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Exxon Mobil Activist Victory Isn’t Really All About Climate

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Activist investor Engine No. 1’s victory over Exxon Mobil Corp. in a proxy fight last week was seen as further proof that investors are starting to take climate risk very seriously. Instead, it seems to be more of a pointed slap on Exxon management’s wrist for how out of touch it has been with its investors.

Last week, Engine No. 1’s nominees won two seats on the oil and gas giant’s board. After counting more votes, another Engine No. 1 nominee is expected to win a third seat. Investors aren’t exactly asking Exxon to take a drastic green turn, though. Two of the three Engine No. 1 nominees that were elected—

Greg Goff

and

Kaisa Hietala

—are former refining executives, with the latter having experience in renewable fuels. The third nominee that was elected—Alexander Karsner—has experience in renewable energy.

Paul Sankey

of Sankey Research wrote in a note last week: “Anyone who thinks that Greg Goff is going to storm into the Exxon Mobil boardroom and start yelling about wind farms, does not know Greg Goff.”

Notably, Engine No. 1 hasn’t laid out any specific suggestions other than to say that Exxon needs to think about diversifying. The main takeaway—both on its website and on its 82-slide presentation to investors—is that the supermajor isn’t earnestly addressing the risk. New York State Comptroller Thomas DiNapoli said to Reuters that for years, investors have “received platitudes and gaslighting in response” to concerns about the climate crisis.

So the battle isn’t about choosing one distinct climate strategy over another but the perception that Exxon doesn’t have any at all. As

Pavel Molchanov

of Raymond James noted in a report, the change in board composition “will not rapidly lead to a fundamental transformation of Exxon’s underlying operations.” Rather, the climate issue seems to be a symbol of how frustrated Exxon’s investors have become about the company’s handling of everything else. Anne Simpson, head of corporate governance at Calpers, said in an interview with The Wall Street Journal that “it has been like pulling teeth to get Exxon directors to talk to investors.” On Exxon’s earnings call roughly a month before the proxy battle, Neil Mehta, an analyst at Goldman Sachs, made a jab at CEO

Darren Woods

for only appearing on one earnings call a year.

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This all would be forgivable if Exxon management was too busy delivering superior returns; that hasn’t been the case for a while, though. As of 2010, Exxon’s goal was to grow oil-equivalent production by 2%-3% a year. Instead, the company’s production declined roughly 1% a year on average from 2010 to 2019. Expensive, ill-timed investments including natural gas-focused XTO Energy in 2010 and a large Permian Basin acquisition in 2017 all have contributed to poor returns. Exxon’s return on invested capital has been languishing in the single-digits since 2015—not far from what renewable energy peers such as

NextEra Energy

NEE 0.82%

saw, according to FactSet.

An Exxon spokesman said in an email that the company has increased its engagement with shareholders over the past several years and that it is “committed to continuing that engagement and hearing the perspectives of our shareholders.”

Last week’s proxy fight shows that disgruntled investors have had it with Exxon’s attitude. Its climate record might not improve anytime soon, but Mr. Woods’s attendance record on those earnings calls might.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

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