What is the Role of Activist Investors in the Clean Energy Transition?
By Tara Mooney
One of the most important steps in the clean energy transition is the phasing out of oil and gas companies across the globe. Key players in the road to decarbonization and the regulation of oil and gas giants have been activist investors. Activist investors are often confused with firms who utilize Environmental, Social, and Governance standards to assess where they invest. While companies using these standards are engaging in a form of activism, the role of activist investors, especially in the clean energy space, is much more deliberate. These firms set out with specific goals to buy shares in public companies and use the leverage these shares provide them to put pressure on management to make major changes. There are multiple ways these firms can go about doing this, but certain moves by these activist investors have caught the attention of the media in recent years.
Perhaps the most well-known of these is the work of Engine No. 1, an impact investment firm with a stated goal to “Reenergize Exxon,” referring to ExxonMobil, the United States’ largest oil and gas retailer. The firm, who owns a 0.02% stake in Exxon, began targeting the company in December 2020, pressuring them to start making real efforts towards the fight against climate change— specifically, reducing their carbon emissions and making further plans to support infrastructure for a clean energy transition. Engine No. 1 sought out not just to hold ExxonMobil accountable for their actions and help create regulations, but to fundamentally change the role they have to play in the transition to renewable energy. This push by Engine No. 1 came at a crucial time for ExxonMobil, which had only recently begun seeing stock increases again after the devastating blow the coronavirus pandemic dealt to major oil and gas companies. By June of 2021, after what has been described as tumultuous proxy-battles between the two entities, Engine No. 1 had garnered enough support, largely from pension funds and other institutional investors of ExxonMobil, to elect 3 members to Exxon’s 12-person board of directors. Many of their supporters justified their votes with the claim of environmental awareness, but also with the goal to protect the money they have invested in Exxon. As the clean energy transition quickens, ExxonMobil must address its plan to be a part of this movement lest it be left behind in the era of fossil fuels, and its investors are coming to recognize this. In September, Engine No. 1 met with executives from Chevron, the United States’ second largest oil and gas company. After hearing about Chevron’s plans to reduce emissions in the coming decades, Engine No. 1 has announced they don’t have any official plans to launch a campaign against the California-based gas giant. In addition, Chevron executives have announced they have “contingency plans” in place for activist investors. Despite their hesitancy, it’s clear that oil and gas retailers are beginning to feel, and respond to, the pressure that these activist investors are putting on them.
As politicians continue to line their pockets with the money of big oil and gas companies, hope for government regulation on these giants grows dimmer. While other countries’ governments have seen success in hampering fossil fuel companies, such as the Netherlands, whose court system ruled the oil giant Royal Dutch Shell (better known as Shell) must cut carbon emissions by 45% by 2030 in accordance with the Paris Climate Agreement, the U.S. has
fallen behind. Activist investors offer a free-market solution to the problem of self-interested political actors and companies, and will likely continue to be key in representing the interests of the public and investors, and taking real steps to reduce the impact of climate change.
Sources:
https://www.cnbc.com/2021/05/26/engine-no-1-gets-at-least-2-candidates-elected-to-exxons-boa rd-in-win-for-the-activist.html
https://www.bloomberg.com/news/articles/2021-06-02/exxon-activist-seen-winning-third-board seat-in-preliminary-vote
https://www.bloomberg.com/news/articles/2021-06-02/exxon-activist-seen-winning-third-board seat-in-preliminary-vote
https://www.theguardian.com/business/2021/may/26/court-orders-royal-dutch-shell-to-cut-carbo n-emissions-by-45-by-2030
https://www.yahoo.com/now/chevron-braces-activist-investor-fight-170000471.html?guccounter =1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAM2P fxKo78YCNATqf85jEoccbr57IJsPQJcSBEBqgIoL_g5R95UL7n5StwFCH349hqKszt-SxCrVeb mjxarr0zUKy-JAA0BdroY3WTcW5rSVZeMvfPThWbfCDw9UVUW-HgBsIrwB1sRw1Q6qzu HzOeXAj6pxUOx3Qs7S16YiI5dh