ImpactAlpha, May 28 – It was the little engine that could. This week, Engine No. 1, a tiny, five-month old activist hedge fund, prevailed where legions of environmental activists and investors had fallen short: shaking up ExxonMobil and forcing the company to take seriously the existential threat of climate change. After a highly contested campaign, Engine got at least two of its four candidates elected to Exxon’s board; a third may win a seat when final votes are tallied.
The insurgency stunned Exxon and thrust Charlie Penner, the architect of Engine’s “reenergize Exxon” campaign, into the spotlight. Penner kept a low-profile as he pressed his case through wonky papers and (virtual) meetings with investors. “It has to be the right argument that will resonate with investors,” he told ImpactAlpha. Before teaming with tech investor Chris James to start Engine, Penner led impact investing efforts at hedge fund JANA Partners, including a campaign to get Apple to make it easier for parents to limit their kids’ screen time. Engine No. 1 is expected to raise a fund this year and its victory at Exxon put it on the map.
Once you win at Exxon, you can win anywhere. Engine No. 1’s campaign buoyed investors already emboldened by the string of social and environmental wins across corporate America this proxy season. Penner’s playbook: Target binding board elections rather than non-binding resolutions calling only for reports and policy reviews. All four of Penner’s candidates had solid energy and business transformation experience that filled gaps in Exxon’s board. Incoming Exxon board member Kaisa Hietala, for example, began her career in oil and gas exploration and later ran a fast-growing renewable products division at Neste.
Penner secured support early on from influential investors such as CalSTRs and eventually lined up BlackRock and other asset managers historically deferential to management. The campaign tapped a well of investor frustration.
New York State Common Retirement Fund, which had tried to engage Exxon for years without success, called Engine No. 1’s victory an historic breakthrough. “This sends a clear message to Exxon that it needs to change the way it does business and address climate risks,” said the fund’s Liz Gordon.
Corporate climate laggards everywhere, be warned.