|16 January, 2020

Exxon is climate activism’s great white whale

Size makes it hard for shareholders to have a meaningful impact

The logo of Exxon Mobil Corporation is shown on a monitor above the floor of the New York Stock Exchange in New York, December 30, 2015.

The logo of Exxon Mobil Corporation is shown on a monitor above the floor of the New York Stock Exchange in New York, December 30, 2015.

REUTERS/Lucas Jackson

NEW YORK  - Darren Woods is a busy man. So much so that the Exxon Mobil chief executive has joined just one quarterly earnings conference call since he took charge of the $292 billion oil producer in 2017. Now that some of the world’s biggest investment funds are talking more decisively about climate change risk, Woods may find that answering to shareholders takes up more of his time.

Exxon was voted the most vulnerable of five companies to a sustainability-related activist campaign in Reuters Breakingviews polls conducted in New York, Toronto, and London this week, beating Altria, News Corp, Saudi Aramco and Wells Fargo. And on Tuesday, BlackRock boss Larry Fink published a letter that effectively pointed a harpoon at companies that take climate change too lightly.

Returns alone should put Woods on edge. Since he took the helm, Exxon investors are 13% worse off including dividends paid, versus the double-digit gains they would have received from big rivals over the same time frame, or nearly 70% from Royal Dutch Shell. Shell still makes fossil fuels, of course, but has looked to branch out. In 2019 the company made a bid to buy renewables utility Eneco.

Meanwhile Exxon is dumping its cash into shale. In the first nine months of 2019, capital and exploration expenditures were up 25% compared to the same period the previous year to $23 billion. That’s primarily due to growth in the U.S. Permian Basin, a region where wastefully igniting unwanted gas, or “flaring,” is still commonplace.

Despite that, Exxon is a white whale for climate activists. Size makes it hard for shareholders to have a meaningful impact. Some shareholders in 2017 pushed the company into revealing more about the effect of global warming on its business, but actual changes to behavior are harder won. BlackRock’s 5% ownership of Exxon, and the votes that go with it, mean Fink’s letter may be a turning point.

Besides, there are weaknesses shareholders can exploit. One is Woods’ role as both chairman and CEO. At last year’s meeting, only 7% of investors backed a proposal to create a special climate-change board committee. But more than 40% supported splitting Woods’ dual mandate. If Exxon remains determined to go against the grain even as environmental issues go financially mainstream, the next activist harpoon could well hit home.

CONTEXT NEWS

- Exxon Mobil was voted the most likely of five companies to be vulnerable to a sustainability-related activist campaign, in Reuters Breakingviews polls conducted on Jan. 14-16.

- Attendees at events in New York, Toronto and London were asked to choose between Exxon, cigarette maker Altria, oil company Saudi Aramco, media group News Corp and U.S. lender Wells Fargo. Roughly half of the respondents in all locations chose the $292 billion U.S. fossil-fuel producer.

- In May 2017, Exxon shareholders approved a proposal calling for the company to disclose the impact on its business of compliance with global climate-change guidelines.

- The proposal was submitted by a group of investors including the California Public Employees’ Retirement System, the New York State Common Retirement Fund, and the Church of England.

(Editing by John Foley and Amanda Gomez) ((Lauren.SilvaLaughlin@thomsonreuters.com))

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