Since the 1990s, the
wisest oil-producing countries and companies have regularly reminded themselves
of the oil patch adage that the Stone Age did not end because we ran out of
stones; it ended because we invented bronze tools. When we did, stone tools
became worthless — even though there were still plenty on the ground.
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And so it will be with
oil: The petroleum age will end because we invent superior technology that
coexists harmoniously with nature. When we do, there will be plenty of oil left
in the ground.
So be careful, wise
producers tell themselves, don’t bet the vitality of your company, community,
or country on the assumption that oil will be like Maxwell House Coffee — “Good
to the last drop” — and pumped from every last well. Remember Kodak? It
underestimated the speed at which digital photography would make film obsolete.
It didn’t go well for Kodak or Kodachrome.
Alas, though, not
every oil company got the memo.
One that most
glaringly did not is the one that in 2013 was the biggest public company in the
world! It’s ExxonMobil. Today, it is no longer the biggest. As a result of its
head-in-the-oil-sands-drill-baby-drill-we-are-still-not-at-peak-oil business
model, Exxon lost more than $20 billion last year, suffered a credit rating
downgrade, might have to borrow billions just to pay its dividend, has seen its
share price over the last decade produce a minus-30 percent return and was
booted from the Dow Jones industrial average.
But last week —
finally — Exxon got the memo, in the form of a shareholder revolt in what was
one of the most consequential weeks in the history of the oil and gas industry
and shareholder capitalism.
I’ve long argued that
if environmentalists want to have an impact on the climate they can’t be “nice
greens.” They have to be “mean greens.” They have to be as mean and tough, as
diligent and vigilant, as the industry they’re trying to change.
Well, last week a
little hedge fund called Engine No. 1 delivered an unprecedented master class
in mean green using the tools of democratic capitalism. A plucky,
purpose-driven investment fund, Engine No. 1 set out to force Exxon to improve
its financial returns by getting much more serious about gradually
transitioning — through innovation and acquisitions — into being an energy
company, not just an oil and gas company.
At Exxon’s annual
meeting, Engine No. 1 offered up a slate for four new members of Exxon’s
12-member board. The four represent deep energy expertise and climate
solutions. The slate committed to push the oil giant to a net-zero emissions
strategy by 2050, more investments in clean energy systems and more
transparency about Exxon’s energy transition, with metrics and milestones, as well
as disclosure of its lobbying payments and partners, suspected of undermining
the science around climate change.
And darn if half the
slate — Gregory Goff and Kaisa Hietala — wasn’t immediately elected by wide
margins, and at least one other member might be as well when ExxonMobil
finishes counting the votes from its very, very bad day.
Engine No. 1 was
successful because it got three of the four biggest pension funds in America —
fed up with Exxon’s relentless value destruction — to vote for its nominees.
We’re talking about the California Public Employees’ Retirement System, the
California State Teachers’ Retirement System, and the New York state Common
Retirement Fund. Also, three of the world’s biggest fund managers, Vanguard,
State Street, and Black Rock, which together own more than one-fifth of all
Exxon stock, each voted for part of the dissident slate.
And if you are keeping
score at home — on your Stone-Age-ending-before-we-run-out-of-stones score card
— on the same day that Engine No. 1 landed at least two energy/climate experts
on the Exxon board, Barron’s reported: “A Dutch court ordered European energy
giant Royal Dutch Shell to slash its carbon emissions by a net 45 percent by
2030. And, at Chevron’s annual meeting, shareholders supported a nonbinding
proposal to ask the company to cut carbon emissions generated by the use of its
products.”
Engine No. 1 and its
allies are not playing around, and for good reason. As CNN reported a few days
earlier, citing a newly published Harvard study, “For decades, ExxonMobil has
deployed Big Tobacco-like propaganda to downplay the gravity of the climate
crisis.”
“The study used
machine learning and algorithms to uncover trends in more than 200 public and
internal Exxon documents between 1972 and 2019,” according to CNN, which quoted
this statement from the study: “These patterns mimic the tobacco industry’s
documented strategy of shifting responsibility away from corporations — which
knowingly sold a deadly product while denying its harms — and onto consumers.”
Exxon’s existing board
was noteworthy for one thing: Other than the CEO, it had one member — appointed
only this year — who I would call an energy expert, and none steeped in climate
expertise that could help the company adapt.
The two new directors
will definitely help, but getting the third — conservationist Andy Karsner —
would really shake things up. Exxon says the voting results are too close to
call, and it needs more time to certify if Karsner won a seat.
Bloomberg reported:
“Exxon telephoned investors the morning of the ballot — and even during an
unscheduled, hourlong pause during the virtual meeting — asking them to
reconsider their votes, according to several of those who received calls. Some
said they found the last-ditch outreach and halt to the meeting unorthodox and
troubling.”
I first got to know
and respect Karsner watching him in action in 2007, when he was an assistant
secretary of energy for George W. Bush. He oversaw the US’s National
Laboratories’ applied science programs and negotiated America’s reentry into
the UN’s Convention on Climate Change at the Bali conference, which laid the
pathway for the Paris global climate deal. Before that, Karsner built power
plants in Pakistan and solar plants in Morocco.
He has been a longtime
member of the board of Conservation International, as was my wife. In full
disclosure, Karsner and I are now friends, but it’s his experience and outlook
that recommend him here. If there were a picture in the encyclopedia of a “mean
green,” it would be Karsner: tough as nails and green as grass.
Karsner, the other
Engine No. 1 nominees and Engine No. 1 itself are out to strengthen Exxon, not
destroy it. They view it as one of the world’s greatest collections of
scientific and engineering talent. They welcome Exxon’s sudden enthusiasm for
the idea of creating a $100 billion public-private carbon-capture facility
along the Houston Ship Channel to sequester planet-warming carbon dioxide. They
also know that demand for oil and gas for transportation, power generation, and
plastics is not disappearing overnight. Wisely managed money will be made
there.
But in a world where
Ford just unveiled an all-electric version of its F-150 full-size pickup truck,
one of its top-selling vehicles, and says that it envisages electric cars and
trucks making up 40 percent of its production by the end of the decade, they
think Exxon has got to stop betting that the good ole days of oil and gas
profits will return — and start becoming a more diversified energy company.
That means not only investing more in future carbon capture, batteries, and
other renewables, but also using its engineering prowess to invent that future
— while it still has an income stream from oil and gas.
Everyone knows it
won’t be easy. Making the kind of profits that
Exxon once piled up from oil and
gas will be very, very hard as a more diversified energy company. But it beats
becoming a corporate fossil by betting the house on increasingly unprofitable,
increasingly obsolete, increasingly unhealthy fossil fuels.
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