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Activist investor group says ExxonMobil in its sights for 2022

06 August 2021 IHS Markit Energy Expert

Activist investor group Follow This says it has accumulated sufficient shares in ExxonMobil to target the company's annual general meeting next year and plans to ask the oil major's shareholders to back a resolution demanding a formal plan for significant carbon emissions reductions.

"Most probably, yes," said founder Mark van Baal in an interview with OPIS this week (OPIS is owned by IHS Markit, publisher of Net-Zero Business Daily.)

The first step is to file the resolution with the US Securities and Exchange Commission (SEC), which is due by the end of 2021 for consideration by ExxonMobil shareholders at the company's annual general meeting in the second quarter of 2022.

ExxonMobil has been dismissive of GHG emissions reductions pledges, saying that action is more important than words. CEO Darren Woods last year referred to the carbon emissions reduction goals of other oil majors as "a beauty competition," but also emphasized that the company has been and will continue to implement carbon-reduction technologies. Also, the company has publicly said it is in favor of a carbon tax as the efficient way to reduce emissions from the oil and gas industry as well as other economic sectors.

Track record

Follow This has a track record with shareholder resolutions, as the Netherlands-based organization's resolution demanding Chevron reduce its carbon emissions was backed by 61% of shareholders on 26 May. That day was deemed "Black Wednesday for Big Oil" as it coincided with three directors backed by activist hedge fund Engine No. 1 winning seats on ExxonMobil's board, and with Royal Dutch Shell being ordered by a Dutch court to cut its net global carbon emissions by 45% by 2030 to comply with the Paris Agreement.

Van Baal said Follow This had yet to formulate the exact wording of a resolution for ExxonMobil's 2022 annual general meeting, but the investor group's resolutions that were passed at this year's Chevron, Phillips66, and ConocoPhillips meetings demanded "substantial reductions in greenhouse gas emissions," including the carbon emitted by the consumers of those companies' products, known as Scope 3 emissions.

Such proposals are less exacting than the demands made by Follow This resolutions at the annual general meetings of European oil majors, which have asked companies like Royal Dutch Shell to hit specific reductions in carbon emissions by certain dates, in line with the Paris climate agreement.

"For next year we still have to decide how far we are going to bring the American resolutions to [align with] the European resolutions," said van Baal, formerly an engineer, who became a shareholder activist in 2015.

"We still have to discuss that and discuss with American lawyers if mentioning the Paris Climate Agreement in the official part [of the resolution means] we don't run the risk that a 'no action' letter is accepted," said van Baal.

SEC 'no action' letters

No action letters—a request by the targeted company to the SEC that the agency reject the resolution before it can receive a vote—has been a common strategy for US oil majors, van Baal said. Prior to the election of President Joe Biden, the corporations typically got their way in having the resolution thrown out, he added.

But that has changed. In March, the SEC rejected requests by ConocoPhillips and Occidental Petroleum to omit votes on proposed shareholder resolutions to set specific interim GHG reduction targets in their quest for net-zero carbon emissions.

"That was the big change this season, that we finally got our resolutions on the ballot in the US. We didn't succeed in that during the Trump years, when the no action letters saying that our resolutions were micro-management were accepted by the SEC," said van Baal.

The SEC under President Donald Trump tried to make it even harder for climate change (and other) resolutions to be raised. It issued new eligibility requirements for groups or individuals filing shareholder resolutions, and they are due to go into effect in 2022.

The Biden administration SEC is revisiting those rules. If enacted, the rules would make it harder to file resolutions by raising the minimum financial holding threshold and barring groups from aggregating their holdings to meet the threshold, according to Josh Zinner, CEO of the Interfaith Center for Corporate Responsibility (ICCR), another activist investor group.

While saying that he hopes the SEC will reverse the rules, van Baal said he does not see them as an impediment to his organization's goals. While Follow This does not have $25,000 invested in ExxonMobil, which would be the new threshold for proposing a resolution, he said: "We can file this year, and for next year we can make sure we have the $25,000 in place." He also said the company has held ExxonMobil shares for three years that he thinks are currently worth more than $2,000, which is the existing threshold if the SEC throws out the new rules.

Follow This has more than the new threshold investment of $25,000 "in several US oil companies," including Chevron, Conoco Phillips, and Phillips 66, he added.

ICCR, As You Sow, and individual investor James McRitchie sued the SEC on 15 July to halt implementation of the rule, known as Rule 14a-8.

Making headway

In recent years, Follow This has made headway on pushing European companies to set emissions targets to meet the Paris Agreement. In 2018, 5.5% of Shell's shareholders backed such a resolution, and that increased to 14% in 2020, and 30% this year. A faster trajectory was seen at Equinor, where support went from 12% in 2019 to 39% in 2021.

Van Baal said Follow This is "keen to talk with" Engine No. 1 "about how our approaches can enforce each other."

For example, he said potentially Engine No. 1 could put forth candidates for the board of directors at Chevron, as it successfully did at ExxonMobil. Or if Follow This files a resolution at ExxonMobil, then he said the new board members "can say to their peers on that board, 'Look, our shareholders also want this.'"

Follow This has just four full-time employees and operates on a shoe-string budget of just a few hundred thousand euros, according to a slideshow presentation at its own annual general meeting, which was held 30 June and attended by OPIS. Grants to the campaign group in the 2020 financial year totaled €189,941 (about $222,000), while member fees and donations totaled €34,056 (about $40,000).

(OPIS correspondent Anthony Lane paid a one-off membership fee of €9 to attend the Follow This annual general meeting and learn more about its future goals. The correspondent did so with the prior knowledge and agreement of Follow This and on the written understanding that the correspondent would attend as a journalist and not as a supporter of the campaign group.)

ExxonMobil

ExxonMobil for its part announced another major oil and gas discovery off the coast of Guyana in late July. The Institute for Energy Economics and Financial Analysis noted in a statement on 6 August "it is the first major announcement after the new board has been installed. It reflects a business-as-usual approach for ExxonMobil."

Also on 6 August, the Climate Leadership Council (CLC) removed ExxonMobil from its roster of members, after audio of a company lobbyist saying that ExxonMobil's support for a carbon tax was based on an assumption that the tax would never been imposed in the US.

"CLC's decision is disappointing and counterproductive," ExxonMobil said in response. "It will in no way deter our efforts to advance carbon pricing that we believe is a critical policy requirement to tackle climate change."

Reporting by Anthony Lane, OPIS and Kevin Adler, Net-Zero Business Daily

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