A Watershed Day For Exxon, Activists And ESG

The proxy vote heard round the world.

Editor’s Note: Corporate Board Member will host its annual ESG Board Forum for directors on June 3, with special keynote speaker Brian Moynihan, CEO of Bank of America. Join us. 

Everyone saw this coming.

For a decade, pressure has been mounting on public companies to monitor, disclose and ultimately change the way they operate to do less damage to the environment. In the pages of nearly every business publication, in proxy fights, in bulletins and notes and chiding from institutional investors, companies have been told repeatedly that at some time in the future, those who do not start to really make changes on so-called ESG issues will face a backlash.

Wednesday may have been that day.

In an unprecedented shareholder action, owners of ExxonMobil, once the world’s largest company—energy or otherwise—voted to upend the company’s board and install two new directors to push the company to substantially reduce its carbon footprint over the next few years. The Wall Street Journal called it nothing less than a “showdown” “over the future of oil and gas.” For embattled Exxon CEO Darren Woods, who had spent a reported $30 million to fight the assault, it was, potentially, a fatal blow to his leadership and a warning to other leaders.

The same day, some 60 percent of Chevron’s shareholders pushed for the company to slash emissions from the company’s consumers and a court in the Netherlands said that Shell must cut its greenhouse gas emissions by 45% by 2030, a historic and unprecedented ruling.

Taken together, it was a watershed moment for the so-called ESG movement which has pushed to usher in a new era of corporate stewardship on issues from human capital management to the environment. It was a clear signal by some of the world’s largest investment firms that they were finally willing to carry through on warnings about voting for more ESG-friendly slates after years of discussion.

Pragmatically, it was a huge win activist investors, not just for Engine No. 1, the relatively small firm that argued Exxon had done a poor job of preparing for a future where fossil fuels play a smaller role in powering humanity’s energy needs and needed new leadership on the board. They had pushed for four seats.

At any other time, Engine No. 1’s attack would have seemed quixotic at best. The company owns just 0.02 percent of Exxon’s stock. Not this year. Engine No. 1 was able to garner essential allies for the fight, a lineup of massive investment companies, including BlackRock, the world’s largest asset manager, and an increasingly vocal booster for the ESG movement. BlackRock owns almost 7% of XOM and is the company’s second-largest shareholder. Other backers include The New York State Retirement fund, CalPERS and CalSTRS, three of the world’s largest public pension pools. It’s a clear roadmap for other activists to follow.

For Exxon, and for everyone else in the boardroom community, it was a sign of things to come. As Aeisha Mastagni, a portfolio manager at California State Teachers’ Retirement System, which backed the activists, told CNBC: “The world around them is changing.”