Podcast Summary
Activist Investors Challenging Corporate Giants on Climate Change: Small activist firms like Engine Number 1 are successfully pushing for climate change initiatives and board changes in large corporations, even against historic resistance from giants like ExxonMobil
Small, activist investment firms like Engine Number 1 are making a significant impact on large corporations, even those as historically powerful as ExxonMobil, by pushing for climate change initiatives and board changes. Engine Number 1, a tiny investment firm, successfully took on ExxonMobil in late 2020, despite the oil company's historic resistance and immense size. The firm, which specializes in activist investing, aimed to change ExxonMobil's board to address climate change. ExxonMobil, once a dominant player in the stock market, was considered too big for activist investors to challenge. However, Engine Number 1's founders, Chris James and Charlie Penner, were determined and managed to secure 15% of the votes for their nominees, despite ExxonMobil's last-minute efforts to sway shareholders. This victory marks a significant shift in the power dynamics between large corporations and activist investors, highlighting the potential for change even in the face of immense opposition.
ExxonMobil's Proxy Battle: Activist Investors Challenge the Status Quo: ExxonMobil faced pressure from investors to add energy expertise and prepare for a low-carbon future. Activist investor Engine number 1 proposed new board members, but the outcome was inconclusive, highlighting the growing influence of climate concerns in corporate governance.
ExxonMobil faced pressure from shareholders and activist investors to add energy experience and prepare for a zero-carbon world. During its annual meeting, the company called for a recess and reportedly made calls to major investors to explain how to vote. Engine number 1, an activist investor, accused ExxonMobil of using corporate machinery to undercut the process and went public with their criticism. When the meeting reconvened, two new board members were elected, including an oil man and a former renewable energy executive. However, the outcome was not a clear victory for Engine number 1, as the votes for two other candidates, an energy entrepreneur and a former wind power CEO, were too close to call. This proxy battle marked a significant step in the corporate world, where activist investors can put forward proposals and board candidates to be voted on at companies' annual meetings, often motivated by displeasure with management. This historic event underscores the growing importance of climate change considerations in business strategy.
Activist Investing Evolves to Include Social Causes: Activist investors push for changes in companies, using proposals, proxy battles, and board seats to influence behavior. European investors target large corporations, particularly in oil and gas, on climate change. Nonbinding resolutions can lead to significant changes.
Activist investing, which involves investors pushing for changes in a company to increase its value, has evolved from a financial strategy to include social causes. While activist investors often face resistance from companies, they can still influence corporate behavior by proposing resolutions, engaging in proxy battles, or even gaining board seats. In Europe, where the rules for filing shareholder proposals are more lenient, investors have targeted large corporations, particularly in the oil and gas industry, to pressure them into addressing climate change. Although successful resolutions are nonbinding, they can still lead to significant changes as companies respond to growing shareholder disquiet. Activist investing, whether focused on financials or social issues, requires persistence and a willingness to engage in sometimes contentious battles.
ExxonMobil's Outdated Business Model Faces Pressure from Investors: Three large asset managers and major pension funds hold significant stakes in ExxonMobil, pressuring the company to adapt to the energy transition and address climate change risks to ensure long-term fiscal soundness.
ExxonMobil, once a dominant player in the oil industry, now faces increasing pressure from investors and societal expectations to adapt to the energy transition towards low carbon power. The company's outdated business model, with plans to increase oil and gas production and a board of directors primarily consisting of former executives from other industries, has put it at odds with the market. This, coupled with a history of financial losses and asset write-downs, has made ExxonMobil an ideal target for investors seeking to promote change. Three of the largest asset managers, BlackRock, State Street, and Vanguard, own nearly 20% of ExxonMobil, and large pension funds like California and New York also hold stakes. The risk of climate change, which could impact all investments, has led investors to consider divestment or engagement with companies to ensure their long-term fiscal soundness. Chris James, founder of Engine No. 1, decided to go into impact investing and start a firm dedicated to promoting positive change at companies through active voting and investment strategies. The goal is to convey the belief that a company's impact on society will determine its long-term success.
Expanding the Definition of Shareholder Welfare in Business: The energy sector is transitioning to renewable sources and decarbonization due to a new perspective on business that considers societal impact. Companies must adapt to this shift, which includes electrifying industries and converting power grids to renewable energy.
