After hours of question and answers and a drawn out voting period, CEO Darren Woods announced that preliminary votes indicated that at least two of the board members proposed by its investment firm rival, Engine No. 1, would join the board: Gregory Goff, the former CEO of the oil and gas company Andeavor, which is now owned by Marathon Petroleum; and Kaisa Hietala, an executive who led the Finnish energy company Neste’s shift towards biofuels.

Votes were still being counted for the two other candidates put forward by Engine No. 1: Anders Runevad, the former CEO of the Danish wind giant Vestas; and Alexander Karsner, who is a senior strategist at Alphabet’s X, and served in the U.S. government as former assistant Secretary of Energy. 

Woods also announced that two shareholder votes had passed, one demanding disclosure on Exxon’s lobbying activities and spending, and a section asking the company to account for if and how its lobbying aligns with the Paris Agreement.

The Annual General Meeting represented the final showdown in a proxy fight that has been building in force for months.

On one side, the board and management of the Irving, Tx.-based oil and gas giant, arguing that the company is well prepared for any energy transition, while insisting that the world will be reliant on oil and gas for decades to come.

On the other, a small investment firm founded by veteran hedge fund partner Charles James, called Engine No. 1, arguing that years of slowing returns and mounting debt for Exxon have shown it needs energy-specific sector guidance to help it embrace change—and has put forward its own four nominees for the Board.

The campaign came at a tense time for ExxonMobil. Although the company banked $2.7 billion in net earnings in the first quarter of 2021, helped by rising oil prices and rounds of cost cutting, its mammoth $22.4 billion loss and record debt in 2020 have cast a long shadow over the company.

The vote also has huge implications for other companies facing pressure over their approach to reducing emissions and managing energy transition. Though Engine No. 1’s campaign would otherwise be a classic activist campaign, long-time Exxon watchers said in the months leading up to the vote that a political shift with the election of Joe Biden, and sudden momentum on climate action in the finance world, sets this vote apart.

New Leadership

The core of Engine No. 1’s argument was that ExxonMobil’s board, which is heavy on former CEOs at some of America’s largest companies, did not actually include anyone with dedicated energy industry experience. As a result, it put forth four candidates from the energy world in both the U.S. and Europe.

In what the company acknowledged was a response to shareholder pressure, Exxon has added three new members to its board since January of this year, including the former CEO of Petronas, Malaysia’s state oil company, and activist investor Jeffrey Ubben. It also announced the creation of a new business, as of March, called Low Carbon Solutions. With $3 billion in investment through 2025, Woods said it would focus on monetizing the company’s research and development on carbon capture and storage, or CCS. Though CCS is not economical in the U.S. under current policy, Woods said the business would be intended not just for Exxon’s own operations but to provide a new business line to help decarbonize sectors—particularly in heavy industry—that will likely require CCS in order to reduce emissions.

Many onlookers, however, reacted to the plan with skepticism, noting a lack of concrete detail in the initial announcement. The initial projects proposed by the company are largely existing, pre-announced projects or are still concepts, including a much-publicized plan to make a “CCS hub” in the Houston Shipping Channel, which Exxon framed as a $100 billion public-private partnership. The company has not said how much it will contribute. The company has said the initial $3 billion figure could rise as the business develops.

Engine No. 1, for its part, openly dismissed the plan, noting that it is not against CCS, but referring to statements by energy industry bodies including the International Energy Agency stating that CCS “is not a substitute” for dramatically reducing fossil fuel usage.

“There is little, if any, chance that carbon capture will enable ExxonMobil or any other oil major to avoid transforming its business over the long-term should the pace of global decarbonization accelerate in accordance with the Paris Agreement goals,” it said in a letter.

Down to the wire

The choice to rebuke ExxonMobil’s management came, ultimately, down to Exxon’s largest institutional shareholders, including BlackRock, Vanguard and StateStreet.

Several of the largest U.S. pension funds publicly backed the campaign, including CalPERS, CalSTRS, and the New York State Common Retirement Fund, as well as Legal & General, which has over $1 trillion under management. The largest U.S. proxy advisors have also all backed at least some, if not all, of Engine No. 1’s proposals.

“While Exxon claims to have evolved its strategy and maintained its historical leadership position among oil majors, our review finds the company’s competitive position and financial returns have eroded, and its stated strategy to address the underlying reasons for this diminished performance is generally insufficient,” Glass Lewis said in its report.

The vote coincides with a remarkable day for the oil and gas industry in other ways.

On Wednesday, shareholders also offered a stunning rebuke to management at Exxon’s main rival, Chevron, with 61% of investors voting in favor of the company slashing emissions produced by consumers using its products—by driving or flying, for example—a group of emissions known as “scope 3.” Shareholders at ConocoPhillips supported a similar vote earlier this month

Meanwhile in Europe, Exxons European rivals, particularly Shell and BP, who have both said they will target net-zero emissions by 2050, have also been under pressure by some shareholders this proxy season to further strengthen their emissions cuts.

Adding to that pressure, also on Wednesday a lower court in the Netherlands ordered Shell cut its greenhouse gas emissions by cut its emissions by 45% by 2030. That case, brought forward by the Dutch environmental group Milieudefensie, marks a landmark climate ruling on how quickly oil and gas majors should move to slash their carbon emissions—and transform their businesses. Shell said in a statement that it would appeal the ruling.

Update, May 26, 2021: This article was updated to reflect the preliminary results of the shareholder proxy votes at ExxonMobil’s AGM.