Fossil fuel giant ExxonMobil was forced to seat three new climate-competent board members on May 26, as a result of a $30 million proxy fight led by a tiny hedge fund named Engine No.1. Will this unprecedented event help transform Exxon into a climate-friendly company? Chris Ailman, the CIO of CalSTRS who was among the first to jump on Engine No. 1’s bandwagon, rightly called the outcome “historic”. This successful (and expensive) proxy fight demonstrates that investors are deeply dissatisfied with Exxon’s inaction on climate, poor earnings results, and high-handed treatment of shareholders.
But let’s take a closer look at what just happened. All three of the new Board members have backgrounds in the oil business: Gregory Goff is a former vice president at Marathon Petroleum and founder of Andeavor (formerly Tesoro), and, among others, is a current Board member of Enbridge and the National Petrochemical & Refiners Association. Goff described himself as the “best oil executive in the world” 10 years ago. Kaisa Hietala transitioned from upstream oil gas exploration to biofuels at oil refining giant Neste. Alexander “Andy” Karstner has deep experience in conventional and renewable energy and in high-tech, market-based solutions. So, the three new Board members are certainly experienced oil executives who are motivated by the climate crisis, but the jury is out on how this may change Exxon’s corporate culture.
The three new members of Exxon’s 13-person Board join two other new directors, Jeffrey Ubben and Michael Angelakis, who were elected in March. But for now, Exxon CEO Darren Woods remains in place and the newcomers are in the minority. Their ability to create change remains limited at best.
This feisty engagement campaign by the relatively new hedge fund Engine No. 1 was propelled to success by the backing of the top three public pension funds in the country – CalSTRS CalPERS, and NY State Common Retirement Fund. The campaign was also buoyed by voting recommendations from the top three asset managers, BlackRock, State Street, and Vanguard. Blackrock recommended a yes vote for three of the four directors on Engine No. 1’s list. Ironically, the only Engine No. 1 board candidate that BlackRock did not recommend was renewable energy expert Anders Runevad, former CEO of Vestas Wind Systems.
CalSTRS and CalPERS will claim that this landmark vote justifies their policy of engagement rather than divestment. CalSTRS and CalPERS have put a lot of work and faith in shareholder activist institutions such as the Climate Action 100+ and Ceres. These associations of investors seek to use their leverage as institutional investors to get concessions out of fossil fuel companies. The addition of three board members is a significant concession, but there is widespread skepticism that the new board members will fundamentally change the way that Exxon does business.
In a recent report, the International Energy Agency (IEA) stated flatly that in order to meet a net-zero by 2050 goal there should be no new fossil fuel projects: “There is no need for investment in new fossil fuel supply in our net zero pathway.” And fossil fuel companies already own trillions of dollars of reserve assets that they will not be able to sell and burn if we are to stay aligned with a 1.5 degrees Celsius level of warming. They stand to lose tremendously in the transition to a low carbon economy, and so have fought it every step of the way. At best, some have shown very paltry signs of diversifying and becoming something other than fossil fuel companies; however, Exxon has made zero attempt to even pretend that it will discontinue burning any of its reserves as it continues to search for more. CalSTRS and CalPERS have yet to offer any evidence that shareholder engagement will cause an oil company to alter its primary business plan—to extract, sell and burn all its carbon assets—global heating or not.
So this week’s news that there are now several people on Exxon’s board who might ask hard questions is certainly welcome. But CalSTRS and CalPERS need to learn from New York and move beyond engagement, joining the hundreds of other institutions that have divested their portfolios of fossil fuel companies. Divestment, in fact, adds teeth to engagement and makes it more powerful. The New York State Common Retirement Fund recently began its divestment process, and yet it was still able to be a part of this push for new board members. Pension funds can use a form of divestment that holds onto a small number of shares in order to be able to engage companies in shareholder actions.
Another welcome piece of news on the same day as the Exxon meeting, May 26, was that a Dutch court ruled that Shell Oil must reduce its carbon dioxide emissions by 45% by 2030, which could significantly alter Shell’s business plans. We get to that sort of consequential outcome when the fossil fuel majors are seen as the social pariahs they are.
Divestment revokes the social license we provide to the oil companies to destroy the planet, the “permission” to sell and burn the carbon that is causing global heating. Together with engagement, the threat of divestment is a powerful tool for exerting pressure on Exxon and others to change. Only then will our children inherit a planet that is viable, and inhabitable.
Thanks to Cynthia Kaufman, Jane Vosburg, and Bill Vosburg for their contributions to this article.