Dividends and Big Oil loses carbon emissions showdown with activists

If you think about the history of the US, eventually you are going to run into the name John D Rockefeller who created the giant Standard Oil with operations around the world and controlled the oil industry from the drilling to rail cars to pipelines to oil refineries to the gas station. Standard Oil was eventually broken up and the biggest company from the group is called Exxon. For generations, not only did Standard Oil pay the most dividends of any public company on the stock exchange, it had a significant influence on foreign and domestic policy of the US. The shareholders of this widely held company agreed with management and for the most part the US was better off. Money flowed into the oil industry and returns were good.

Then along came climate change, every year more and more people see the climate changing and one of the biggest contributors is the fossil fuel industry. For a company that is used to getting everything its own way and the government agreeing to it, at the end of May something changed in corporate America.

Shareholders including the world’s largest fund managers want every company to say how they are dealing with climate change to lessen the problem. According to the Associated Press, a group called Engine No 1, spent $30 million lobbying shareholders while the company spent $35 million for the opposite vote placed 2 shareholders as directors on the ExxonMobil Board. The 2 Directors will push Exxon to transition faster to a cleaner economy.

The President of ExxonMobil Darren Woods’ said the company was moving in that direction but warned moving faster would jeopardize profits. Given the oil companies reported losses, the institutional fund managers voted against management and for more changes.

Linking to dividend paying stocks, as shareholders you have a vote for the Board of Directors of the company and if you look at most of your investments, you would see management as long as they make profits tend to receive over 90% more often over 95% of the votes. The proxy firms often make it easy to vote as management recommends. For ExxonMobil to lose 2 directors seats over the issue of climate change means society has changed much faster than the oil company. It also means the relatively easy process of evaluating an oil company – it costs x amount to drill and it sold for x plus to make plus money for shareholders will be more complicated. However society changes and demands actions, how will the oil companies respond? Will they still be as profitable? We do know the demand for oil and gas is not changing tomorrow, but will change.

There are more questions than answers, till the next time – to raising questions.

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