ExxonMobil faces an “existential business risk” by pinning its future on fossil fuels as governments move to slash emissions, an activist hedge fund will tell investors in the final push of its battle to overhaul the supermajor’s board.
“ExxonMobil still has no credible plan to protect value in an energy transition”, says an 80-page investor presentation, seen by the Financial Times, in which Engine No 1 excoriates the company’s “value destruction” and “refusal to accept that fossil fuel demand may decline”.
The company “touts its efforts in areas like carbon capture and biofuels,” the document says, but the efforts have “delivered more advertising than results”.
Exxon has captured less than 1 per cent of its own emissions, once the pollution from its sold products is included, Engine No 1’s document says.
Engine No 1 was recently started by hedge fund manager Chris James, best known as a tech investor, and Charlie Penner, who previously agitated against Apple while at Jana Partners and is behind the Exxon campaign.
The effort to overhaul Exxon’s board is among the most watched battles of the US shareholder proxy season in years — and highlights a broader test for corporate America and Wall Street as climate change risk rises up investors’ agenda.
In December, Exxon announced plans for a 15 to 20 per cent reduction by 2025 of its greenhouse gas “intensity”, a measure of pollution per barrel produced, alongside plans to curb methane emissions and flaring. The plans were “consistent” with the Paris climate pact goals, it said.
But Engine No 1’s document claims Exxon’s total emissions, including from the products its sells, will rise between now and 2025.
“Arguing that reducing emissions intensity . . . while ExxonMobil continues to pursue production growth and thus increases overall emissions, puts it on a ‘Paris consistent’ path, fails the basic test of logic,” the document says.
Institutional investors including BlackRock and Vanguard, Exxon’s two largest shareholders, have been vocal about making climate central to their investing strategies. Neither has publicly disclosed its position on the Exxon battle.
In response, Exxon cited a recent letter to shareholders warning them not to be “deceived by a months’ old hedge fund” with a “vague plan” that threatened the company’s future. The company said it would keep investing in “low-cost, high-return” oil assets to protect its dividend, repay debt, and invest in its new low-carbon plans.
Engine No 1, which holds a $50m stake in Exxon, launched its proxy battle in December, proposing four new board members for election at the company’s shareholder meeting in late May. It won support from Calstrs, a large pension fund, and the Church Commissioners for England.
Exxon has made much of the public running lately, announcing new board appointments — including Jeff Ubben, an activist social investor — a low-emissions business line, and endorsing industry calls for a price on carbon. In January, the company began disclosing its scope 3 emissions: pollution from the products it sells.
Hedge fund DE Shaw also took an activist position in Exxon last year, calling for steep spending cuts. It will now vote for the company’s slate at the AGM, say people familiar with its thinking.
But on Friday, New York state’s pension fund, the third largest public pension fund in the country, announced it was backing the Engine No 1 board candidates.
“Exxon’s board needs an overhaul,” said the New York State Comptroller Thomas DiNapoli. “We continue to be deeply concerned about Exxon’s failure to manage climate risk and refusal to heed calls to transition to a lower carbon future.”
Engine No 1’s investor presentation also seeks to tap shareholder unhappiness about the company’s financial performance, including years of heavy spending and mounting debts.
As the pandemic shattered crude markets last year, Exxon — the world’s most valuable company by market capitalisation less than a decade ago — recorded four straight quarterly losses, was booted from the Dow Jones Industrial Average and wrote off almost $20bn of assets.
But the fund claims that Exxon destroyed $175bn of value in the decade before the pandemic, while total shareholder returns were 28 per cent, compared with an average of 85 per cent for Chevron, Shell, Total, and BP.
The company last year sharply reduced planned capital spending and has also announced slower production growth targets.
The company’s share price has risen about 35 per cent since the start of the year, outperforming both the S&P 500 and Exxon’s main supermajor peers.
But while rivals such as BP have begun a pivot to cleaner energy, the US supermajor is staking its future on large oil projects in the US shale patch, offshore oilfields in Guyana and Brazil, and refining and petrochemicals.
Exxon argues that even as the world moves to decarbonise, oil and gas will remain crucial to the global economy, rewarding its investments in future production. It also remains sceptical of the renewables and net-zero emissions commitments made by rival oil companies, such as BP.
“What can we bring to those opportunities other than a cheque book?” chief executive Darren Woods said to the FT in March, referring to renewables.
Last week it floated the idea of a $100bn carbon capture project on the US Gulf, but said a carbon price would be necessary to make it work.
The investor deck from Engine No 1 described the “theoretical” project as an “advertising blitz” that “lacked any real substance”.
“The entire concept is reliant on the concept of a carbon tax, which has little chance of passage currently in the US, and would decimate oil and gas demand if it did,” the fund’s document says.