In late December, activist investment firm Engine No. 1 announced that it had the support of the California State Teachers’ Retirement System (CalSTRS) for the firm’s slate of four candidates for election to the board of directors of Exxon Mobil Corp. (NYSE: XOM). Including the CalSTRS stake, Engine No. 1 holds a stake of around $340 million in the oil giant.
As of last Friday’s close, Exxon’s market cap was around $221.7 billion, so Engine No. 1’s stake is less than 0.02%. Still, the investment firm is already claiming some success in its campaign to get Exxon on a path to net-zero emissions by 2050.
In a letter to Exxon’s board posted this morning, Engine No. 1 noted that “ExxonMobil has now gone from dismissing emissions reduction goals as a ‘beauty competition’ to claiming repeatedly this month that its emissions reduction plans are ‘consistent’ with the Paris Agreement.”
Engine No. 1 disputes Exxon’s claim, commenting that the company’s “true trajectory is nowhere near Paris consistency, and that a clear understanding of ExxonMobil’s claims underscores the long-term risk facing the Company in a decarbonizing world.”
Exxon’s stated goal of an 11% to 13% reduction in emissions by 2025 is misleading, according to the firm. That goal does not include what are called Scope 3 emissions, the carbon emitted from burning the oil and gas products a company sells. The investment firm claims that Scope 3 emissions account for about 83% of Exxon’s total emissions.
Like many other oil producers, Exxon cites the role of carbon capture in reducing carbon emissions by the end of the century. Both the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA) have supported the development of carbon capture.
But, Engine No. 1 notes, “these bodies have made clear that carbon capture is not a substitute for dramatically reducing conventional fossil fuel usage, but instead is required alongside such reductions.” The firm comments that there is “little, if any, chance” that carbon capture will enable any oil producer to meet the Paris targets without a fundamental change to the way it does business.
Engine No. 1’s nominees to Exxon’s board include the former CEO of Tesoro/Andeavor, a senior strategist at Alphabet’s innovation lab (called X), a former executive vice president of renewable fuel products at Neste and the former CEO of Vestas Wind Systems.
In addition to replacing current board members, Engine No. 1 supports greater long-term capital allocation discipline, a strategic plan for sustainable value creation, and an “overhaul” of management compensation. Exxon CEO Darren Woods was paid $23.5 million in 2019, an increase of nearly $5 million from 2018.