Engine No. 1 Releases White Paper Detailing Changing Energy Landscape in Response to ExxonMobil Investor Day Presentation
New Analysis by Leading Energy Market and Policy Expert Sets Forth the Long-Term Risks and Opportunities Facing ExxonMobil and Its Peers
Engine No. 1’s Nominees Have the Proven Success Across the Energy Industry to Help ExxonMobil Better Protect Long-Term Shareholder Value in a Rapidly Evolving Industry
Engine No. 1 stated: “ExxonMobil has now adopted the language of long-term net zero emissions and dramatically shifted its emphasis from production growth to investor returns, both of which are remarkable shifts since the start of our campaign last year. However, we believe that reacting to the threat of a shareholder vote is not the same as a coherent and value-enhancing long-term strategy, and that without real change these gains could be short-lived. More importantly, we believe that turning these newfound ambitions into action will require leadership, and that without a diverse mix of successful and transformative energy experience on the Board,
The new paper (available here) was authored by leading expert Professor
Long-Term Demand Risk. While
ExxonMobilcontinues to plan for long-term growth in oil and gas production (and thus increased overall emissions growth) for decades to come, this plan carries significant risk of further long-term shareholder value destruction. About 2/3 of world greenhouse gas (GHG) emissions come from countries that have net zero targets for emissions (mostly for 2050), and achieving those goals (or even coming close) will likely cause an implosion in fossil fuel demand, yet ExxonMobil’s presentation does not explore this widely-known range of possible outcomes.
- Business Case for Actual Paris Alignment. Companies that claim consistency with the Paris Agreement but whose business models run counter to its goals are risking more than just inconsistency but are in fact creating significant financial risk, as investors ascribe them an increasing cost of capital and a declining terminal value. Long-term total emissions reduction goals (including Scope 3 emissions) are thus a financial risk management imperative. Likewise, reliance on the idea that carbon capture will permit businesses to avoid evolution risks even greater long-term disruption and value destruction. Nearly all of ExxonMobil’s carbon capture experience is in areas such as gas processing, which is important but not the type of carbon capture application that research shows will be most important and transformative as the world makes deep cuts in emissions.
- Changing Economics of Innovation. Historical oil and gas returns were consistently high enough, and the dangers of inaction consistently low enough, that oil and gas companies had a strong economic case for the status quo. While any change in the oil and gas industry will take time, falling project returns due to structural issues and the rising societal demand for de-carbonization have significantly shifted this dynamic. The risk of being caught on the wrong side of innovation cannot be understated and long-term success will likely require entirely new types of innovation, leadership, and proactive positioning.
Engine No. 1 today also noted that, “ExxonMobil today presented a vision of the future that we believe risks continued long-term value destruction, including a lack of serious diversification efforts and the hope that carbon capture will enable the Company to avoid long-term evolution. Reasonable people of goodwill can differ as to where the energy industry is going in the decades to come, and there are no easy answers. What we think is not debatable is that capitalizing on the opportunities and managing the risks created by rapid technological, policy, and market changes will require successful and diverse energy experience on the Board. We have benefited greatly from this analysis and our discussions with numerous other experts, and we hope that this paper will be helpful to other
The full white paper and additional information regarding Engine No. 1’s campaign to reenergize
About Engine No. 1
Engine No. 1 is an investment firm purpose-built to create long-term value by driving positive impact through active ownership. The firm also will invest in public and private companies through multiple strategies. For more information, please visit: www.Engine1.com.
Engine No. 1 LLC, Engine No. 1 LP, Engine No. 1
Information about the Participants and a description of their direct or indirect interests by security holdings is contained in the preliminary proxy statement filed by the Participants with the
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Source: Engine No. 1