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A new wave of woke investors is taking Wall Street by storm.
For the past half-century, “activist investors” have sought to reform troubled companies by intimately involving themselves in upper management. First, the investors acquire large portions of the company’s publicly traded stock. Next, the investors rally support from other shareholders and the public by issuing an “activist letter” outlining proposed reforms. After gaining board seats and enacting productive changes, the investors then aim to sell their shares and walk away with a profit.
Prominent hedge fund managers — such as Bill Ackman and Carl Icahn — have attempted to cause companies like Target and Western Union to pivot their strategies. In 2008, for instance, Icahn purchased shares in Yahoo to try and oust board members who rejected Microsoft’s generous buyout offer.
Today, however, “activist investors” are — quite literally — “activists.” Beyond increasing firms’ profits, fund managers are pressuring companies resistant to systemic change into adopting “Environmental, Social, and Governance” (ESG) criteria that require firms to behave with social consciousness in mind.
Take, for example, the recently-launched Engine No. 1 — an investment firm that believes “a company’s performance is greatly enhanced by the investments it makes in workers, communities, and the environment.” In December, the venture secured a 0.02% stake in ExxonMobil and sent an activist letter to the Board of Directors, alleging that the oil and gas giant “must change” with the times.
Among other causes, Engine No. 1 blames ExxonMobil’s poor performance on hesitancy to pursue “growth areas like renewables” even though “such investments are likely to deliver lower returns to shareholders than oil and gas projects.” Though the investors do not expect ExxonMobil to “diversify overnight,” they believe that pursuing green energy programs has “more than cosmetic value to investors.”
Three weeks ago, Engine No. 1 successfully clinched three of ExxonMobil’s twelve board seats. But Engine No. 1’s activism is far from over.
On Wednesday, the company launched an exchange-traded fund (ETF) — a representative basket of shares for certain public companies — called the Transform 500. Listed under the ticker symbol “VOTE,” the fund “seeks to encourage transformational change at the public companies within its portfolio through the application of proxy voting guidelines and dialogue with management of the portfolio companies.”
Companies like Apple, Microsoft, Amazon, Facebook, Berkshire Hathaway, Tesla, and JPMorgan Chase constitute a large portion of the ETF, which manages $5 million in total assets. One share currently trades for slightly over $50.
New firms are by no means the only ones pressuring companies to consider ESG.
Legal & General Investment Management — one of the oldest funds in London, which manages $1.68 trillion in assets — endorsed activist shareholders frustrated over Shell’s failure to reach its climate transition targets. The investment firm voted in favor of a shareholder resolution drafted by Follow This — a group of activist investors attempting to change oil companies so that they conform to the Paris Climate Agreement.
A group of lawyers familiar with activist investing wrote in Harvard Law School’s Forum on Corporate Governance that the trend could soon take an explicit turn toward social justice.
“While environmental and climate-related topics are currently the most likely among ESG topics to be integrated into activist campaigns, a further stage in ESG-themed activism is the incorporation of social- and social-justice-related concepts into activism strategies,” they wrote. “2020 was a major year in the United States and worldwide for bringing matters of social justice and public health to the foreground of public interest.”
The attorneys add that the “current direction of the Biden administration indicates that it is becoming a business risk for companies to not have processes in place to monitor and ameliorate disproportionate effects of their carbon footprint on minority communities.”
With these headwinds in mind, the report advises companies to “work ESG concepts and talking points into their emergency plan for shareholder activism preparedness.”
The views expressed in this opinion piece are the author’s own and do not necessarily represent those of The Daily Wire.