Engine No. 1 vs. Exxon Mobil's Fight for Climate Risk
The oil and gas giant Exxon Mobil Corporation has been the target of activist hedge fund Engine No. 1 in recent months.
Engine No. 1, a San Francisco-based investment firm, first announced its intention to engage with Exxon in May 2021 with the goal of improving the company’s climate governance and risk management practices.
The hedge fund’s ultimate goal was to have Exxon commit to reducing its greenhouse gas emissions in line with the goals of the Paris Agreement.
Who Is Exxon Mobil Corporation?
Exxon Mobil Corporation is an American multinational oil and gas corporation headquartered in Irving, Texas.
It is the largest direct descendant of John D. Rockefeller’s Standard Oil Company and was formed in 1999, by the merger of Exxon and Mobil.
The company’s business operations can be divided into three segments: upstream, downstream, and chemical.
Upstream activities involve the exploration and production of oil and gas, while downstream activities include refining, marketing, and distribution.
The chemical segment manufactures a range of products, including plastics, synthetic rubber, and adhesives.
Exxon Mobil’s operations are conducted in more than 75 countries around the world.
Who Is Engine No. 1?
Engine No. 1 is an American activist and impact-focused investment firm founded in 2020. The firm's goal is to create long-term value and bring common sense back to capitalism.
In 2021, the firm launched a high-profile campaign to replace four members of ExxonMobil's board of directors, despite owning only 0.02% of the company's shares.
The campaign was successful, and Engine No. 1 has since become known as an effective activist investor.
The firm has also been active in pushing for greater corporate transparency and disclosure around environmental, social, and governance (ESG) issues.
The Hedge Fund Activism of Engine No. 1
Engine No. 1 announced its intention to engage with Exxon in May 2021 with the goal of improving the company’s climate governance and risk management practices.
In particular, Engine No. 1 was critical of Exxon’s lack of transparency around its emissions goals and its failure to adequately address the risks of climate change.
Exxon responded to the activist pressure by making a number of concessions. However, Engine No. 1 was not satisfied with these changes and continued to push for more action from Exxon.
Engine No. 1 launched a proxy fight to replace four members of Exxon’s board of directors.
The hedge fund argued that the current board was not adequately addressing the risks of climate change and was not doing enough to transition the company towards cleaner energy sources.
Exxon Mobil opposed the activist campaign and accused Engine No. 1 of being motivated by short-term profit rather than long-term value.
Environmental Victory Against Exxon Mobil Corporation
On May 26, 2021, Exxon announced that it had reached an agreement with Engine No. 1 to add two new directors to its board, unseating two incumbent directors.
The agreement was a major victory for Engine No. 1 and marked the first time in Exxon’s history that an activist investor had succeeded in winning seats on the company’s board.
The victory was also seen as a blow to the fossil fuel industry, which has been increasingly under pressure to address the risks of climate change.
The victory of Engine No. 1 is likely to embolden other activist investors to push for change in oil and gas companies.
It also puts pressure on Exxon and other fossil fuel companies to transition to cleaner energy sources and improve their climate governance practices.
This case serves as an important reminder that corporations must be held accountable for their environmental impact and that the risks of climate change cannot be ignored.
The Bottom Line
Engine No. 1's victory against Exxon Mobil served a major blow to the fossil fuel industry and paved the way for more investment in renewable energy.
The case also highlights the importance of activist investors in holding corporations accountable for their environmental impact.
The event was a turning point in business, one that will have long-lasting effects on how big oil companies are run.
FAQs
1. Who is Exxon Mobil Corporation?
Exxon Mobil Corporation is an American multinational oil and gas company. It is the largest direct descendant of John D. Rockefeller's Standard Oil Company and was formed in 1999, by the merger of Exxon and Mobil.
2. Who is Engine No. 1?
Engine No. 1 is an activist investing firm that was founded in 2020. The firm is known for its successful campaign against Exxon Mobil's board of directors.
3. What is a Hedge Fund Activism?
Hedge fund activism is a type of investment strategy where a hedge fund takes an active role in the management of a company.
4. What is the main goal of Engine No. 1?
The main goal of Engine No. 1 is to improve the company’s climate governance and risk management practices.
5. What was the result of the agreement between Exxon and Engine No. 1?
The agreement resulted in two new directors being added to Exxon's board, unseating two incumbent directors.
This was a major victory for Engine No. 1 and marked the first time in Exxon’s history that an activist investor had succeeded in winning seats on the company’s board.
