ExxonMobil is being challenged by a new investment firm aiming to replace four of its board members in an effort revamp the US supermajor outlook on clean energy and diversify its portfolio beyond fossil fuels.
The investment firm, Engine No1, is backed by the California State Teachers’ Retirement System pension fund that owns more than $330 million in ExxonMobil stock.
The firm itself owns some $40 million in stock, according to Reuters, totalling some 0.2% of the company’s total market capitalisation.
"While the idea of ExxonMobil prioritising returns over growth, diversifying its strategic options, and re-evaluating its role in the energy transition may have seemed far-fetched in years past, our conversations with many energy industry executives, analysts, and public and private investors have given us confidence that the time for change at the company has come," the firm said in a letter to the board of directors.
That change would include replacing four members on ExxonMobil’s 10-person board, along with imposing greater long-term capital allocation discipline, implementing a strategic plan for sustainable value creation, and realigning management incentives.
The four board nominees — Gregory Goff, Kaisa Hietala, Alexander Karsner, and Anders Runevad — all have energy sector experience.
ExxonMobil is reviewing the letter before providing any comment, a company spokesperson said.
Engine No 1 wrote that the company has lacked a long-term plan to enhance and protect value, arguing that ExxonMobil has said there is “little value in materially pursuing growth areas like renewables, as such investments are likely to deliver lower returns to shareholders than oil and gas projects".
“We are not suggesting that ExxonMobil can or should diversify overnight,” the firm said.
“While the company has publicly and regrettably dismissed carbon emission reduction targets as a ‘beauty competition,’ such targets have more than cosmetic value to investors.
"Decreasing price/book multiples, increasing dividend yields, and increasing costs of capital all show that the market ascribes a declining terminal value to ExxonMobil and its peers because the market believes these companies are poorly positioned for an energy transition.”
The Covid-19 pandemic hit the oil major particularly hard, as it cut 30% of its spending, proposed a smaller budget for 2021, and planned workforce cuts over the next two years, along with deciding not to raise its dividend, the first time since 1982.
“While peers such as Chevron and Repsol have guided towards increasing investments in renewable energy projects, ExxonMobil appears to be doubling down on oil and gas, with continued investment in the Permian and Guyana-Suriname basin,” US-based analyst Enverus said in a note.
Meanwhile, New York State Comptroller Thomas DiNapoli, whose fund owns a stake of around $300 million in ExxonMobil, according to Refinitiv data, told Reuters: "ExxonMobil's refusal to adequately address climate risk is of serious concern to many shareholders and is a sign of significant governance issues. The company's board needs overhauling. We're looking forward to reviewing the slate of new directors”.