A calculated move, led by an activist hedge fund Engine No. 1 forced Exxon to add former refining executives Gregory Goff and Kaisa Hietala as board members. The vote is ongoing, and more of the hedge fund’s nominees may also be appointed. Chris James, the founder of Engine No. 1 that led the attack, told Bloomberg that the idea for the activist hedge fund came from his realisation that radical shifts to move away from the use of fossil fuels were taking place in the energy sector.
At Chevron, another shareholder rebellion took place when a majority of shareholders supported a motion to include emissions from burning fuels sold by the oil giant in future reduction targets, both against the wishes of the board.
The third, and probably the most significant in regards of future action, blow to big oil came in a landmark ruling by the Dutch court, which ordered Royal Dutch Shell to drastically deepen planned greenhouse gas emission cuts – by 45 per cent by 2030. The ruling, which Shell said it plans to appeal, has the potential to trigger legal action against energy companies around the world as investors, activists and governments are calling on the companies to shift away from fossil fuels and rapidly ramp up investment in renewables. According to Bloomberg, the environmental group MilieuDefensie (Friends of the Earth Netherlands), which brought the case against Shell, is already helping other groups to mount similar cases under human rights laws in other countries.
Investors have hailed last week’s shareholder triumphs over big oil as a victory of active ownership and a tipping point when it comes to the discussion whether shareholder engagement is one of the most important, if not the most important tool for change currently available in investors’ toolboxes.
“After a few nights sleep I am even more strongly of the mind that the decision [to revamp Exxon’s board] was even more meaningful than we are yet to realise,” wrote chief investment officer and head of ESG at FIM/S-Bank, Mika Leskinen on Linkedin on Friday. The Finnish banking group, which has holdings in the company through two of its funds; FIM USA and FIM Passiivinen USA ESG, supported the activist hedge fund’s shareholder rebellion. “Engaging with companies, for instance through annual general meetings is an important part of every investor’s toolbox. Exclusion is a strategy we use, but engagement is also important and we favour that,” he said.
However, the unexpectedly massive sudden push to revamp big oil to meet the demands of climate change has been long time in the making and, as John Rhodes points out in his brilliant analysis on Seeking Alpha, titled: “Exxon Mobil Vs. The Little Engine No. 1 That Could”, in the case of Exxon it was a natural consequence of the company’s determination to remain on the losing side of the battle against climate change. Despite pledges and promises to shareholders to get on with the programme, John Rhodes points out that the company has been neglecting value creation for a long time now. It has been underperforming for shareholders compared to its peers over any relevant time period, and the company’s determination to consistently ignore energy trends is a huge red flag for investors when evaluating long-term risks. Furthermore, although the company distributed a hefty dividend, it’s not beating the S&P 500. In fact, its dividend growth rate has been slowing down since 2012.
In many ways last week’s events were a turning point for big oil. Whether it was a step towards their demise or an evolution towards being part of the solution remains to be seen. The kickback from the investment community has been swift as investors have been adjusting their risk and return profiles for the sector, although the rather lukewarm response from the markets have surprised many. Unlike in 1996, when Grady Carter won his case against big tobacco and the verdict wiped off billions of dollars from the value of the industry on the same day, the Dutch Court’s decision had no immediate effect on Shell’s share price. Whether this is because investors think that the oil giant will be successful in overturning the verdict or they believe the verdict itself will not change anything dramatically remains to be seen.
Now the challenge for the companies working in the sector is how to turn their businesses around and whether they can do that at the speed legislation and ESG are changing, or do they risk becoming stranded?
Tessa Khan captures the gravity of last week’s events well in her column in the Guardian when she writes: “The door to real corporate accountability for the climate crisis is finally wide open.”
Meanwhile Al Gore urged stakeholders on Twitter to keep the pressure on by writing: “Today, fossil fuel companies got a big wake up call! The time to change is now. Keep up the pressure. It’s working!”
On Thursday investors woke up to a new reality where shareholder rebellions and a landmark court decision had redefined the battle against climate change, with activist shareholders leading the way.
A calculated move, led by an activist hedge fund Engine No. 1 forced Exxon to add former refining executives Gregory Goff and Kaisa Hietala as board members. The vote is ongoing, and more of the hedge fund’s nominees may also be appointed. Chris James, the founder of Engine No. 1 that led the attack, told Bloomberg that the idea for the activist hedge fund came from his realisation that radical shifts to move away from the use of fossil fuels were taking place in the energy sector. At Chevron, another shareholder rebellion took place when a majority of shareholders supportedIf you’re new to Tell Media Group, create an account.
Read more about our memberships
