Rumors persist that, having just won at ExxonMobil, Engine No. 1 will soon turn its attention to Chevron. That may or may not be true, but it suggests that we need to better understand what the incentives are for proxy activism over climate change and carbon emissions. Engine No. 1’s victory was possibly the biggest upset since David beat Goliath (my older colleagues tell me that the odds were about the same in both battles), but it was a perplexing victory that is still not well understood. More importantly, whether its success can be replicated by others involves questions that have not been carefully analyzed.

What was different about Engine No. 1’s campaign? As most know, it held only a trivial stake in ExxonMobil: roughly 0.02%. This may have caused ExxonMobil not to take it seriously, but ExxonMobil’s management paid for its hubris. Traditionally, in standard activist campaigns, an activist fund buys just over 5% of the target’s common stock and then files a Schedule 13D, which effectively outlines its business plan for the target. This 5% (or slightly higher) stake serves a dual function: (1) it gave the insurgent a voting base (and often exceeds management’s own equity stake) so that the proxy contest was credible, and (2) it provided a means of profiting from the contest. Thus, although Engine No. 1’s success showed that a substantial minimum investment is no longer necessary, it does not answer the deeper question of how does the campaign organizer profit from its efforts.