American oil giant ExxonMobil has lost a bruising fight to keep its board intact as some of its shareholders forced the oil company to reckon with the impacts of its operation on the environment.
Activist investor Engine No. 1 LLC successfully ousted two directors at the company’s annual shareholder meeting on Wednesday to compel Exxon to embrace a transition away from fossil fuels and power towards a greener energy strategy.
Another American energy giant Chevron also suffered shareholder rebellion against the company’s board by voting 61 percent in favour of a proposal from a Dutch campaign group Follow which seeks to force the company to cut its carbon emissions.
Mark van Baal, who founded Follow This, said Wednesday’s shareholder revolts mark an investor “paradigm shift” and a “victory in the fight against climate change”.
The shareholder rebellions in the US were matched by an unprecedented reversal for the oil industry upset in the Netherlands where green campaigners won a court battle in The Hague to force Shell to cut its carbon emissions by 45 percent in the next 10 years.
“Institutional investors understand that no investment is safe in a global economy wracked by devastating climate change,” said Van Baal, who has also forced similar revolts against the boards of ConocoPhillips and Phillips 66 earlier this month.
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A few days ago, Legal & General Investment Management (LGIM), one of the oldest fund managers in the City of London, joined a shareholder rebellion to force Shell into reviewing its weak carbon-cutting plans.
These days, the strictest censure oil companies are getting for the harmful effect of their operations on the environment has not come from governments but from their own shareholders.
Some analysts say it isn’t just altruism. The risks of investing in some new oil and gas developments far outweigh whatever anticipated returns on a risk-return matrix, said Uchenna Ibe, clean energy and renewable expert based in the United Kingdom.
“It is a well-documented fact that the stocks of some of the big green energy companies are outperforming those of the Big Oil corporations.
“So why wouldn’t investors push for less risky, more stable, and guaranteed returns that are not only comparable to those of the traditional oil companies but that also boost the investors’ moral and ethical credentials?” said Ibe.
When investors start ripping into their own companies to wean them away from their primary operation, then there’s no better way to show that the jig is up for the oil sector.
“The advocates know what they stand to gain with a diversified portfolio and divestment from carbon and oil production with the global pull towards clean energy and its effect on the climate,” said Tobiloba Lawalson, a sustainable development lawyer, who also runs FundMyMSME that raises financing for small businesses.
For many years, environmental activists have decried the effect of oil exploration on flora and fauna but in the main, governments around the world have prioritised profits over principles.
The ecological devastation in the Niger Delta speaks to the danger of treating self-immolation as if it were a national policy.
Former US President Donald Trump trampled over most environmental protection rules in his drive to make America the world’s largest oil producer and issued licences to drill oil even in lands reserved for conservation.
However, the sector has increasingly come under scrutiny, especially in Europe, on the basis of such environmental issues as air and water quality, offshore regulation, and chemicals management. Some countries have even set target dates to exit petrol-powered cars.
This has coincided with the rise of renewables providing the rebellious investors an alternative.
With these successful shareholder revolts, the spigots have been open. Shareholders have had a taste of revolt; nothing will wean them from this craving.
Since 2008, shareholders of oil companies have been chipping away at the corporate order, questioning executive pay, and criticizing oil companies’ lax attitude towards global warming.
It started with a shareholder rebellion at ExxonMobil, led by the billionaire Rockefeller family who secured the support of four significant British institutional investors demanding a review of ExxonMobil’s governance and hard-line approach towards global warming.
Since then, there have been other rebellions, including in 2018 when a quarter of shareholders in Shell said ‘no’ to the $10m pay packet awarded to the CEO Ben van Beurden.
The format is always the same. One activist shareholder demands action from the company to address global warming. Action is not forthcoming, so they lobby others, mostly institutional investors, and get enough numbers to plot the dismissal of members of a recalcitrant board.
Some analysts say it is reprehensible for shareholders who benefit from the profits of oil companies to make these demands.
“I don’t think that it is fair for the shareholders to demand cutbacks in hydrocarbons production and yet demand substantial dividends or expect good profits,” said Ayodele Oni, energy lawyer and partner at Bloomfield law firm.
For African oil producers including Nigeria, the priority is to explore their oil resources quickly but these revolts will significantly impact these plans, as these oil companies whose shareholders are revolting hold the key for billion-dollar investments.
Regardless, it would seem the energy transition train isn’t slowing any time soon.
“For the Big Oil Companies and their shareholders, it is no longer about whether they like to align their models and portfolios with the global energy transition or not, it is now both ethical and moral requirements to align their operational interests with the global decarbonisation agenda,” said Ibe.
Investment funds are lining up to announce exit from funding new oil and gas projects. Stock markets around the world show investors valuing green stocks over oil portfolios, indicating that the flow of capital could hasten the energy transition faster than any government rule.
