Exxon Mobil (NYSE:XOM) faces renewed environmental, social and governance (ESG) concerns. That can’t be good for the long-term health of the company and Exxon Mobil stock.

Let me bring you up to speed. 

Barron’s reported May 13 that the United Kingdom’s Legal & General Investment Management will vote against Darren Woods, the energy company’s CEO, at its May 27 annual meeting. 

However, the British asset manager isn’t voting against Woods as chief executive, but rather, as its chairman. This comes as part of its push to get Exxon more serious about combating climate change. In addition, it plans to support a shareholder proposal to elect an independent chairman. 

Year-to-date through May 14, Exxon Mobil stock has a total loss of 36.7%. You have to go back to its 10-year performance to get a positive annualized total return of 0.9%. Shareholders don’t need any more black marks against the company to hurt Exxon Mobil stock.

The company can stick its head in the sand or it can face the music. The latter choice will be much better for shareholders.  

Here’s why. 

The Move to ESG Investing

Legal & General Investment Management is part of London-based Legal & General Group (OTCMKTS:LGGNY), which in addition to being the largest life insurer in the U.K., happens to manage more than 1 trillion pounds for investors around the world. Suffice to say, it carries significant influence. 

So, the fact that it’s fighting to ensure its $1 billion investment in Exxon isn’t being used to further harm the planet is important for two reasons. 

First, ESG investing is coming on like gangbusters, and not just because it’s trendy. It makes good business sense. The Financial Times recently discussed the ESG trend: 

“Henry Shilling, director of research at Sustainable Research and Analysis, says most asset managers are not just slapping an ESG label on their funds and calling it a day.”

Instead, as the newspaper reported on April 29, these new funds are actually adopting ESG investing guidelines. In other words, companies like Legal & General are using their power to make Exxon Mobil and its peers do the right thing. 

Now, it’s fair to wonder why such a large asset manager would own Exxon Mobil stock if it truly believed in ESG investing, but sometimes you have to buy a ticket to get in the game and make a difference. 

Based on its $1.5 trillion in assets under management, Exxon represents a weighting of just 0.66%. It’s minuscule. 

Exxon Mobil Stock Could Do Much Better

Legal & General isn’t alone in pushing Exxon to change its handling of climate change. The Church of England and the New York State Common Retirement Fund recently announced that they will vote against every person on the company’s board including Woods. 

Here’s part of what they had to say in a letter to shareholders:

“Our voting intentions are, again, a measure of our profound dissatisfaction with [Exxon Mobil’s] approach to climate change risks and the governance failures that underpin it. We believe that [Exxon Mobil] can do so much better, and that a change in strategy and governance can bring about a long overdue improvement in shareholder returns.”

By the way, if you invested $1,000 in Exxon 10 years ago, today it would be worth $10,937. With inflation, you’re underwater. You’re darn right it can do better. 

The second reason it’s important these entities are pushing for change at Exxon is maybe, just maybe, its CEO will stop wasting money buying oil companies or oil reserves and put some of its vast amounts of capital into renewable energy. 

Last September, I argued that Exxon Mobil’s push into the Permian Basin was a mistake.

“I’m on the fence when it comes to XOM stock,” I wrote at the time. “On the one hand, it has a nice dividend yield (4.9%) that’s hard to pass up in an age of low interest rates. On the other hand, it’s already got a big chunk of debt, and a significant acquisition in the Permian Basin is only going to exacerbate the situation. With a recession on the horizon, debt will quickly become a four-letter word.”

Now, I had no idea the novel coronavirus would appear on the scene and energy prices would crater, but now those words seem quite appropriate. 

The Bottom Line on Exxon Mobil

I said it then, and I’ll say it now. An investment in Exxon Mobil stock is not suitable for those seeking capital appreciation. 

If Darren Woods can’t see the writing on the wall and move the company to net-zero emissions as Royal Dutch Shell (NYSE:RDS.A) has said it will do by 2050, he ought to be replaced — and as CEO, too.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.