May 26 (Reuters) - The successful board challenge against
Exxon Mobil Corp casts a spotlight on two recently
launched sustainability-focused investment firms that took
opposite sides in the high-stakes battle: Engine No. 1 and
Inclusive Capital Partners.
Engine No. 1 set the spark in January by formally nominating
four directors to Exxon's board, accusing it of not moving fast
enough to diversify away from fossil fuels. Inclusive Capital
Partners sided with Exxon after its founder Jeffrey Ubben joined
the energy giant's board in March, and argued it was already
working with the company to improve its technology in areas such
as carbon capture.
Both funds were launched less than a year ago. Their quick
ascendance to Exxon's board underscores how Wall Street's new
focus on environmental, social and corporate governance (ESG) is
opening doors for activist hedge funds at some of the world's
Engine No. 1 was launched by hedge fund veteranChris James
in December 2020. Charles Penner, Engine No. 1's head of active
engagement, spent much of his career at activist hedge fund Jana
Partners, where he quarterbacked a campaign to get iPhone maker
Apple Inc to create tools for parents to track and
limit the use of children's' smartphones.
From the start, the team had the backing of U.S. pension
fund CalSTRS, which provides benefits for California teachers.
"We called for change at ExxonMobil, and a record number of
shareholders, including many of the largest investors in the
world, voted to hold the company accountable," the pension fund
said in a statement after the vote on Wednesday.
Engine No. 1 reported as of the end of March owning 917,400
Exxon shares valued at $51 million - a sum that traditionally
would barely get a phone call returned from a company like
Exxon, whose current market capitalization stands around $250
billion. Yet thanks to the backing of some of the biggest Wall
Street fund managers such as BlackRock, it has won at least two
seats on Exxon's board.
Lawyers and industry analysts who worked with Penner said he
had immersed himself for years in researching how to take on the
oil giant and speaking to other Exxon shareholders.
Engine No. 1 "did an effective job of making their case, and
it appears that investors are saying that with their votes,"
said Tim Youmans, engagement leader for EOS at Federated Hermes,
which advises clients how to vote.
Ubben founded Inclusive Capital in June of last year after
leaving ValueAct Capital, the activist hedge fund he launched in
2000. He had a built a reputation for pushing for change outside
the limelight and working more collaboratively with management
than many other activists.
He has described Inclusive Capital as a return-driven
environmental and social activist firm and raised concerns about
the sustainable products being sold by big index funds. In a
recent regulatory filing the firm said it owned 1.6 million
share of Exxon, valued at $93.6 million.
Ubben defended Exxon against Engine No. 1's criticism, and
as of Wednesday morning Ubben was still calling top Exxon
investors to make the company's case, according to people
familiar with the matter. While the result is a setback for
Ubben, he gets to keep a board seat at Exxon he may not have
gained if the oil major was not seeking to defend itself against
Engine No. 1 in the first place.
Representatives for Ubben did not immediately comment for
A spokesman for Engine No. 1 referred to Penner's statement
at Wednesday's annual meeting in which he said the firm has
"learned that change can happen anywhere. It will always be a
long shot, but it will always be worth it."
In a statement on its website on Wednesday a top Exxon
investor BlackRock Inc said it backed three of the four
Those directors, "together with Mr. Ubben, bring the fresh
perspectives and relevant transformative energy experience to
the Board that will help the company position itself
competitively in addressing the risks and opportunities
presented by the energy transition," BlackRock said.
(Reporting by Ross Kerber in Boston
Additional reporting by Svea Herbst-Bayliss in Boston; editing
by Edward Tobin)