Engine No. 1: An Impact Investing Firm Engages with ExxonMobil

ExxonMobil, the world's fifth largest source of carbon emissions, remained committed to aggressively expanding its oil & gas business despite global warming. During the COVID pandemic this strategy resulted in massive losses as the price and demand for oil declined. In the summer of 2021, a start-up impact investing hedge fund, Engine No. 1, invested $38 million in ExxonMobil stock and mounted a proxy fight to change the company's direction by electing Directors experienced in renewable energy. Over fierce objections by management, Engine No. 1 won 3 board seats. By then, demand for oil had resumed and Exxon's strategy had begun to pay off. The case raises provocative questions about whether maximizing shareholder value required Exxon to use its existing resources to drive short term profits without regard to future consequences and environmental impact or, alternatively, to move beyond its core capabilities into initiatives suited to a low-carbon future. Voted best case by first year MBAs. Discussion topics include:
• Maximizing shareholder value
o How should companies balance environmental responsibility against shareholder value? Should companies maximize short-term or long-term shareholder value? • Energy Transition
o How should Exxon respond to the energy transition? Should the company stay with its core business as long as demand for oil remains, or reposition itself for renewable energy and electric vehicles?
• Impact investing & divestment
o How does impact investing translate into public equities? Can one align profit with positive social impact? Is the divestment movement helpful or harmful?
o Does creating value for stakeholders also create value for shareholders?
• Shareholder influence
o How do proxy contests work, and what does it take to win? How much influence do shareholders really have over company strategy and operations?
• Universal owners
o How do large index funds and pension plans that own an interest in almost every public company (“universal owners”) address issues of systemic risk and shareholder activism? Why do they not take a more active role in influencing management?