ExxonMobil faces an investor revolt at its annual meeting this month after proxy advisor, Institutional Shareholder Services, recommended voting for three of the four new board members appointed by an activist hedge fund, exerting pressure on General Manager Darren Woods.
The fund, engine n ° 1, has called for a map redesign and drastic changes Exxon’s strategy in terms of climate, capital allocation and executive compensation.
The May 26 vote is shaping up to be one of the largest proxy contests in U.S. corporate history and will reveal the extent of investor concerns about the climate risks facing fossil fuel producers.
The ISS board, released to shareholders on Friday, said the No.1 engine had “argued for a change” and suggested that Exxon’s strategy remained too dependent on optimistic assumptions about future fuel consumption. oil.
The company “continues to base its strategic decisions on what appear to be overly optimistic demand and technology assumptions, and does not provide enough information to shareholders to fully understand how prepared it really is for an energy transition.” said ISS.
“Exxon’s energy transition strategy appears to rely heavily on carbon capture, which will likely require government support to be viable,” he added.
ISS recommended voting for Gregory Goff, Kaisa Hietala and Alexander Karsner on the # 1 engine slate, saying they offered relevant industry experience and expertise in energy transition. He did not approve a fourth candidate, Anders Runevad, the former head of wind power company Vestas.
Engine # 1 said the ISS recommendation was “further validation of our belief that addressing fundamental issues at ExxonMobil requires a board of directors comprising people with relevant industry experience and skills. energy ”.
ISS statement gives significant impetus behind five-month fund proxy campaign.
UK-based Pensions & Investment Research Consultants, another proxy adviser, backed the fund’s four board candidates on Wednesday and recommended voting against five Exxon board members, including Woods . Glass Lewis, another shareholder adviser, has yet to make his recommendation.
Calstrs, Calpers and New York State Common Retirement Fund – the three largest pension funds in the United States – and asset manager Legal & General Investment Management, another shareholder of Exxon, all said they would vote for the list of Engine No 1.
Exxon’s three biggest shareholders, BlackRock, State Street and Vanguard, have not disclosed their voting intentions. In January, BlackRock chief Larry Fink made climate change risks a central theme of his annual letter to CEOs.
In response to pressure from investors this year, Exxon has appointed new board members; the scope 3 emissions declared, or those produced by the combustion of its products; and announced a new low-carbon business line and a $ 100 billion carbon capture concept project in Houston.
Faced with investor anger over its high spending and debt load, it cut planned capital spending and, in March, backed off plans to rapidly increase oil production over the next four years. .
ISS acknowledged these efforts, saying Exxon had “demonstrated a willingness to engage” with shareholders since the militant pressure began.
As Exxon’s oil-producing rivals in Europe began to boost their clean energy capacity, the U.S. producer has withstood any pivot away from oil and gas.
“We are not in the power generation business,” said Woods says the FT recently. “What can we bring to these opportunities besides a checkbook?”
Exxon instead focused on technology such as carbon capture and biofuels, although none of these have reached sufficient scale despite years of company investment.
After four consecutive quarterly losses last year, it returned to profitability in the first three months of 2021. Its stock has surpassed that of its competitors this year and is up nearly 50% since the No. 1 launched his campaign.
ISS attributed the stock’s performance to pressure from shareholders, “rather than long-term strategic decisions made by the board.”
Andrew Logan, director of oil and gas at Ceres, who coordinates investor climate action, praised a “landmark move” from the adviser.
“It should create a sense of urgency in every oil company boardroom. Exxon is the activists’ first target, but it will not be the last, ”he said.