ExxonMobil faces an “existential enterprise danger” by pinning its future on fossil fuels as governments transfer to slash emissions, an activist hedge fund will inform buyers within the ultimate push to overtake the oil main’s board.
“ExxonMobil nonetheless has no credible plan to guard worth in an power transition,” stated an 80-page investor presentation seen by the Monetary Instances, wherein Engine No 1 excoriated the corporate’s “worth destruction” and “refusal to simply accept that fossil gasoline demand could decline”.
The power firm “touts its efforts in areas like carbon seize and biofuels”, the doc stated, however these efforts have “delivered extra promoting than outcomes”.
Exxon has captured lower than 1 per cent of its personal emissions as soon as the air pollution from its offered merchandise was included, Engine No 1 stated.
Engine No 1 was began final 12 months by hedge fund supervisor Chris James, greatest referred to as a tech investor, and Charlie Penner, who beforehand agitated in opposition to Apple whereas at Jana Companions and is behind the Exxon marketing campaign.
The trouble to overtake Exxon’s board is among the many most-watched US shareholder proxy battles in years and highlights a broader take a look at for firms and Wall Avenue as local weather change dangers stand up buyers’ agendas.
In December, Exxon introduced a goal of a 15 to twenty per cent discount by 2025 of its greenhouse gasoline “depth”, a measure of air pollution per barrel produced, alongside plans to curb methane emissions and flaring. The plans have been “constant” with the Paris local weather pact objectives, it stated.
However Engine No 1’s doc claimed Exxon’s whole emissions, together with from the merchandise its sells, will rise by 2025.
“Arguing that decreasing emissions depth . . . whereas ExxonMobil continues to pursue manufacturing development and thus will increase general emissions, places it on a ‘Paris constant’ path, fails the fundamental take a look at of logic,” the doc stated.
Institutional buyers together with BlackRock and Vanguard, Exxon’s two largest shareholders, have been vocal about making local weather issues central to their investing methods. Neither has publicly disclosed its place on the Exxon struggle.
In response, Exxon cited a current letter to shareholders warning them to not be “deceived by a months’ outdated hedge fund” with a “imprecise plan” that threatened the corporate’s future. The corporate stated it will preserve investing in “low-cost, high-return” oil property to guard its dividend, repay debt and put money into its low-carbon plans.
Engine No 1, which holds a $50m stake in Exxon, launched its proxy battle in December, proposing 4 board members for election on the firm’s shareholder assembly in late Might. It received assist from Calstrs, a big pension fund, and the Church Commissioners for England.
Exxon has made a lot of the general public operating recently, asserting board appointments, together with Jeff Ubben, an activist social investor, and a low-emissions enterprise line and endorsing business requires a value on carbon. In January, the corporate started disclosing its scope 3 emissions, or air pollution from the merchandise it sells.
Hedge fund DE Shaw additionally took an activist place in Exxon final 12 months, calling for steep spending cuts. It should vote for the corporate’s slate on the AGM, stated folks conversant in its considering.
However on Friday, New York state’s pension fund, the third-largest public pension fund within the nation, introduced it will again the Engine No 1 board candidates.
“Exxon’s board wants an overhaul,” stated the New York State Comptroller Thomas DiNapoli. “We proceed to be deeply involved about Exxon’s failure to handle local weather danger and refusal to heed calls to transition to a decrease carbon future.”
Engine No 1’s investor presentation additionally sought to faucet shareholder discontent with the corporate’s monetary efficiency, together with years of heavy spending and mounting money owed.
Because the pandemic shattered crude markets final 12 months, Exxon — the world’s Most worthy firm by market capitalisation lower than a decade in the past — recorded 4 straight quarterly losses, was booted from the Dow Jones Industrial Common and wrote off virtually $20bn of property.
However the fund claimed that Exxon destroyed $175bn of worth within the decade earlier than the pandemic, whereas whole shareholder returns have been 28 per cent, in contrast with a mean of 85 per cent for Chevron, Shell, Whole, and BP.
The corporate final 12 months sharply diminished deliberate capital spending and has introduced slower manufacturing development targets.
Exxon’s share value has risen about 35 per cent because the begin of the 12 months, outperforming each the S&P 500 and Exxon’s most important friends.
However whereas rivals equivalent to BP have begun a pivot to cleaner power, the US main has staked its future on giant oil initiatives within the US shale patch, offshore oilfields in Guyana and Brazil and refining and petrochemicals.
Exxon argued that even because the world strikes to decarbonise, oil and gasoline will stay essential to the worldwide financial system, rewarding its investments in manufacturing. It additionally remained sceptical of the renewables and net-zero emissions commitments made by rival oil corporations together with BP.
“What can we deliver to these alternatives apart from a cheque e book?” chief govt Darren Woods stated to the FT in March, referring to renewables.
Final week, Exxon floated the concept of a $100bn carbon seize venture on the US Gulf, however stated a carbon value can be essential to make it work.
The investor deck from Engine No 1 described the “theoretical” venture as an “promoting blitz” that “lacked any actual substance”.
“Your complete idea is reliant on the idea of a carbon tax, which has little likelihood of passage presently within the US, and would decimate oil and gasoline demand if it did,” the fund’s doc says.
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