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Exxon, Chevron and Shell forced to rethink as sophisticated activism gets a foothold

Climate activists have landed three big wins and gained influence over some of the world's largest oil companies.

Royal Dutch Shell PLC - Exxon, Chevron and Shell forced to rethink as sophisticated activism gets a foothold
Climate activism is moving indoors, into boardrooms

Sophisticated environmental activism has celebrated big wins in the past 24 hours with Exxon forced to give board seats, whilst Shell and Chevron are having their ‘transition’ plans intensely scrutinised and potentially rewritten.

An activist fund, called Engine No.1, won the board seats at Exxon’s annual shareholder meeting on Wednesday. It owns only 0.02% of Exxon’s shares but won over sufficient number other shareholders in the vote.

Engine No.1 wants Exxon, America’s largest oil company, to move away from fossil fuels.

In all, the activist fund put forward four board nominations and it had the backing of a number of large pension funds, including Blackrock which owns a 6.6% Exxon stake.

The US oiler needs directors with experience in successful and profitable energy industry transformations, according to Engine No.1.

Elsewhere, Chevron shareholders voted in favour of a proposal for the company to target reduction in the emissions created by its customers (rather than just those resulting from its own operations).

Some 61% of shareholder votes came in favour of the proposal despite the executive management recommending shareholders vote against.

At the same time, requests for reports on the impact that a significant cut in fossil-fuel demand and political lobbying were both denied by narrow votes.

Earlier in the day, Royal Dutch Shell PLC (LON:RDSB) lost a landmark case brought forward by seven activist groups, including Greenpeace and Friends of the Earth Netherlands, to challenge its climate strategy.

The Dutch Court of The Hague ordered the FTSE 100 group to reduce CO2 emissions by 45% by the end of 2030 compared to 2019 levels. The 45% reduction also includes 'scope 3' emissions, meaning those from burning Shell's gas and oil.

Before being taken to court by the activists, the company had previously pledged to cut the emissions of the products it sells by 20% over the same time period, as well as setting a net-zero goal by 2050.

The case was filed in 2019 on behalf of more than 17,000 Dutch citizens on the basis that the oiler is threatening human rights by investing in fossil fuels.

As campaigners move from picket lines and social media into boardrooms evidently the landscape is shifting, what precisely it will mean operationally for these ‘supermajor’ hydrocarbon companies remains to be seen.

Lucy Coutts, investment director at JM Finn, said the day's events were “undoubtedly a step change for the oil majors. It is unprecedented that courts can now dictate the corporate strategy of a major emitter of greenhouse gasses, with the court labelling Shell as 'partly responsible' for climate change. These are incredibly strong words.”

ExxonMobil was an even bigger story, Coutts said.

“Once the world’s most valuable company, it now has been forced to give up two board seats to a small activist hedge fund investor with the potential for a third once all votes are counted. Engine No. 1, has made its intention clear; to push the company to look beyond oil and gas development, claiming that it is an existential risk.”

She added: “It was notable that Darren Woods, the CEO of ExxonMobil, last week told shareholders not to vote for the activist investor for fear that it would derail the company’s progress, and dividend. Given that the company is laden with debt to pay dividends, he should probably listen to his shareholders a little bit more.

“To echo Larry Fink, climate risk is definitely investment risk, and yesterday was a very, very big day for this.”

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