good "level-headed" analysis / Exxon Dissident’s Victory Leaves Big Climate Questions Open ..........................
Energy
Barron's Take
May 26, 2021
Exxon Dissident’s Victory Leaves Big Climate Questions Open
By Avi Salzman
An activist investor backed by pensions and other investors that have spoken out about climate change just won at least two seats on Exxon Mobil ‘s board, according to a preliminary vote count.
But whether Exxon -- which has been criticized by environmentalists for years -- will actually change its practices is still very much up in the air. The vote appears to be as much about the underperformance of the stock in recent years as it is about climate change. And the specifics of how Exxon could change its environmental policies are just as uncertain as they were before the vote.
At least one of the candidates who was elected to the board is from the oil industry, and the activist investor leading the charge for change, Engine No. 1, has been noncommittal on whether the company should invest in some of the most prominent industries fighting climate change: wind and solar. Indeed, some of the investors involved in the campaign were vague after the vote about what exactly they expect to change in terms of environmental policy at Exxon.
Based on a preliminary count, one of the directors who was elected is Gregory Goff, who was chief executive of Andeavor, one of America’s largest oil refiners that has since been purchased by Marathon Petroleum. Goff’s tenure was profitable for shareholders, but the company at times faced pressure from environmentalists including resistance to a California refinery project over pollution concerns.
The other nominee who was elected was Kaisa Hietala, an executive at Carlyle Group who has worked on both traditional and renewable energy projects. She has expertise in renewable diesel, which some refiners have begun to produce.
It’s not yet clear if either of the two other board nominees was elected, although campaign supporters said they believed that former Vestas CEO Anders Runevad was not elected. Runevad arguably had the most clear-cut environmental bona fides of anyone on the activists’ slate.
Engine No. 1 is the activist investment firm that led the charge. But in its campaign materials it backed away from promoting wind and solar power, which other oil companies like BP and Royal Dutch Shell have embraced more aggressively. In a slide deck, the activist specifically refuted what it said was an Exxon claim that Engine No. 1 supports wind and solar. It said it instead that the board should “explore all diversification opportunities.”
Climate Action 100+, a group of investors that has pledged to push for environmental change, celebrated the vote as “a dramatic shake up” showing support for the “accelerating transition away from a fossil fuel economy.”
But the group has multiple priorities -- and it’s not clear if the current actions will lead Exxon to make specific climate-friendly changes.
Anne Simpson, a managing director at the California Public Employees’ Retirement System, or Calpers, and chairwoman of the steering committee at Climate Action 100+, says she believes the most important characteristics in the board are independence, diversity, and competence. She added that Exxon needed more oil and gas experience at the board level -- which Goff will provide.
“The energy industry is complex and dominated by fossil fuels, and understanding that segment on the board -- not on management -- is extremely important,” she said on a call with journalists and other investors after preliminary results were announced. She noted that Climate Action 100+ supported all four members of the slate, some of whom had more climate experience.
“Even if the right place to go next is not renewables for Exxon, then remember, it’s the job of the board to oversee management’s development of strategy,” she added. “It’s not the role of shareholders to step in and do that job, which is why we need to make sure we’ve got the talent on the board that can oversee management that means understanding the industry.”
Aeisha Mastagni, portfolio manager in California State Teachers’ Retirement System (Calstrs) Sustainable Investment and Stewardship Strategies unit, echoed Simpson’s comments, adding that Goff will be “that voice inside the boardroom thinking about shareholder returns,” noting Andeavor’s returns of 1,200% during his tenure, “above and beyond the energy sector.”
Asked whether Goff’s election is cause for celebration among environmentalists, Andrew Logan, senior director of oil and gas at Ceres, acknowledged that “when I first saw the slate announced back in the fall, I was a bit surprised to see his name on there.” Ceres is a nonprofit organization that works with companies on sustainability projects and campaigns.
Logan said he believed Goff was “somebody who really does understand the strategic imperatives of climate change in driving the direction of the oil and gas sector.”
“That combination of somebody with industry credibility, but also an understanding of the need for change is a really powerful combination, in a way that having like a climate scientist on your board doesn’t do, because they’re seen as the climate person,” he added. “Whereas he will hopefully be seen as somebody who knows his industry really, really well.”
Some environmentalists also worried that the addition of two new people out of the 13 on the board will not force a fundamental shift. Ben Cushing, financial advocacy campaign manager at the Sierra Club said in a statement that “with Darren Woods still in charge of Exxon, we question if the new board members will be able to change course quickly or drastically enough.”
Shares of Exxon ended the day up 1.2%, at $58.94. While the stock has rallied with other energy shares this year, it is down more than 34% over the last five years.
Write to avi.salzman@barrons.com
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