The usual suspects are casting
Mobil’s partial defeat in a proxy shareholder battle on Wednesday as a Waterloo for fossil fuels. Sorry—the vote is a reflection of the enormous political pressure and financial leverage of government pension funds, proxy advisers and asset managers like
that want to be seen as virtuous to the progressives who are now in power.
The San Francisco-based hedge fund Engine No. 1 formed in November of last year and set out to overhaul Exxon’s board. Its goal: Make the biggest U.S. oil and gas company “transition” out of its legacy business. The fund enlisted big public pension funds and exploited the pandemic’s ravages.
Exxon had to “wake up” and “get out of the oil and gas focus,” California State Teachers’ Retirement System (Calstrs) Chief Investment Officer
said in December. Critics said Exxon’s board was too deferential to management, which had invested in U.S. shale and cranked up debt as oil and gas prices plunged.
Critics also flogged former CEO
big bet on Canada’s oil sands, which became unprofitable amid low prices. Exxon’s main misjudgment was to underestimate the impact of U.S. shale fracking on oil prices. It was late to shale and then paid a hefty sum for fracking pioneer XTO Energy in 2010.
While its European rivals have forged into renewables like wind and solar, Exxon has made a long-term bet that the world will need oil and gas for many more decades. It estimates that some $12 trillion to $17 trillion in new investment will be needed to generate enough oil and natural gas supplies to meet global demand through 2040.
Low-income countries will need oil and gas to modernize and replace dirtier energy sources like coal and wood, as Nigeria’s Vice President
explained last week at a Columbia Global Energy Summit. Liberals in wealthy countries including the U.S. want to ban the internal-combustion engine. But Nigeria’s poor won’t be buying Teslas.
This is why Exxon’s European rivals are continuing to develop new oil and gas projects. Russia has no intention of scaling back its investments. Even Canada’s biggest pension funds are boosting investment in oil sands producers as prices recover from the pandemic. Exxon’s stock, by the way, is up 42% this year.
Engine No. 1 saw an opening with the pandemic and took it. A preliminary vote count on Wednesday showed that shareholders backed at least two of its four board candidates. But who are these shareholders?
Namely, big union pension funds like Calstrs and asset managers like BlackRock, which are trying to get in the good graces of the anti-fossil fuel crowd who run Washington. Proxy adviser duopolists Glass Lewis and Institutional Shareholder Services, which make recommendations to institutional investors on how to vote, also lent their support to Exxon’s opponents. This wasn’t a revolt by retail investors against fossil fuels. It was a progressive political coup.
Exxon won’t benefit if it exits its legacy business and dives head-long into renewable development where it has no expertise.
fuels aren’t going away, and Exxon won’t prosper if it acts like they will.
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the May 27, 2021, print edition.