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Rapping ExxonMobil net-zero efforts, activist investor hopes new board members spark change

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A failing governance structure and poor management team had practically doomed ExxonMobil's prospects for success in a net-zero carbon future, activist hedge fund Engine No. 1 founder Chris James said Dec. 2, but added he was hopeful that a recent shakeup of the energy giant's board would set it on a cleaner and more profitable path.

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Engine No. 1, with just a 0.02% ownership stake in ExxonMobil, launched a proxy fight in December 2020 aimed at pushing the company to reduce its carbon footprint. The relatively tiny hedge fund in May and June shocked Wall Street and the fossil fuel industry when it garnered support from major institutional investors BlackRock, Vanguard and State Street to defeat ExxonMobil's leadership and install three directors onto the company's board.

"There were no board members on ExxonMobil's board who had any energy experience, let alone successful transition experience, so we felt that was a key component that was missing ... and it was going to be very hard to piece together a strategy to be successful in the energy transition without that skill set," James said at the Reuters NEXT virtual global conference.

Despite the boardroom victory, James said he expected the road ahead to be long and challenging, calling ExxonMobil "a laggard in the energy transition" with "a lot of work to do." Much of it is "low-hanging fruit," such as allowing for greater transparency, he added.

Social license to operate

"This is a company that I think has lost its social license to operate because they have not been straightforward," James said. "What we need to do first is restore trust, and then as a part of that start to unleash the power that they have inside of this company by moving away from ideology and looking at the energy transition as an opportunity to be part of the solution, instead of being the problem."

Commenting on James' claims, ExxonMobil spokesperson Casey Norton said the company was "committed to taking a leading role in the drive to a lower-carbon future, particularly in hard-to-decarbonize areas. That's why we are accelerating efforts to decarbonize our existing operations and working to rapidly grow our Low Carbon Solutions business" with plans to spend $15 billion on low-carbon investments between 2022 and 2027, he said in an email, adding that ExxonMobil expected to meet its 2025 emission intensity reduction plans by the end of this year.

ExxonMobil Dec. 1 accelerated its greenhouse gas reduction plans through 2030, pledging a 20%-30% cut in corporate emissions intensity, a 40%-50% intensity cut from upstream oil and gas operations, a 60%-70% reduction in flaring intensity and a 70%-80% reduction in methane intensity. It said the combined targets would cut its GHG emissions 20% by 2030, a promise that was criticized for paling in comparison with rivals BP and Shell's plans to eliminate emissions by 2050.

Regarding criticism of the new goals, Norton said the "plans for 2030 are consistent with Paris Agreement-aligned pathways."

In his comments at the Reuters NEXT conference, James said he expected that shift in ExxonMobil's mindset to take place over the course of this decade.

"What are the core competencies of this company or for any oil and gas company, because there's not a simple cut-and-paste strategy, and I think every company will end up with a different strategy," he said.

But James was optimistic, he said, contending that in ExxonMobil's case, it had "some of the most talented engineers in the entire world," arguing they prevented from "unleashing their power and creating value during the transition" by "a real failure in the governance structure that has been perpetuated by management."