When a then little-known fund defeated Exxon Mobil Corp. in a climate-charged activist battle in 2021, snagging three board seats and promising to push a low-carbon future, some wondered if Engine No. 1’s surprise victory signaled the beginning of the end for the oil giant’s fossil-fuel growth.
It didn’t. In fact, all three of its directors just voted in favor of the $60 billion acquisition of Permian Basin behemoth Pioneer Natural Resources Co., a deal that will help raise Exxon’s oil production to the highest in its 140-year history.
“We need oil and gas in the short-term and the Permian is the best and most affordable short-term asset,” Engine No. 1 spokesman Steve Murray said by email. The investment fund “believes you can create value in a world that wants to decarbonize.”
As part of the deal, Pioneer will gain two new board seats, reducing the impact of Engine No. 1’s own independent directors. Even then, the fund’s directors unanimously backed the deal, showing how far the environmental, social and governance investing movement has come since its peak more than two years ago, when their ascent to the board of Exxon rattled Wall Street.
Back then, anti-fossil fuel sentiment was rife as investors, hurt by a decade of poor returns in oil and gas, funneled money toward renewables and clean energy start-ups. But with the demand and price of oil now roaring back and the industry in rehabilitation mode, investors are more willing to accept fossil-fuel growth. At the end of the day, sustainable investors still want the companies they hold to generate financial returns.
“The world is going to continue to need oil and gas for some time to come,” Exxon’s Chief Executive Officer Darren Woods said on Bloomberg TV. “What society should be focused on is companies that can most effectively produce the oil and gas that society still needs. That’s what we’re doing.”
The purchase will immediately make Exxon the biggest oil and gas producer in the Permian region of Texas and New Mexico and raise the company’s global production 35% to 5 million barrels a day by 2027.
Still, the company has been keen to stress that the deal will nonetheless accelerate climate goals. Exxon has said it can lower Pioneer’s operated emissions through efficiency gains and can use its gas to make hydrogen and ammonia at Exxon’s Gulf Coast refineries. At the same time, Pioneer’s shale production is short-cycle with wells that can be brought online in months rather than years, allowing the flexibility to respond to demand through the energy transition.
“It’s a win for the environment because as long as it’s needed, you want the most responsible operators producing,” Woods said. “With this combination, we will be the most responsible operators with the lowest carbon intensity.” Exxon also said it will bring forward Pioneer’s net-zero plans to 2035 from 2050.
Not everyone is convinced, with climate advocacy groups slamming advisers and investment banks involved in the deal for their “hypocrisy” given Wall Street’s commitments to support a move toward net-zero greenhouse gas emissions.
The California State Teachers Retirement System, an early backer of Engine No. 1’s shareholder campaign and a holder of more than 6 million Exxon shares worth close to $700 million, is still reviewing the specifics of the Pioneer deal “to better understand its implications on Exxon Mobil’s long-term strategy and broader low-carbon efforts,” CalSTRS spokesman Thomas Lawrence said in an email.
Other large climate-conscious investors such as New York state’s pension plan, BNP Paribas Asset Management and Legal & General Investment Management declined to comment.
--With assistance from Alix Steel.