ExxonMobil faces ‘existential business risk’ by placing future on fossil fuels as governments move to cut emissions, activist hedge fund will tell investors in latest push in battle to overhaul board of the supermajor.
“ExxonMobil still does not have a credible plan to protect value in an energy transition,” says an 80-page investor presentation seen by the Financial Times, in which Engine No 1 excites the “destruction of value” of the company and its “refusal to accept this fossil fuel demand may drop.”
The company “touts its efforts in areas such as carbon capture and biofuels,” the document says, but the efforts have “produced more publicity than results.”
Exxon has captured less than 1% of its own emissions, once pollution from its sold products is included, the No.1 engine document says.
The No.1 engine was recently launched by hedge fund manager Chris James, best known as a tech investor, and Charlie Penner, who had previously agitated against Apple at Jana Partners and was behind the Exxon campaign.
the Exxon map redesign effort has been among the most-watched battles of U.S. shareholder proxy season for years – and highlights a broader test for U.S. businesses and Wall Street as climate change risk raises investor agendas.
In December, Exxon announced plans for a 15 to 20 percent reduction by 2025 in its greenhouse gas “intensity”, a measure of pollution per barrel produced, as well as plans to reduce emissions. of methane gas and flaring. The plans were “consistent” with the goals of the Paris climate pact, he said.
But the No.1 engine document claims that Exxon’s total emissions, including those from the products it sells, will increase by 2025.
“Arguing that reduce the intensity of emissions. . . while ExxonMobil continues to pursue production growth and thus increases overall emissions, puts it on a “consistent in Paris” path, fails the basic test of logic, “the document said.
Institutional investors, including Black rock and Avant-garde, The two main shareholders of Exxon, have decided to place the climate at the heart of their investment strategies. Neither has publicly disclosed their position on the Battle of Exxon.
In response, Exxon cited a recent letter to shareholders warning them not to be “fooled by a hedge fund several months old” with a “vague plan” that threatened the future of the company. The company said it would continue to invest in “low-cost, high-yield” oil assets to protect its dividend, pay down debt and invest in its new low-carbon plans.
Engine No 1, which owns a $ 50 million stake in Exxon, launched its proxy battle in December, proposing four new board members for election at the company’s shareholders meeting in late May. . He won the support de Calstrs, a large pension fund, and the Church Commissioners for England.
Exxon has been shifting a large chunk of the public lately, announcing new board appointments – including Jeff Ubben, an activist social investor – a low-emission business line, and endorsing calls from the industry for a carbon price. In January, the company began to disclose its scope 3 emissions: the pollution of the products it sells.
The DE Shaw hedge fund also took a campaigning stance in Exxon last year, calling for deep spending cuts. He will now vote for the company’s slate at the AGM, say people familiar with his thinking.
But on Friday, the New York State Pension Fund, the country’s third-largest public pension fund, announced that it was backing candidates for the board of Engine No 1.
“Exxon’s board of directors needs an overhaul,” said New York State Comptroller Thomas DiNapoli. “We continue to be deeply concerned about Exxon’s inability to manage climate risk and its refusal to heed calls to transition to a more low-carbon future.”
Engine No 1’s investor presentation also aims to exploit shareholder dissatisfaction with the company’s financial performance, including years of large spending and growing debt.
As the pandemic destroyed crude markets last year, Exxon – the world’s most valuable company by market capitalization less than a decade ago – has posted four consecutive quarterly losses, was booted from Dow Jones Industrial Average and wrote off nearly $ 20 billion in assets.
But the fund says Exxon destroyed $ 175 billion in value in the decade leading up to the pandemic, when total shareholder return was 28%, compared to an average of 85% for Chevron, Shell, Total and BP. .
Last year, the company sharply cut its planned capital spending and also announced slower production growth targets.
The company’s stock price has risen about 35% year-to-date, outperforming both the S&P 500 and Exxon’s major supermajor peers.
But as rivals such as BP have started a pivot to cleaner energy, the US supermajor is staking its future on major oil projects in the US shale zone, offshore oil fields in Guyana and Brazil, as well. than in refining and petrochemicals.
Exxon argues that even as the world moves towards decarbonization, oil and gas will remain essential to the global economy, rewarding its investments in future production. He also remains skeptical of the renewable energy and net zero emissions commitments made by rival oil companies, like BP.
“What can we bring to these opportunities besides a checkbook?” Managing Director Darren Woods told the FT in March, referring to renewables.
Last week he pitched the idea for a $ 100 billion US Gulf carbon capture project, but said a carbon price would be needed to make it work.
The investor presentation of Engine No. 1 described the “theoretical” project as an “advertising blitz” that “lacked real substance.”
“The whole concept is based on the concept of a carbon tax, which is unlikely to be adopted now in the United States, and which would decimate the demand for oil and gas if it were the case” , indicates the fund document.