Whether they realize it or not, retirement plan participants invested with BlackRock (and possibly Vanguard, State Street and others) just played a significant role in sending a loud message to big oil that it needs to “up its game” in fighting climate change.
In what some are calling a “watershed moment for the oil and gas industry,” at least two and possibly three of four candidates from the slate of upstart activist hedge fund Engine No. 1 were elected to the ExxonMobil board of directors in a contentious vote on Wednesday in Texas.
ExxonMobil announced Wednesday that based on preliminary vote estimates by its proxy solicitor, shareholders at the 2021 Annual Meeting of Shareholders have elected eight of ExxonMobil nominees to the board of directors and two of Engine No. 1 nominees. Vote results for five nominees were too close to call, and were still not announced as of mid-day Thursday.
While eight ExxonMobil directors were re-elected, including Chairman and CEO Darren Woods, Engine No. 1 candidates Gregory Goff and Kaisa Hietala were elected to the board.
The outcome was not yet determined for ExxonMobil director candidates Steven Kandarian, Douglas Oberhelman, Samuel Palmisano and Wan Zulkiflee, and for Engine No. 1 candidate Alexander Karsner. A fourth Engine No. 1 candidate, Anders Runevad, was not elected.
“We welcome all of our new directors and look forward to working with them constructively and collectively on behalf of all shareholders,” said Woods in a Wednesday statement. “We’ve been actively engaging with shareholders and received positive feedback and support, particularly for our announcements relating to low-carbon solutions and progress in efforts to reduce costs and improve earnings. We heard from shareholders today about their desire to further these efforts, and we are well positioned to respond.”
Despite the spin, the fact that Engine No. 1, a young, relatively small activist hedge fund based in California with just a $50 million (0.02%) stake in $250 billion ExxonMobil, was able to secure two and possibly three seats in the ExxonMobil boardroom sent shockwaves through the oil and gas industry.
Fred Krupp, president of the Environmental Defense Fund, told The Washington Post that the vote “sends an unmistakable signal that climate action is a financial imperative, and leading investors know it and are demanding change… It’s no longer tenable for companies like ExxonMobil to defy calls to align their businesses with decarbonizing the economy.”
How it happened
This was one of the highest-profile fights for corporate board seats in recent memory, with ExxonMobil pulling out all the stops to encourage shareholders to vote for its slate of 12 directors while Engine No. 1, which has pushed publicly for ExxonMobil to move faster in reducing its carbon footprint, worked hard to gain traction for its slate with shareholder advisory firms including BlackRock.
When influential proxy advisor Institutional Shareholder Services recently threw its vote recommendation to most of Engine No. 1’s slate (joining other major proxy advisory firms Glass Lewis and Pensions and Investments Research Consultants), it was another blow to ExxonMobil’s slate as most institutional shareholders routinely follow these recommendations.
Engine No. 1’s slate won the backing of the three biggest U.S. pension funds—CalPERS, the California State Teachers’ Retirement System (CalSTRS) and New York State Common Retirement Fund—along with the two biggest advisory services and at least one of the three biggest fund managers. Those three fund managers—BlackRock, Vanguard and State Street—hold more than 20% of ExxonMobil’s shares.
According to Reuters, BlackRock, which has firmly staked the high ground for itself on advancing climate resolutions and is ExxonMobil’s second-largest shareholder with a 6.7% stake, put its money where its mouth is, backing three of Engine No. 1’s four candidates.
BlackRock said the three bring “fresh perspectives and relevant transformative energy experience” that would help ExxonMobil evaluate “the risks and opportunities presented by the energy transition,” according to a note posted on its website cited by Reuters.
It should be noted that BlackRock also voted for CEO Darren Woods and for lead independent director Kenneth Frazier, Reuters reported. Last year BlackRock voted to split the chairman and CEO roles that Woods holds and voted against Frazier.
Together, BlackRock, Vanguard (8.2%) and State Street (5.7%) hold more than 20% of ExxonMobil’s shares. Neither Vanguard nor State Street has announced how they voted. Sources told Reuters ExxonMobil was actively calling shareholders, including Vanguard and State Street, to garner support for its slate.
Engine No. 1 Wednesday advised shareholders in a statement that the ExxonMobil “may seek to persuade them to change their votes at today’s 2021 Annual Meeting in a targeted manner so as to lessen overall vote totals for one or more Engine No. 1 nominees that would otherwise be elected. Engine No. 1 urges shareholders not to fall prey to any such strategic efforts that may result in unintended consequences with respect to the overall result.”
When voting was unusually interrupted for nearly an hour later Wednesday by ExxonMobil in an apparent effort to give more shareholders time to vote, Engine No. 1 issued a second statement:
“In seeking to delay the closing of the polls, ExxonMobil is using corporate machinery for its own purpose rather than that of shareholders and avoiding the election of individuals with the transformative energy experience required to position the Company for long-term success in a changing world. Shareholders should not be fooled by ExxonMobil’s last-ditch attempt to stave off much-needed board change in response to significant shareholder pressure and the prospect of losing a proxy contest. Shareholders have spoken. ExxonMobil should accept the result, take the vote and move forward.”
The power of proxy voting
While ExxonMobil said Wednesday that because of “complexities” of the voting process, final results of the remaining seats being contested might not be available “for some period of time.”
But whether or not the Engine No. 1 slate gets that third seat could well end up turning on Vanguard and State Street’s votes as two of the company’s largest investors.
Even the two-seat upset is seen as remarkable for Engine No. 1, with no prior experience in oil and gas activism. Engine No. 1 was able to capitalize on mounting criticism ExxonMobil has faced for its reluctance to invest more in renewable energy and for years of weak financial performance.
It also demonstrates that 401k participants do indeed seem more interested today in addressing environmental, social and governance (ESG) issues with their investment choices.
A recent study from Morningstar found many 401k plan participants are seeking alternative routes to understand, and potentially influence, their ESG investment exposure. Theoretically, plan participants could choose among funds based how funds voted on ESG issues on the proxy ballot. How the ExxonMobil vote occurred certainly qualifies.
The Morningstar study—The Power of the Proxy in Retirement Plans—found that 61% of individuals surveyed felt that ESG issues should be addressed in their funds’ proxy voting, 75% indicated that they would like to have more of a say in how their funds voted, and a little over 50% would consider a fund’s proxy voting record in making fund choices.
However, the study also found funds with the most 401k assets regularly vote against key ESG resolutions and tend to follow the voting strategy set at the asset management level.
This vote could be an indication that that trend is changing.
Remember that back in January, BlackRock issued its new proxy voting guidelines. Within those guidelines, it states, “BlackRock believes that climate change has become a defining factor in companies’ long-term prospects. We expect every company to help their investors understand how the company may be impacted by climate-related risks and opportunities, and how they are considered within the company’s strategy.”
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
