This is a watershed moment for the oil and gas industry and leading investors in the race to transition to a net zero energy system.
Leading companies across the globe recognize that climate change presents a massive systemic risk, and that solving it is a multitrillion-dollar opportunity. Others, such as ExxonMobil, have defied calls to align their business strategies with a decarbonizing economy. For them, a financial reckoning may finally have arrived.
On May 26, ExxonMobil faces an investor vote to replace up to four board members with forward-thinking leaders who could help catalyze and accelerate a much-needed transition toward a clean energy future.
Three major proxy advisory firms (Glass Lewis, ISS, and Pensions and Investments Research Consultants) have already come out in support of some or all board nominees. Legal & General, the U.K.'s largest asset manager, has also pledged to vote for the nominees to improve Exxon's transition readiness and financial viability.
CalPERS, CalSTRS and New York State Common Retirement Fund — three of the country’s largest public pensions, responsible for providing retirement security to millions of people — have also decided to vote their shares in favor of the new board candidates.
Investors must walk the talk
ExxonMobil’s four largest shareholders — asset managers BlackRock Vanguard, State Street and Fidelity — together hold almost 20% of the company’s stock, giving them powerful leverage in the upcoming vote.
With the exception of Fidelity, these firms have also signed a pledge through the Net Zero Asset Managers Initiative, “supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius” and “supporting investing aligned with net zero emissions by 2050 or sooner.”
How they vote will be evidence of whether these shareholders are willing to act now to address the serious emerging risks to the U.S. financial system and to transition the firm toward cost-competitive and rapidly innovating clean energy technologies.
The climate crisis is a business imperative
Pressure on companies and investors to respond to the climate crisis continues to surge. The real winners will emerge based on their ability to maintain the social license to operate and stay competitive in a rapidly shifting and hypercompetitive clean energy market.
Investor confidence is flagging for companies that pursue business-as-usual investment strategies with consistently poor returns.
For example, from 2010 to 2020, Exxon delivered lower returns to investors than its peers BP, Shell, Chevron and Total. The U.S. shale industry also lost $300 billion in that time, including unprofitable investments by ExxonMobil that led to a multibillion dollar devaluation of assets.
The simple fact is that new products and technologies entering the market have no use for oil and gas. From solar and wind in the power sector to electric vehicles in transportation and high efficiency heat pumps in buildings, oil and gas is now in competition with cleaner — and increasingly cheaper — alternatives.
A clear case for action
The International Energy Agency, which helps shape energy policy for 30 member countries, made clear in a report on May 18 that development of new oil and gas fields — the kind of investment ExxonMobil has continued to make — has no place in a climate-stabilized world.
The report says that in order to reduce emissions at the scale and pace that the science demands, investors and energy companies need to start to practicing what they preach on climate change. After all, commercial opportunities abound in the growing field of clean energy, not in the fading future of traditional oil and gas.
It’s a jarring wakeup for anyone in the oil and gas industry who thought they could finesse their way through the energy transition. So, too, is Ford’s electron-powered F-150 Lightning pickup, unveiled last week, the first version of America’s most popular vehicle to have no need for ExxonMobil’s products.
Coming so close on the heels of these developments, the ExxonMobil shareholder vote stands as a potential inflection point.
This is the chance for ExxonMobil’s four largest shareholders to do the right thing for the climate and long-term value creation by making their voices — and votes — heard.
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