Exxon, BlackRock and the Little Engine

5 min readJun 28, 2021

At the end of May, two unexpected events shook the foundations of Big Oil. Shell was ordered to cut its carbon footprint 45% globally by a Dutch court, which had heard a case brought by climate activists in the wake of the Paris accord. While the Anglo-Dutch giant vowed to cut greenhouse-gas emissions more quickly, it also vowed to appeal the ruling. Still, with activists planning similar court challenges, oil executives are on notice that “lawfare” isn’t going away.

A more intriguing dynamic took place deep in the heart of Texas: some of the most visible activism that we have seen in relation to stock underperformance and energy transition exposure.

ExxonMobil — an icon of 20th-century American capitalism, and a scourge to environmental activists over its past climate-change denial — was forced to bring dissident directors onto its board after years of a sinking stock price. The company that brought this about is one of the icons of 21st-century American capitalism: BlackRock, the asset manager Larry Fink turned into a global juggernaut.

BlackRock impresario Larry Fink

BlackRock is so big ($9 trillion in assets, at last count) that it owns shares in almost every major listed company. That includes stocks involved in coal production, deforestation and oil. Consequently, it hasn’t been especially popular among environmental, social and governance (ESG) activists. Fink hadn’t put himself out in front on climate: not until early 2020 did he release a letter vowing to exit thermal-coal companies. (Well, companies that get more than 25% of their revenue from thermal coal, anyway.)

So it’s interesting that Fink’s firm chose to partner with a minnow of a company to force high-profile environmental and financial change at Exxon, where BlackRock is the second-biggest investor.

That company is Engine №1, a fund started by Chris James, who made a fortune investing in tech stocks. It’s not very big by U.S. standards, with about $250 million of assets managed. It only owns 0.02% of Exxon’s equity. (And it barely has 1,000 Twitter followers.)

Engine №1 proposed several dissident nominees to the Exxon board, and it was backed by not only BlackRock, but Vanguard and State Street, two other giants. Three of those nominees are set to be elected.

Interestingly, BlackRock’s own Twitter feed makes no mention of the Exxon vote, or Engine №1. (And some news articles had made no mention of BlackRock’s partnership with the “giant killing” smaller company.)

A cynic might say Fink (who has become almost an ambassador for the entire U.S. financial system) might prefer to bask in the green bona fides of Engine №1 — if it’s successful in its campaign — while being most interested in Exxon repairing its credit rating and shut down its spending spree.

As recently as 2013, ExxonMobil was the most valuable company in the world. Swaggering Texan CEOs like Lee Raymond and Rex Tillerson cut deals with Russia and expressed skepticism that humans could do much to combat climate change. The reliability of its growing dividend was legendary.

Exxon opted to spend lavishly on exploration after 2014 as the shale boom and the Saudis flooded the world with cheap oil. It was the wrong move. In August 2020, a debt-burdened Exxon was ditched by the Dow Jones Industrial Average after almost 100 years.

While cheap oil has hit all of the oil majors, Shell, BP and others have poured capital into renewables and been more restrained in spending on traditional exploration. Shell, BP, Chevron and Total are all outperforming Exxon.

“A refusal to accept that fossil fuel demand may decline in decades to come has led to a failure to take even initial steps towards evolution, and to obfuscating rather than addressing long-term business risk,” Engine №1 says in its presentation to Exxon investors.

Engine №1 now is launching an ETF in the wake of its Exxon success. It’s often described as a hedge fund, but that’s debatable. It might be better described as an impact investor: a firm whose mandate is more important than its investment returns, though those are expected to be positive, unlike a nonprofit.

Far from the image of idealistic climate warriors, Engine №1’s nominees to Exxon’s board have hard-headed backgrounds in the energy industry. Kaisa Hietala worked for a Finnish refiner. Gregory Goff ran a U.S. oil company. The third, Alexander Carsner, was a “green Republican” in George W. Bush’s administration. Engine №1 says Exxon has a habit of stuffing its board with CEOs from firms in unrelated industries, like IBM and Caterpillar, in the name of prioritizing public-company experience.

The intellectual firepower of the energy execs it recruited helps explain how Engine №1 has the technical chops to identify greenwashing. The firm points out that Exxon touts its prowess in carbon capture while conveniently ignoring that most of that “necessary separation” comes from the usual process of creating methane and then natural gas, which the company would have done anyway. Exxon’s 11-year touting of algae biofuels (“amazing little critters”), with few results, also comes in for mockery.

James disputes that his firm is a departure from shareholder capitalism, but unlike the quick-trading ethos of most hedge funders, Engine №1 is prepared to wait as long as required for shareholder and stakeholder interests to align.

And Exxon, as traditional in its capitalist outlook as any company, isn’t making much of a case for its version of shareholder value.

More activism is inevitable, and not just in the fossil-fuels space. Analysts, investment managers and advisers would be well served to acquire the technical tools they will need — like sustainability data intelligence and dynamic climate analytics — to help them to anticipate the companies likely to be subject to activism on climate and the energy transition.




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