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(Photo: Getty Images)
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BusinessJune 10, 2021

Investors are rebelling against Big Oil and the NZ industry is taking notice

(Photo: Getty Images)
(Photo: Getty Images)

Last month, three climate activist investors managed to win seats on Exxon Mobile’s board of directors, sending a strong warning to an industry that is already facing mounting pressure.

What’s all this then?

In late May, following its annual general meeting, US company Exxon Mobile announced that its shareholders had voted in three activist investors onto the oil giant’s board of directors. The nominees were from Engine No. 1, a little-known investment firm that owns a tiny fraction, or $54 million, of Exxon Mobil’s stock, and that had been pushing the company to overhaul its strategy and move away from fossil fuels to address climate change.

Labelled a “soft coup”, the shakeup is being viewed as a warning to industry leaders across the world – including New Zealand – that if they don’t start taking climate change seriously, investors will force the issue. It comes amid a flurry of investor rebellions against other oil companies in recent months: one climate activist shareholder group called Follow This has managed to rally investor sentiment and force Chevron, Shell and BP to dramatically cut their emissions. The Exxon board shakeup occurred on the same day a Dutch court ordered Shell to start increasing its pledged cuts to emissions. 

How did the Exxon vote go down?

Not well. While Engine No. 1 had started its campaign to establish a presence on the board months ago, Exxon had been largely dismissive of the push, even refusing to meet with the nominees.

According to Bloomberg, Exxon even telephoned investors on the morning of the ballot – and during an unscheduled halt in the virtual meeting – and asked them to reconsider their votes, a move some investors labelled “unorthodox and troubling”.

While Engine No. 1 put forward four nominees in total, only three were elected, along with eight of Exxon’s nominees including CEO Darren Woods who afterward spoke indifferently about the change. 

“We look forward to working with all of our directors to build on the progress we’ve made to grow long-term shareholder value and succeed in a lower-carbon future,” Woods said in a statement.

What was Exxon doing (or not doing) that prompted such a campaign?

A spawn of the Rockefeller oil empire, Exxon Mobil has a long history of funding climate change denialism and opposing regulations that sought to reduce greenhouse gas emissions. However, from the mid-2000s, the company started to internally acknowledge the risk to profitability from climate change impacts, and in 2014 it released a report publicly acknowledging climate change risk for the first time.

While the company has recently made commitments to spend $3bn in the next five years on a new low-carbon business unit, and reduce both its CO2 and methane intensity output, critics argue it doesn’t go far enough and pales in comparison to what European companies have committed to. And of course, the resistance to Engine No. 1’s campaign illustrates perhaps the inveteracy that was lingering in Exxon’s upper echelon.

Mike Bennetts, CEO of Z Energy, said Exxon has always been an outlier in the global energy industry, and in this case the traditional financial focus of its management on existing fossil fuel resources clashed with the will of investors who want to see greater strides toward renewables.

So are European companies making bigger commitments?

Absolutely. In response to growing environmental concern and pressure, both the British company BP and French company Total have announced plans to invest heavily in renewable energy, with the ultimate aim of becoming carbon neutral by 2050. In Total’s case, shareholders voted overwhelmingly in favour of the move and approved the firm’s environmental goals. 

So, what does this shift mean for NZ?

It serves as a sign of the reckoning to come. The spotlight on fossil fuel companies has never been brighter, and the growing global concern about climate change means industry leaders will no longer be able to dither and prevaricate as they’ve become accustomed to.

While the activist sentiment isn’t as strong here as it is overseas, Bennetts said it’s only a matter of time before both New Zealand investors and consumers start asking a lot more of fossil fuel companies, he said.

“We keep a watching brief on cases overseas because eventually that thinking turns up in New Zealand,” Bennetts said.

Z energy itself has already been sued in New Zealand, along with Genesis and Fonterra, for allegedly “failing” to protect against effects of climate change. However, unlike Exxon, Z Energy has been emphatic about its stance on the future of energy and fossil fuels. Bennetts said the company is fully aware about its role in carbon emissions and the need to foster renewable and eliminate New Zealand’s reliance on fossil fuels.

What about the NZ investor-company dynamic?

The Exxon example illustrates the massive influence of shareholders on company policy and strategy. It also reinforces the notion that investors need not simply divest from a unsustainable company, but can instead leverage its wealth to transform into something better.

New Zealand Shareholders Association CEO Oliver Mander said he’s not surprised shareholders have began rebelling against oil companies considering they’ve dragged their heels for so long.

“There is a growing groundswell of support for environmental actions and measures among investors. We’re seeing that in our own membership base locally in New Zealand. We’re seeing more people wanting to see companies talking about climate change and environmental reporting and disclosures.”

However, Mander said it’s not a case of shareholders prioritising the environment over financial returns, but rather guaranteeing the long term viability of both.

“What’s right for the environment and what’s right for the long-term sustainability of an organisation is actually aligned with shareholders’ best interest in terms of financial returns,” he said.

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