June 3, 2021

Engine No. 1: Third Exxon Seat – And Possible ETF?!

Yesterday, ExxonMobil filed its Form 8-K to report the voting results from its annual meeting. The preliminary count, which is not yet certified, indicates that Engine No. 1 won three board seats on the company’s 12-member board, one more than had been predicted after the meeting last week. Engine No. 1 had waged a campaign based on the impact of Exxon’s fossil fuel strategy on its financial performance.

The activist’s win is especially shocking in light of the fact that Exxon had appointed three other directors earlier this year in an attempt to appease investors. Two of those new directors – Michael Angelakis and Jeff Ubben – had the highest number of votes out of anyone. The third – Wan Zulkiflee (former CEO of Petronas) – was voted off the board after only four months of service.

The dissident directors who appear to have been elected are Kaisa Hietala (environmental scientist and former Neste EVP), Greg Goff (former CEO of Andeavor) and Alexander Karsner (strategist/PE investor/formerly at Google X and the Department of Energy). As Lynn blogged last week, shareholders also approved shareholder proposals calling for more disclosure of climate lobbying and other political activities, which weren’t supported by the board.

This probably won’t be the last we’ll hear of Engine No. 1. While it was busy making a big name for itself last week with Exxon, it also managed to file a pre-effective amendment to a registration statement to launch an ETF, which identifies Schulte Roth & Zabel as outside counsel, lists “activism” as a risk factor, and also includes this nugget:

Principal Investment Strategies: The Fund seeks investment results that closely correspond, before fees and expenses, to the performance of the Morningstar US Large Cap Select Index (the “Underlying Index”), which measures the performance of the 500 largest U.S. stocks by market capitalization, as determined by Morningstar, Inc. The Underlying Index consists of securities from a broad range of industries. As of March 31, 2021, the Underlying Index is represented by securities of companies in sectors including, but not limited to, consumer, energy, financial services, healthcare, technology, and utilities. The components of the Underlying Index are likely to change over time and the Underlying Index and the Fund are rebalanced on a quarterly basis. To the extent that the securities in the Underlying Index are concentrated in one or more industries or groups of industries, the Fund may concentrate in such industries or groups of industries. As of March 31, 2021, the Underlying Index is not concentrated in an industry or group of industries.

The Fund seeks to encourage transformational change at the public companies within its portfolio through the application of proxy voting guidelines developed by the Adviser that are based on a commitment to protecting and enhancing the value of its clients’ assets and to aligning shareholder and stakeholder interests through favoring actions that encourage companies to invest in their employees, communities, customers and the environment.

Our Adviser intends to measure the investment made by companies in their employees, communities, customers and the environment with financial, operational, and environmental, social and governance (“ESG”) metrics that are provided by (i) the companies themselves, (ii) third-party data providers, and (iii) the Adviser itself. These metrics include, but are not limited to, wages, workforce diversity, employee health and safety, capital expenditures, carbon emissions, and land use, among others. The Fund’s proxy voting guidelines will apply to all companies held by the Fund. The Adviser will generally follow the recommendations of an independent third party proxy voting service retained by the Adviser to implement the proxy voting guidelines when determining how to vote on any specific matter.

The Fund will invest at least 80% of its Assets in securities included in the Underlying Index.

Liz Dunshee