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 Market Mysteries of the week

  How did a tiny shareholder force Exxon Mobil to consider renewable energy?   

Answer They compelled bigger shareholders to join their fight.What’s up with Exxon Mobil?Exxon Mobil is one of the largest oil companies in the world. It has long been reluctant to embrace any major proposals to shift away from fossil fuels.Last year, the business’ dependency on oil demonstrated weakness. It posted its first annual loss ever (a huge one), lost over 40% of its stock value, & took on tons of debt to maintain the big shareholder cash payouts called dividends.Who’s this activist investor?Activist investors are institutions that buy ownership in a company and attempt to force action to improve the company’s performance.Engine No. 1 is an investment firm that has been pushing Exxon to shift its business to renewable energy. They purchased a small stake in Exxon (0.02%) for about $50 million and asked other Exxon shareholders to vote in support of a binding proposal to replace four of Exxon’s board members with their own nominees. The new board members would then theoretically influence Exxon to shift its business away from fossil fuels.What’s a proxy vote?When you buy a share of a company, you become an owner and get a say in what the company does. Proxy voting allows shareholders to influence corporate decisions like electing board members, approving executive pay packages, or approving mergers. Any shareholder with at least $2,000 of value in a public company for a year can submit a proposal for shareholders to vote on.Most typically, these proposals are non-binding, acting more as suggestions to the company that it takes under consideration.Also, the voters are mostly large institutions to begin with. You have to own the actual shares to be able to vote. If you own an index fund or mutual fund, your vote goes to the asset manager running the fund, like BlackRock or Vanguard. They’re the real deciding factor in these voting processes. How did a company with such little ownership change the board of a $250B company?This past week, Exxon shareholders voted to approve at least two of the proposed new board members, with votes for a third still being counted.The activist investor was able to present a proposal that institutional investors like BlackRock, Exxon’s second-largest shareholder with 6.6% ownership, and many big pension funds felt was in the best interest of the future of the company. Why is this important?Big institutional investors are starting to vote in favor of more environmental, social, and governance-related proposals from shareholders. This decision, acting against the active opposition of the company, shows that even the biggest corporations have to listen to the proposals of small shareholders.Engine No 1’s activism wasn’t promoted as pure environmental altruism, but instead as a necessary strategy change for a vulnerable company facing an accelerating global shift away from fossil fuels. Investors are demanding that companies face the realities of a climate emergency.The International Energy Agency, who has spent decades expanding the fossil fuel industry, has advised an immediate end to all spending on new oil and gas projects. This week, Royal Dutch Shell, another of the largest fossil fuels companies in the world, was ordered by a Dutch court to cut its full emissions by 45% by 2030. Chevron’s shareholders also this week voted in favor of reducing the oil giant’s emissions, against the company’s proposals.The timeline for tangible effects of these actions is uncertain, but this week marked a major shift in shareholder action against fossil fuels companies.It also puts into perspective our capacity to affect change as shareholders.If this was helpful, please forward to a friend!

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