Manulife's ambitions for net-zero investments
British insurer Legal & General Group Plc became the largest-yet Exxon Mobil Corp. investor to support an activist campaign to overhaul the oil giant’s board and make its climate goals more ambitious.
Just two weeks before a shareholders vote, the insurer’s asset management division will back Engine No. 1’s proposal to add four new directors and overhaul Exxon’s strategy to become more climate friendly. Legal & General Investment Management will also vote against re-electing Chairman and Chief Executive Officer Darren Woods, as well as lead director Kenneth Frazier.
The decision is a major boost to Engine No. 1’s high-profile campaign, whose biggest public backers to date have been state pension funds in New York and California, all of which have much smaller holdings in Exxon than than Legal & General, one of Europe’s biggest passive investors.
The London-based insurer and fund manager has a US$1.5 billion stake in Exxon, making it the company’s 17th largest shareholder, according to data compiled by Bloomberg. It opposed the re-election of Woods at last year’s annual meeting and some of its funds began divesting from Exxon stock a year earlier.
Exxon has roundly rebuffed the activist’s proposals, recently appointing three new directors of its own, introducing new emissions targets and cutting spending to protect the S&P 500 Index’s third-largest dividend, worth US$15 billion a year. It says Engine No. 1’s proposals will threaten the payout, ongoing cash flow and its role in the energy transition.
After posting its first loss in four decades and taking on record debt last year, Exxon’s stock is up more than 50 per cent in 2021, outperforming the S&P 500 Energy Index by about 10 percentage points.
While short-term performance, driven in large part by surging oil prices, may appease some investors, others believe serious questions remain over Exxon’s stated commitment to the United Nations’ Paris climate accord.
There’s a “huge disconnect” between Exxon’s perception of what’s needed to meet Paris goals and the reality, said Iancu Daramus, a senior sustainability analyst at Legal & General. “We want a clear commitment to net zero and interim targets for reducing full-scope emissions that are credible.”
Exxon’s board and management team “are committed to growing shareholder value, meeting the world’s energy demands and pursuing the right, technology-driven strategy to succeed through the transition to a lower-carbon energy future,” the company said in a letter to shareholders published Monday.
Exxon says it supports the Paris agreement and that its recent emissions reductions have exceeded those of wider society. The oil giant has also pledged to grow carbon capture so long as it receives the right support from government. Engine No. 1 claims Exxon’s emissions targets are misleading because they only apply to a 10th of its overall carbon footprint.
Legal & General doesn’t want to see Exxon make a huge shift into renewables but sees value in the company laying out a plan to reduce its fossil production over time, Daramus said. While the company has significantly cut capital spending over the next few years, Woods is frequently vocal about the need to invest in fresh fossil fuel production over the coming decades.
“We don’t think there’s been a change in the board’s longer term thinking,” Daramus said.
The British investor wants new directors to add serious debate to Exxon’s board, which Engine No. 1 says didn’t have an independent director with deep experience of oil and gas until recently. It also plans to vote in favor of a proposal to separate the roles of Chairman and CEO.