Vote

Forced to go green(ish): Exxon and Shell may have to radically rethink their biz models

Thursday, May 27, 2021 by Robinhood Snacks | Disclosures

Bad week for oil giants... Last month, Exxon's activist investor Engine No. 1 slammed Exxon's energy transition plan — or lack thereof. The hedge fund sounded the "Blockbuster Alarm," saying Exxon faces an existential risk from tying its future to fossil fuels. Unlike Shell and BP, Exxon hasn't vowed to move away from oil and gas, arguing they'll remain key. Now, it might not have a choice.

  • Surprise: Engine No. 1 won at least two seats on Exxon's board, a historic defeat for Exxon that will likely force it to change its oil-focused strategy.
  • Receipts: Engine's bid to win shareholder votes — and Exxon's quest to prevent that — became one of the most expensive proxy fights ever.

The little Engine No.1 that could... Engine No. 1 owns only 0.02% of Exxon’s stock. Though Exxon aggressively tried to persuade investors to vote against Engine, it still managed to snag seats. Engine capitalized on retail investors’ worries about Exxon's shrinking profits —  and its future in a lower-carbon economy. 110+ countries have pledged carbon neutrality by 2050. CA, Japan, and the UK said they'll start banning sales of new gas cars in the 2030s.

  • Shell took an L, too: Yesterday, a Dutch court ordered the oil giant to cut its carbon emissions, an unprecedented ruling that could set a precedent in other European countries.
  • Chevron investors just voted in favor of a proposal to cut emissions, rebuking the C-Suite.
THE TAKEAWAY

Tackle climate change or be changed... Oil giants are facing heightened pressure from governments and investors to reduce emissions and embrace renewable energy. BlackRock, one of Exxon's largest investors, signed a pledge supporting net zero carbon emissions by 2050 or sooner. That pressure from investors and governments has real consequences, as we saw this week. Now, change-resistant companies like Exxon might be forced to change.