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ExxonMobil [NYSE:XOM] has served as a good example of how the energy industry is going to be pushed towards change if it does not embrace it. While several big oil companies have already started to talk to investors about their green energy strategies, Exxon has had three directors added to its board to change its strategy, thanks mainly to the actions of an activist hedge fund.

California-based hedge fund Engine No 1 is not a green fund in itself, but its managers felt that the US oil giant needed to be doing more and leveraged their 0.02% stake and engagement with other shareholders to put three directors onto the Exxon board to help steer Exxon in a new direction.

Oil companies need a vision for post fossil fuels business

Crucially for many investors, Engine No 1 has specifically linked profits with a green strategy. In a recent interview with The Guardian, it pushed the link between climate risk and business risk. Three seasoned directors including the ex-boss of IBM and the former head of Malaysian state oil group Petronas were shown the door as a consequence of the shareholder pressure applied by Engine No 1..

The fact that this hedge fund managed to pull off what could be the activist coup of the year is testament to how the appetites of institutional investors generally are changing. Engine No 1 successfully made the case that investors would be better off with a strategy that recognises that there is a climate crisis, and that big energy needs to do something about it.

ExxonMobil is one of the biggest companies in the US, pumps over 4m barrels of oil per day, and has been ranked by the Climate Accountability Institute as one of the biggest polluters on the planet since 1965.

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Engine No 1 has tapped into investor zeitgeist

Large investors, including the likes of BlackRock and Vanguard, got behind Engine No 1’s proposals because of concerns about the strategic direction of ExxonMobil, and a need for “fresh perspectives” in the view of BlackRock.

The Exxon vote looks like a watershed moment for big oil companies. Investors are now applying direct pressure on oil company management for change to the way things are done in the fossil fuel industry.

Royal Dutch Shell [LON:RDSA] on the other hand, seems to have recognised that investors want to see progress and has developed an Energy Transition Plan, which supports the goals of the Paris Agreement. This won the support of its investors at its last AGM, including key opinion formers like Climate Action 100+ (which represents investors with over $54 trn).

Both Shell and BP [LON:BP] have now produced strategies that they say are consistent with the Paris goals to limit global warming. Both companies had been under pressure from Dutch activist group Follow This, which has fought a court case in the Hague to force Shell to cut its carbon emissions by 45% in the next 10 years.

Follow This has become a key mover in coordinating shareholder activism around key climate topics. It persuade over 60% of Chevron [NYSE:CVX] shareholders to vote for the oil company to “substantially reduce” emissions from the end use of its products – i.e. Scope 3 emissions.

These critical votes are paving the way, it seems, for a major change in which energy companies plan for the future and commit to change.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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