The question is, are we prepared for the challenges ahead?
EARLIER this year, an unprecedented event took place in the US — where an activist hedge fund, Engine 1 initiated the Reenergize Exxon campaign among the share-holders of US household firm — ExxonMobil Corp.
To say that it sparked a worldwide conversation is an understatement — observers at the time were waiting to see whether Engine No 1, despite being a minority shareholder, would succeed in pushing the sustainability agenda in the multibillion-dollar energy giant.
Harvard Business Review noted that the campaign could succeed on several factors — the firm’s dismal financial performance, the sensible recommendations from Engine No 1 — which among others called for improvement of board and capital allocation discipline.
“It is important to note that Engine No 1’s campaign is not based on ExxonMobil’s irresponsible approach to climate change; it is based on the financial consequences of this approach. That’s a message that the broader share-holder community can easily get behind,” the article noted.
It is self-explanatory why this campaign has garnered so much interest. It resulted in the removal of three ExxonMobil directors in May and the campaign is still gathering momentum.
I managed to speak to Datuk Shireen Ann Zaharah Muhiudeen who moderated a panel discussion with Chris James of Engine No1 and Chris Ailman of the California State Teachers’ Retirement System on this campaign in San Francisco.
To sum it up, she said the main takeaway is that “sustainability matters — and impact-driven shareholders who are building value are not going away.”
“This wasn’t a climate fight. This was about good stewardship of capital and focusing on overall risk of where this company is headed.
Because, any way that you look at it, any (fund) manager is going to be questioning how the transition plan is going to take place for the company to remain relevant in the long term,” she said.
“And any manager, anywhere in the world is going to be looking at the (performance) metrics and measuring progress.”
In 2010, ExxonMobil was the largest company in the world at a US$370 billion (RM1.54 trillion) market cap, but in 2020, it was removed from the Dow Jones Industrial Average (DJIA) and had up to US$176 billion pre-Engine No 1 engagement.
Its net debt only stood at US$7 billion in 2010, and it rose to US$63billion last year.
This, Shireen Ann Zaharah said, is an indicator of how an intervention should be taking place, to ensure the survivability of the firm.
“The campaign started because of years of investors’ frustration. We have all been there. No fund manager or investor can ignore it when a company is not meeting its metrics. What are our alternatives? Should investors and fund managers just divest?” she said.
Shireen Ann Zaharah also discussed a “Just Transition” during her panel session. What does it mean?
“It means moving into a new area in a very controlled, community-aware process. For example, if you have a community that is dependent on a coal mine or a gas plant, there will need to be a clear process of transitioning that community into another industry or business. That’s what it is meant by just so that it is fair.
Generally, in industry changes like this, there needs to be some government support for this, so that the workers can be re-trained and gradually prepared with other skills. This is really what the deeper environmental, social, and governance (ESG) expectations are,” she explained.
Having a just transition is something not only major oil and gas (O&G) companies will have to pre- pare for, but also other businesses that will need to look into in order to remain a sustainable business in the changing business landscape.
European Commission executive VP Frans Timmermans underscored that the Just Transition Mechanism is a key tool to ensure that the transition towards a climate-neutral economy happens in a fair way, leaving no one behind. It provides targeted support to help mobilise at least €65 billion-€75 billion (RM364.5 billion) over the period 2021-2027 in the most affected regions, to alleviate the socio-economic impact of the transition.
“We must show solidarity with the most affected regions in Europe, such as coal mining regions and others, to make sure the Green Deal gets everyone’s full support and has a chance to become a reality,” he said.
One cannot help but wonder whether this campaign will resonate in our own backyard. There has been lots of talk on ESG such as creating a long-term sustainable value chain, but the big question remains, what is our strategy moving forward? Unfortunately, I have heard various greenwashing statements in the past few weeks; what are our metrics in preventing it?
We are a nation that depends on O&G as a major contributor to our economy. There has to be a cohesive response on how we will chart our future, and how will we communicate the much-needed strategy to embrace these challenges?
- Azreen Hani is the online news editor of The Malaysian Reserve.