For the fossil fuel worker, they are living in the days when the grocery store took out the farmer in the eyes of public perception, only this time it’s the lightswitch. A lightswitch magically powered by renewable, sustainable energy and any fossil fuels powering the grid are just holding back wind and solar energy from energizing our lives and saving the planet.
Unfortunately, that’s the current logic and state of mind with the average consumer. In fact most of the people we informally surveyed over the past three months believe wind energy is the new leader in what powers their lives.
Right now the ESG Economy is on the 1 yard line with 99 yards to go, however, it’s only in the first quarter and the referees have yet to announce the rules or bring the ball out to the field, but the game has already started because companies, countries and economies are already being impacted.
That’s the reality of where we are. The average person has no idea what the E stands for, let alone the S or the G.
E is for Environmental – Environmental criteria considers how a company performs as a steward of nature and their demonstrations of industrial integrity.
S is for Social – Social criteria examines how it manages relationships with employees, suppliers, customers, and the communities where it operates.
G is for Governance – Governance deals with a company’s leadership, executive pay, government contract, third-party audits, government affairs, internal controls, and shareholder rights.
In my opinion the “G” will be the most difficult for the oil and gas industry. The bond between oil and gas companies and the government is so tight most have departments called “Government Affairs”. Very few if any other industry had that department let alone a job title.
The close relationship and the appearance of a “country club economics” is becoming more and more of an issue, especially the past two years where access to decision-makers, COVID funds and basic transparency have become increasingly under fire.
Just to give you an example of how some are seeing the ESG movement as intrusive, you do not have to look further than the Gig Economy. This new youth-fueled economy is ushering in a new mindset and economy the old world has no idea even exists.
For example for another day, the Securities and Exchange Commission, under new chair Gary Gensler, is considering a human capital disclosure requirement for companies. In Spiess Speak, the government and banks will require you to upload a human rights progress report in order to operate a business or get capital. That work around is so magnificent if would make the world famous Rosie jealous. Wait, is Ring Around The Rosie even a thing anymore? Click here for the CNBC article
This movement for basic human decency is ripe for abuse with controlling people’s behavior through manufactured consent, and in the world of oil and gas, their body of work involving ESG produced a political action hedge fund called Engine No. 1. That’s right, a group of shareholders with less than 1% of the shares, sparked a whole new revolution and strategy for activists.
Engine No. 1 is an American activist and impact investing hedge fund. It was founded in December 2020 and, as of October 2021, had $430 million in assets under management and 39 employees. It attracted attention with its campaign to replace four members of ExxonMobil’s board of directors despite owning only 0.02% of the company’s shares. Jennifer Grancio is the fund’s chief executive officer and Christopher James its executive chairman.
This next part is very important for leadership in oil and gas to understand as many workers are being shamed, demeaned and rejected by the industry they once poured their heart and soul into.
The leader of Engine No. 1, Christopher James, came from the fossil fuel industry. He studied economics at Tulane University and later served on its board of trustees. He then operated a coal mine in Illinois and built storage facilities for the oil and gas sector. He also founded and worked for a number of investment funds before founding Engine No. 1.
When you take a step back and realize how Engine No. 1 started, when it started and how quickly it impacted both ExxonMobil and the industry, it is remarkable.
In 2019, James was having a family dinner when his sons pressured him about his responsibility towards the environment. At the time James was serving on the National Fish and Wildlife Foundation, with investments in several energy companies. After realizing his answers weren’t connecting with anyone in the room, including himself, he decided to take on ExxonMobil.
Just like that. A little peer pressure at dinner from your family and a whole new economy, movement and way of life is created.
Engine No. 1 bought a stake in ExxonMobil worth $40 million in December 2020, which equated to about 0.02% of the oil company’s shares. At that time, the industry was vulnerable and was spending billions of dollars in areas of waste and getting their butt kicked in planetary public relations by a 16-year-old climate activist named Greta.
These examples and others had created a strain with institutional investors who were already becoming frustrated with the industry lagging behind its competitors in preparing for the energy transition.
Plus there was a little gang up on and “kick a horse while down” strategy as ExxonMobil saw a $22 billion loss that year.
Then On December 7, 2020, according to Wikipedia, James wrote an open letter to the board of directors, pointing out Exxon’s poor return on capital employed (ROCE). Writing for the Harvard Business Review, Robert Eccles and Colin Mayer argue that Exxon’s poor capital allocation stemmed from its decades of climate change denial. The letter asked for widespread reform and proposed an alternative slate of four independent directors, all with experience of the energy sector.
Given their small stake in the company, the investment fund’s strategy relied on convincing Exxon’s large shareholders, the largest three being BlackRock, The Vanguard Group and State Street, to back its plans. Engine No. 1 appealed less to environmental principles and more to profitability in their strategy to convince investors. It said that Exxon’s focus on fossil fuels threatened future returns, stating that the company faced “existential risks”.
Existentialism is all about the G in ESG not the E.
To that end, Exxon reacted to Engine No. 1’s campaign by expanding its board and adding a director with sustainable investing experience. It also announced a plan for a carbon capture business and a new carbon capture technology venture, both believed to be a consequence of Engine No. 1’s activities. According to Exxon, the company expected to spend $35 million on the proxy battle. Engine No. 1 estimated its costs to add up to $30 million. Some experts believed Exxon’s spending to hit $100 million.
How much money did ExxonMobil spend to prevent this Gig and Gang Attack from happening? ExxonMobil was impacted by millions because a former fossil fuel worker was slightly challenged by this family during a normal dinner. They probably did all this over meatloaf while the people paid to prevent this from happening were busy using shareholder dollars golfing, smoking cigars and eating surf and turf .
That last statement wasn’t snarky, rather, examples of actions since most of the past decade has been documented on social media.
In less than two years, a former fossil fuel executive clicked and clacked away on his keyboard at his house, buying and selling energy shares, creating a Gang of Gig Activists, who persuaded an oil and gas company’s board of directors change business models and the SEC to create an ESG Task Force. Currently, Engine No. 1 owns shares in John Deere, Bunge Limited and General Motors “to influence the electric vehicles”.
The world of Corporate Governance and Government Affairs has changed in industry, especially oil and gas. As more and more workers, leaders and executives are leaving oil and gas due to diminished opportunity and layoffs, some are not happy. For some the rejection and pain runs deep. Much like a rejection in a relationship, there is some scorn.
I spoke with one business owner last week who is leaving the industry after 25 years because he lost his big operator as a client. After an investigation on a few social media pages and websites, it was easy to see that the new preferred service company was the offspring of someone who works for an operator with less than one year experience in the field. But they were active at all the golfing, martini networking events and black tie galas.
It’s almost like access to public officials and corporate executives carry a significant value – tangible and intangible. It’s hard for the worker in the field working to compete with the young start up company who is publicly partying using shareholder dollars on social media when the workers in the field are denied access or priced out of the industry event.
However, Social Media is a whole other “G” topic for another day, but know this as we end class this week… Slinging Social Media posts just to post, generally has more of a negative impact on your bottom line than positive. Don’t believe me? Just ask Engine No. 1 what they think using social media and a keyboard can do to the industry as the clicking and clacking with the Gig Gang continues. Disagree still? Ask yourself why did they call their group Engine No. 1? Make one wonder if there will be a 2? Class dismissed til next week.
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