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A new activist investor fund is pushing Exxon Mobil Corp. to shuffle its board of directors, set long-term emissions reduction goals and invest in clean energy.

Exxon, the second-biggest U.S. oil company behind Chevron Corp., has staked its future on increasing its oil and gas production, despite record-low prices and the economic downturn brought on by the pandemic. Its CEO, Darren Woods, said in March that he won’t get in a “beauty contest” with other companies that have announced plans to cut their emissions (Energywire, March 6).

The new fund, Engine No. 1, said Exxon’s approach is hurting its shareholders. The company’s total return — a combination of its stock price and dividends — has fallen 20% over the last 10 years, while the broader S&P 500 index has risen 277%, the fund said in a letter to Exxon’s board dated yesterday.

“We believe that for ExxonMobil to avoid the fate of other once-iconic American companies, it must better position itself for long-term, sustainable value creation,” the letter says.

Exxon faces shareholder proposals every year, usually incremental moves like hiring an outside board chairman or providing more data about lobbying or climate risks. Engine No. 1, by contrast, is asking for a broader shake-up. The fund has proposed four new board members, three of whom have backgrounds in alternative fuels and renewable energy.

“None of ExxonMobil’s independent directors have any other energy industry experience,” the fund’s letter says. “This is not a criticism of any director, each of whom is highly accomplished and respected, including by us. It is instead an acknowledgement of the unique challenges facing ExxonMobil and the industry.”

In contrast, European oil companies like BP PLC and Royal Dutch Shell PLC have announced plans to slash their greenhouse gas emissions. They’re also expanding into electric vehicle charging and renewable power generation, as a nod to the energy transition being brought on by the global response to climate change.

The new fund’s move could be a harbinger of more shareholder pressure when Exxon and other oil companies hold their annual meetings this spring. Stock owners will be able to vote on directors, long-term goals and other proposals.

Exxon is still reviewing the letter from Engine No. 1 and had no comment yesterday, spokesman Casey Norton said in an email.

Engine No. 1 is a relatively small firm, with $250 million under management, and its $40 million stake in Exxon is a tiny fraction of the company’s $173 billion market capitalization. Its investors include Chris James, who has helped run technology-oriented investment funds including Partner Fund Management LP and Andor Capital Management LLC. Other stakeholders have experience with well-known firms including BlackRock Inc., Bain Capital LP, JANA Partners LLC and Goldman Sachs Group Inc.

The fund’s campaign is backed by the California State Teachers’ Retirement System, which owns $300 million of Exxon stock. And its backers hope the push could pick up support from big institutional investors like BlackRock, the Vanguard Group and State Street Corp.

BlackRock, which manages $7 trillion in investments, has prodded companies to disclose more about their risks from climate change. Earlier this year, the firm voted against the management at Exxon and other oil companies (Climatewire, May 28).

In addition to the board shake-up, Engine No. 1’s letter asks Exxon to invest more in clean energy and change its assumptions about long-term oil prices — analysts estimate that Exxon is expecting international oil prices to rise from less than $50 a barrel to about $60 in five years.

The company should also change its compensation plan for Woods and other executives to prioritize long-term goals, rather than short-term growth in oil production, according to Engine No. 1.

For Exxon, the letter is another headache after a year of upsets. The pandemic sent oil prices plummeting in March, causing billions of losses across the oil industry. In August, Exxon was removed from the Dow Jones Industrial Average, and in October its value for the first time fell below that of rival Chevron, which has historically been the second-biggest U.S. oil company (Energywire, Oct. 8).

Woods has tried to calm investors, predicting that prices would rise and that Exxon’s long-term plan to invest in oil production would pay off. Last week, though, the company announced it would slash spending through at least 2025 and take a non-cash charge of $17 billion to $20 billion as it writes down the value of its natural gas fields (Energywire, Dec. 1).

Engine No. 1 said those problems show the need for Exxon to fundamentally change.

“We believe that other long-term oriented investors will share this view,” the fund’s letter says.