One of the most expensive Wall Street shareholder battles on record could signal a big shift in how hedge funds and other investors view sustainability.

Exxon Mobil Corp. has been fending off a so-called proxy fight from a hedge fund known as Engine No. 1, which blames the energy giant’s poor performance in recent years on its failure to transition to a “decarbonizing world.” In a May 26, 2021 vote, Exxon shareholders approved at least two of the four board members Engine No. 1 nominated, dealing a major blow to the oil company. The vote is ongoing, and more of the hedge fund’s nominees may also soon be appointed.

While its focus has been on shareholder value, Engine No. 1 says it was also doing this to save the planet from the ravages of climate change. It has been pushing for a commitment from Exxon to carbon neutrality by 2050.

As business sustainability scholars, we can’t recall another time that an energy company’s shareholder – particularly a hedge fund – has been so effective and forceful in showing how a company’s failure to take on climate change has eroded shareholder value. That’s why we believe this vote marks a turning point for investors, who are well placed to nudge companies toward more sustainable business practices.

Hedge funds to the rescue?

Climate strategies aimed at saving the planet are an odd play for a hedge fund. Such investment firms are better known for getting companies to stop investing in this type of thing so they can collect quick profits.

Recent research undertaken by one of us found that activist hedge funds tend to target companies that spend more of their resources on these types of sustainability initiatives. That is, they buy shares of a company to gain influence and then convince other investors to join them in demanding efficiency enhancements and cost-cutting protocols to return more cash to shareholders. A follow-up study found that companies cut spending on sustainability initiatives within five years of a hedge fund getting involved.

Read:

https://theconversation.com/engine-no-1s-big-win-over-exxon-shows-activist-hedge-funds-joining-fight-against-climate-change-159983