Early last year, Mr. Penner left Jana with ambitions of setting up his own fund. But as the pandemic hit, he held talks to join Mr. James’s nascent firm — and brought with him an ambitious idea he had been weighing for some time: Exxon.

The $250 billion behemoth was ripe for disruption, the two believed: Exxon was lagging rivals in pursuing ways to reduce its carbon footprint, which would eventually cost the company financially. Its board lacked the expertise to pursue a more aggressive plan, they thought. And the oil giant had a reputation for being highhanded with its shareholders.

The key to victory, according to two people with knowledge of Engine No. 1’s strategy, who spoke on the condition of anonymity to discuss private talks, was winning over big mutual-fund investors who have been pledging to make their portfolios greener. Exxon’s top three shareholders — Vanguard, BlackRock and State Street, which together own one-fifth of the company’s stock — had promised to reduce the carbon emissions of the companies they invest in to zero by 2050.

Engine No. 1 announced its campaign against Exxon in December. A pension fund for teachers in California and the endowment of the Church of England endorsed the effort.

After a flurry of phone calls, Exxon’s chief executive, Darren W. Woods, and lead independent director, Kenneth Frazier, held a Zoom call with Engine No. 1 executives on Jan. 22. During the meeting, according to two people with knowledge of the matter, who spoke on the condition of anonymity to discuss private talks, Mr. Frazier struck a conciliatory tone — at one point, he flashed a peace sign, one of the people said — but said the company did not consider Engine No. 1’s nominees to be qualified. Mr. Penner answered that the company should reconsider, and insisted on all four of its proposed candidates taking seats on Exxon’s 12-member board.

After the call, both sides girded for battle.

Over the next five months, a war of words ensued, as the company’s directors and activist insurgents put out statement after statement, each side making its case. These efforts cost Engine No. 1 over $15 million, according to a person with knowledge of the matter.

For Exxon, the focus was persuading investors that it had viable plans to prepare for a lower-carbon future, while also arguing that Engine No. 1 had presented an unworkable alternative plan and unqualified board nominees. The company added new directors to its board without Engine No. 1’s input, a move that infuriated the fund.



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