Engine No. 1 converts tiny ExxonMobil stake into big win

NEW YORK: 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.