil was already struggling, and had in just one day surrendered a $225bn market valuation advantage it had over Chevron, as investors feared its future was beginning to look less than rosy. While the company recovered much of that lost value it went on to post over $20bn of losses in 2020, although admittedly much of this was driven by the loss of economic activity caused by Covid.
Going forward, powerful institutional investors like BlackRock want to see the oil and gas majors make a much stronger commitment to renewable energy and believe that sustainable energy sources such as wind, solar, and to a lesser extent hydroelectricity, are the future. Simply put, this is where the new big money will be made, and the oil and gas majors could and should be leading players in this growth sector.
No more greenwashing
With their powerful backing for Engine No. 1’s boardroom putsch, we can see that global institutional investors have finally lost patience and are no longer prepared to listen to the oil majors spout greenwashing platitudes about their commitments to the environment. They want visible action now, and they want to see ExxonMobil, and the other oil and gas companies they invest in, compete successfully while decarbonising over the long-term.
And with Joe Biden in the power seat in the US, and the country once again a signatory to the Paris Climate Accord, he is expected to be an important player in November’s 26th UN Climate Change Conference of the Parties (COP 26) and has given his strong political commitment to cutting global carbon emissions and controlling rising temperatures.
So, after decades of talk about shareholder activism, it has finally arrived. The new board of ExxonMobil is the most important development in corporate governance in decades.
With this news announced on the same day as the Dutch court verdict ordering oil giant Royal Dutch Shell to cut its carbon emissions by 45% by the end of 2030 in response to pressure from climate activists, it is hoped, for all our sakes, that such movements are the sign of much more to come.
Neil Boom is director of the ESG Foundation.