The traditional focus of companies on maximizing profits is being challenged by a new perspective that considers the broader societal impact of business decisions. This shift was influenced by a 2017 paper that argued for expanding the definition of shareholder welfare. In the energy sector, this new perspective is leading to a push for decarbonization and the transition to renewable energy sources. James, a tech investor, was astounded by the potential for innovation in the energy sector and the possibility of electric vehicles and renewable energy outpacing traditional fossil fuels in the market. However, the challenge lies in the uncertainty of which technology will outpace others and the potential costs of missteps for companies. To keep global warming within certain thresholds, annual carbon emissions must start declining soon and reach net 0 by 2050. The most popular route to decarbonization is converting power grids to renewable energy and electrifying as much as possible. This shift will require systemic changes in industries such as transportation, buildings, and industrial manufacturing.
The energy industry is transitioning to decarbonization with a focus on electrification and clean energy sources: Industries must adapt and innovate to meet decarbonization goals, focusing on electrification, clean energy sources, and potential solutions like hydrogen production
The energy industry is shifting towards decarbonization, with a focus on electrification and the use of clean energy sources like solar and wind power. This transition is necessary to meet the goals outlined in the International Energy Agency's net carbon free future scenario. Industrial sectors with high carbon emissions, such as steel and heavy manufacturing, are exploring the use of hydrogen as a potential solution. However, the production of green hydrogen is currently limited, and its use in industries like long haul trucking is energy intensive. ExxonMobil, one of the world's major oil companies, has been criticized for its plans to increase emissions despite the need for decarbonization. The company has defended its position by highlighting its carbon capture and storage projects, but these projects currently only isolate and remove carbon at the point of production, and there is little monitoring for leaks. The energy industry must adapt and innovate to meet the challenges of decarbonization and reduce global carbon emissions to net zero by 2050.
ExxonMobil's Approach to Climate Change: ExxonMobil faces criticism for insufficient efforts to address climate change and shift from traditional oil and gas operations. Only 5M tons of global CO2 capture is intentionally stored, while the rest is used for oil extraction. ExxonMaintains focus on efficiency and emissions intensity, but critics call for more ambitious goals.
ExxonMobil, one of the world's largest oil and gas companies, is facing pressure from investors and the public to address climate change and reduce its carbon emissions. However, the company's efforts in this area have been met with skepticism due to its historical obfuscation of climate change knowledge and internal conflicts. Of the 40 million tons of carbon dioxide captured globally each year, only about 5 million is intentionally stored in saline aquifers to prevent release into the atmosphere, while the rest is used to extract more oil. ExxonMobil has resisted venturing significantly into renewable energy and alternative fuels, instead focusing on improving efficiency and cutting emissions intensity. The company's approach to climate change has been criticized as insufficient, and some shareholders have called for more ambitious goals and a shift away from traditional oil and gas operations. Despite this, ExxonMobil maintains that it supports addressing climate change but is uncertain about its competitive advantage in areas like renewable energy. The company's reluctance to change has led to growing frustration among investors and concerns about its long-term viability.
ExxonMobil's Resistance to Shareholder Pressure for Climate Action: ExxonMobil's attempts to appease shareholder pressure for climate action through board additions and low carbon investments fell short, leading to the election of new board members by activist investors.
ExxonMobil's efforts to resist shareholder pressure for climate action, including adding new board members and increasing investments in low carbon solutions, fell short of satisfying activist investors. Penner, from Engine No. 1, had advocated for a net-zero business plan even without a clear roadmap, arguing it was better business than continuing to produce oil and gas in a decarbonizing world. ExxonMobil's response was to add several new board members, invest in carbon capture projects, and revise production growth targets. However, these efforts were not enough to prevent Engine No. 1 from electing three of its candidates to the board, including energy entrepreneur Andy Karsner. The story also highlights the importance of understanding industry dynamics and having industry expertise when advocating for change. Penner and James' meeting with Goff, a respected oil industry executive, showed that even dedicated oil executives could see the business case for change. The conversation between Penner, James, and Goff also underscores the need for adaptation to a world where the consequences of burning fossil fuels are no longer acceptable.
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