ExxonMobil has spent more than two decades sparring with activists over climate change, turning back virtually every shareholder challenge at its annual meeting each spring.
But late last month, the oil giant, which has shunned renewable energy investments embraced by some rivals, suffered a landmark defeat when upstart investment fund Engine No.1 successfully won election of three of its four board candidates, overcoming fierce campaigning from management.
A newly formed San Francisco-based investment group, Engine No.1 is a relative minnow in the world of finance, but now stands poised to steer the iconic US petroleum heavyweight in a new direction.
Its victory points to the increased vulnerability of incumbent energy players to insurgent investors as public concern mounts over climate change.
Engine No. 1’s stake in ExxonMobil amounts to 0.02 percent of total shares, a pittance that may have led the Texas company to underestimate the broader investor frustration it faces after it was kicked out of the prestigious Dow index last year.
“It’s ironic that an entity with such a small stake was able to effect such change,” said CFRA Research analyst Stewart Glickman, who noted that BlackRock and other funds with large stakes sided with Engine No.1 and played a critical role in its victory.
“They used institutional investors that are more climate change-focused to get this done,” Glickman added.
Andrew Logan, a veteran of shareholder campaigns at ExxonMobil as director of the oil and gas program at activist investor group Ceres, said Engine No.1 ‘s newness was an advantage.
“With Exxon, everyone has a history,” Logan said. “Having a new face without that baggage led them to open doors.”
Engine No. 1’s board nominees were not environmentalists, but longtime corporate executives with energy industry experience. The group was skillful in tying ExxonMobil’s carbon policy to a broader corporate strategy that struck investors as out-of-touch, Logan said.
Engine No. 1 “struck a powerful balance of nodding to climate change, but they focused on the core issue of Exxon’s capital plan and its strategy,” he said.
Arguing for diversification
Named for San Francisco’s first firehouse, Engine No. 1 was founded last year by Christopher James, a wealthy technology investor.
Another key player in the ExxonMobil campaign was Charlie Penner, a former partner with activist hedge fund Janus who is well known to key asset managers.
The firm currently has $240 million under management and just 22 employees, according to a securities filing.
Neither James nor Penner were available for an interview, but Engine No. 1 pointed AFP to earlier statements that criticized ExxonMobil’s investments on low-return petroleum projects and its lack of a plan in case government climate mitigation policies are accelerated.
ExxonMobil should “seriously explore opportunities to profitably diversify… with the assistance of new directors with notable track records of agile and adaptative innovation in energy,” Engine No. 1 said in its initial letter to the company.