The financial world appears to be reeling from the recent board of director election held by Exxon Mobil Corp. (Exxon) in which activist Hedge Fund Engine 1 (Engine 1) garnered enough votes to seat two directors (Kaisa Hietala and Gregory Goff), and potentially more, as the vote count continues. In the grand scheme of things, eight of Exxon’s nominees, including CEO Darren Woods, were re-elected to the 12-member board, and yet still, Engine 1 placing directors while sporting $50 million in holdings among over a $250 billion market cap for Exxon is worthy of note. The efforts of Engine 1 were aided by other large shareholders, such as BlackRock, Inc., Exxon’s second largest shareholder. The debate around the dissident directors centered on climate change issues.

With questions swirling around the Security and Exchange Commission’s (SEC) heightened interest in Environmental, Social, and Corporate Governance (ESG) disclosures, one cannot but wonder whether something in the public face of Exxon may have contributed to the dissident success. SEC Acting Chair Allison Herren Lee announced in February 2021 that the SEC Division of Corporate Finance would be enhancing its focus on climate-related disclosures in public company filings. Thereafter, the agency invited public comment from investors, registrants, and other market participants on whether current disclosures are adequate. In March 2021, the SEC’s Division of Examinations announces its 2021 examination priorities, including a greater focus on climate-related risks. Also, in March, the SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement headed by Kelly L. Gibson.

Commentators in the ESG arena have noted that a failure to develop robust ESG internal policy, even more so given the SEC pronouncements, can lead to impacts to a company, its operations, its customers, and its supply chain. They have recommended introspection, including audits of internal ESG processes, and formative change, such as formalizing ESG corporate knowledge responsibilities, assessing governance policies and controls, and creating board-level ESG strategy and oversight. All this occurs against a backdrop of a lack of standardized disclosures while the SEC pursues its due diligence.

Returning to the thesis issue, in January 2021, Exxon published a Sustainability Report (Report) related to its ESG activity. The Report was comprehensive, contained extensive information about the company’s activities and processes, and even included an independent assurance statement from Lloyd’s Register Quality Assurance, Inc. (LR). LR observed that processes were in place at Exxon to ensure (1) that sites contributing to core safety, health, and environmental metrics understood corporate reporting and participated, including in the climate change arena; (2) that methods for calculating each metric were clearly defined and communicated; (3) that processes were in place to ensure that quantitative indicators were reviewed for completeness, consistency, and accuracy; (4) clear responsibilities were set out in this area, and greenhouse gas emission reporting met certain 2009 standards; and (5) there was active engagement with external stakeholders. These corporate efforts appear to mirror, if not exceed, commentator recommendations about participation in the ESG disclosure arena. Exxon, and its then directors, hardly shirked their efforts to keep the company in the mainstream.

The Engine 1 “coup” as it has been called, seems to emanate more from a wave of investor activism and social optics rather than any systemic failure of Exxon to monitor and report its ESG activity. Is there a silver lining here? Perhaps. With the seating of at least two directors, if not more, the climate change voice will be undeniably heard at the board level at Exxon. Future challenges to corporate direction, to the extent they are made, will no longer be subject to complaints that the board had no alternative voices, and may even contribute defensive strategies to any future regulatory oversight or disclosure-based litigation. Once the shock of the event fades away, Exxon may well find itself adopting the Shakespearean outlook that “all’s well that ends well.”