A year ago, Chris James was storming the barricades at ExxonMobil. His little activist hedge fund Engine No. 1 was pushing for four seats on the board of the conservative oil supermajor — and won three of them.

As Exxon again counts shareholder votes at its annual meeting this Wednesday, James sounds pleased. The company’s share price is up almost 60 per cent. The board has recommended re-election of all three of Engine No. 1’s victorious nominees.

Some of Engine No. 1’s criticisms — that the Texas company was putting itself at “existential risk” by spending big on oil and natural gas megaprojects, and failing to reckon with the business threat posed by the energy transition — seem to have been heard.

“It’s really remarkable the amount of changes that have taken place at Exxon since we started the campaign,” James said in an interview. “I’ve been impressed.”

Engine No. 1’s long-shot victory in May 2021 shook Exxon and underscored the deep reforms being demanded from Big Oil as the world tries to shift to cleaner fuels. On the same day a Dutch court ordered Shell to slash its carbon emissions.

The biggest driver of Exxon’s strong performance over the past year has been strong demand for oil and gas and a sharp rise in prices since Russia’s invasion of Ukraine, more than any climate pivot. The company in the first quarter still produced 3.7mn barrels of oil equivalent a day.

However, there were signs of a shift at the company, James said.

While Exxon still plans major oil developments in the US, Guyana and Brazil that could lift oil production in the coming years, its capital spending budget of $20bn to $25bn a year is far lower than the $30bn to $35bn a year it planned to spend before the pandemic-induced oil crash in 2020.

Rather than plough its oil price windfall back into high-risk projects that would take many years to pay off, Exxon is promising to send much of the cash bonanza back to shareholders in the form of dividends and a $30bn share repurchase plan.

Darren Woods, Exxon’s chief executive, had long been sceptical of emissions targets from oil companies, once dismissing them as a “beauty match”. But in January, the group set a goal of cutting greenhouse gas emissions at its oil and gas operations to net zero by 2050. It has also established a new low-carbon business and welcomed outsiders into top management roles.

“The Exxon of the past is dead. What will rise from the ashes is still not yet clear, but there are some encouraging signs that there is real cultural change happening at the company,” said Andrew Logan, senior director at Ceres, a coalition of investors and environmental groups.

Woods has not walked away from fossil fuels. The current global oil supply crunch and sharp rise in prices was reminding people of the need for “affordable, reliable energy”, he said in a recent interview.

“We don’t have a viable, practical set of alternatives. And so until we do, there’s going to be continued need for oil and gas,” he added.

Woods said he is positioning the company to be able to spend more on its budding low-carbon business if the pace of the energy transition accelerates and governments provide more incentives such as a carbon price or tax breaks.

“If the transition happens faster, more policy comes in sooner, we can divert resources into those projects that leverage those policies,” Woods said, naming various technologies that could reduce net emissions but are not commercially viable, such as carbon capture and storage.

Engine No. 1’s trade has been profitable. The fund disclosed it had bought a nearly $40mn stake in Exxon when it was trading at about $40 a share in late 2020. The share price has risen to more than $90, and regulatory filings show Engine No. 1 sold roughly half its holdings in the first quarter.

Its involvement in Exxon has also triggered political attacks.

Mike Pence, US vice-president during the Trump administration, singled out Engine No. 1 in a speech in Houston this month, calling it an “insurgent shareholder” that had “forced Exxon to put three environmentalists on its corporate board. Those individuals now work to undermine the company from the inside.”

Engine No. 1’s nominees are not known as green activists: one, Gregory Goff, was a senior executive at oil refining companies. Woods told the FT the board was working well together and the board members were “without exception focused on making the company more successful”.

Some worry that the economically damaging surge in energy prices this year risks derailing the energy transition as governments push for accelerated oil and gas production, which could in turn ease investor pressure on companies such as Exxon.

The asset manager BlackRock, a critical supporter of the Engine No. 1 campaign, said this month that it would vote for fewer shareholder climate initiatives this year, in part because the energy crisis meant companies that “effectively” supply fossil fuels will “produce attractive returns for our clients”.

There is a risk that “[oil companies] can now look around more securely and say ‘Look, we told you the world’s never going to change,’” said Charlie Penner, who spearheaded Engine No. 1’s campaign against Exxon before leaving the hedge fund last year.

Aeisha Mastagni, a portfolio manager at the California State Teachers’ Retirement System, one of the US’ largest pension funds and a vocal supporter of the campaign, said she did not think big investors would let companies such as Exxon “slide back”.

She said: “2021 was a watershed year . . . shareholders now feel very empowered to hold these companies accountable.”

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