A Tiny Fund Has Scored A Historic Win Against ExxonMobil Over The Future Of Oil
A brand-new hedge fund wants ExxonMobil to take climate change more seriously. And despite Exxon's intense opposition, it managed to fill at least two seats on the oil giant's board of directors.
ARI SHAPIRO, HOST:
A tiny hedge fund just won a historic battle with the oil and gas giant Exxon. Their dispute was about nothing less than the future of the oil industry. Exxon Mobil's current leadership believes the world will keep burning oil and gas for decades. The hedge fund thinks the world might actually stop using fossil fuels quite quickly. NPR's Camila Domonoske is here to explain.
CAMILA DOMONOSKE, BYLINE: Hi, Ari.
SHAPIRO: So what actually happened today?
DOMONOSKE: Well, shareholders got new blood on Exxon's board, and they did it over the objections - the strong objections - of Exxon's management. Boards of directors at public companies are elected, but those elections are usually pretty boring. The result is predetermined. That wasn't what happened in this case. There was a brand-new investment firm called Engine No. 1 that was founded last year with the sole purpose of trying to get new directors on Exxon's board in order to push the company away from focusing exclusively on oil and gas.
Now, this is a small firm. They controlled a tiny, tiny fraction of Exxon's shares. So to actually make this happen, they had to drum up support from bigger investors - a lot of them. And so they had this whole campaign, and it actually worked. They got at least two candidates on the board, and there are more seats that are too close to call.
SHAPIRO: What was the campaign like? How did they persuade people to vote in favor of this? Was it just, like, it'll be good for the planet?
DOMONOSKE: No. I mean, these are investors talking to other investors. So the case here was about the bottom line. It was about shareholder value. You know, I think it's important context that there are some other big oil and gas companies that are preparing to pivot into solar and wind power, you know? They're accepting that demand for oil and gas will go down eventually, and they want another plan. Exxon has not been doing that. Exxon says, look. Oil and gas is what we're good at. That's what we do. And they fundamentally don't think, as a company, that the world is going to make a switch away from oil and gas quickly in any way.
The fund says first - they told Exxon, you're not that great at oil and gas. They said that returns have been disappointing. But bigger picture here, they said, if the world does make a rapid transition here, if electric vehicles really take off when we build a bunch of renewables, you need to have a backup plan. Right now, you don't. And that could lose shareholders' money.
This is an argument that you might be familiar with from environmental activists. They talk about stranded assets. But what's really remarkable here is that this vote shows it's caught on with the mainstream investor community.
SHAPIRO: So now that they've placed these people on the board, what happens next?
DOMONOSKE: Well, they definitely said - investors who are pushing this - they say this is a first step. There's not going to be an immediate U-turn in terms of what Exxon does. First of all, the people elected to the board are oil and gas executives. They might be more open to change than the current board, but they're not radical activists. And they're also two people out of 12. But the idea here is that with new board members, there might be an opening to actually get Exxon to shift its strategy.
I spoke to Aeisha Mastagni. She's with CalSTRS. That's the California teachers' pension fund. They were a very early supporter of this Engine No. 1 effort. And she said changing the board is really just the start.
AEISHA MASTAGNI: We still have a responsibility as investors to hold them accountable because this isn't something that's going to happen overnight, and it's going to be a cultural shift inside the company.
SHAPIRO: Just briefly, why Exxon Mobil? There are so many oil and gas companies. Why is this one getting this scrutiny?
DOMONOSKE: Yeah, well, it's an iconic company. It's a huge, huge company. It was once the biggest in the world, incredibly powerful back in the day - a little less so now, but it still has that history behind it. It also spent years infamously sowing doubt about climate change. So now when it says it supports the Paris accord, a lot of shareholders just don't believe it. So it does get particular scrutiny, but this broader shift is something that the entire oil and gas industry is feeling.
SHAPIRO: NPR's Camila Domonoske, thank you.
DOMONOSKE: Thanks, Ari. Transcript provided by NPR, Copyright NPR.