Exxon Breached

Exxon Breached

June 3 2021

A Wall Street Journal editorial dismissed the vote last week to install at least two new members to the 12-member ExxonMobil Board of Directors as a “Proxy Coup” carried out by a bunch of investors “trying to get in the good graces of the anti-fossil fuel crowd who run Washington.” The reality is that Exxon shareholders have been working for over a decade to get Exxon to confront the obvious risk to its business of sharply lower greenhouse emissions and demand for its products. Rather than a political gesture, this so-called “coup” was the exercise of the right of share owners to elect members to the Board of Directors with a business plan for Exxon to prosper in a low carbon world.

The now widely understood climate math is that crude oil and natural gas production needs to decrease by 30% by 2030 and near 100% by 2050. The highly regarded International Energy Agency last week announced a radical shift in its position to agree with this schedule and advocated for the immediate and permanent cessation of all global oil and gas exploration! In stark contrast, Exxon has consistently said its future capital spending is premised on a world where crude oil production will increase at least until 2030 and where natural gas will increase until 2040. Exxon’s best answer on climate is that it is developing moonshot technologies like carbon capture and biofuels from algae.

Investors are, justifiably, not only worried that the legendary Exxon dividend is at risk, but that management could eventually run the company into the ground. Its stock price is already down 40% over the past five years while the S&P is up 100%. It was critical to the vote that the two leading proxy advisory firms, Institutional Shareholder Services and Glass Lewis, found that Exxon fails on climate and has suffered from poor management of its oil and gas businesses.

Research by Exxon’s own scientists in the 1970s and 1980s affirmed the reality of climate change and predicted the devastating consequences we are just beginning to witness. Rather than suffer a short term hit to its stock price, Exxon executives deep-sixed the report and built the public narrative of climate denial and uncertainty through funding think tanks, political contributions, and endless promotion of itself as a good corporate citizen. The big pay-off came after the 2016 election when former Exxon CEO Rex Tillerson became US Secretary of State. CAPM2.0 has catalogued the litany of environmental injuries that ensued from the Trump administration’s wanton promotion of the O&G industry.

The WSJ complained that retail investors were less supportive and that votes from institutional investors like Blackrock, Vanguard, and State Street carried the day. These institutions are run by professionals who have the time and resources to study the climate science, do the math and connect the dots. They have clearly advertised that companies in their funds and indexes have to show they can succeed and thrive in a low carbon world; if not, they will suffer the consequences at their annual meetings.

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