Is Investor Activism Really Greening Corporate Policy?

Investors recently forced Chevron management to make the firm more climate-friendly, in an unusual shareholder insurrection success. Photo: Jernej Furman, Flickr Creative Commons. Click to enlarge.

Issue Backgrounder: Is Investor Activism Really Greening Corporate Policy?

By Joseph A. Davis

Corporate energy and environment policies are increasingly a battleground, whether for political or economic players.

Take, for example, how on May 26 green investors beat out management at Exxon and Chevron in an effort to make the firms more climate-friendly. That was news because such things rarely happen. Most do-gooder shareholder insurrections fail.

Naturally, environmental advocates and news media made much of the story. But it remains important in this battle of perceptions to keep an eye on real impacts, real policies and the bottom line.

Whether the Exxon/Chevron insurrection truly foretells a change in the petroleum industry’s climate impacts remains to be seen.

Either way, it’s going to be a story. And to report on these mounting fights, environmental journalists will need to arm themselves with some know-how and work harder to sort out the actual good guys from the bad.

 

When is an activist an activist?

One step to get ready for covering it is to become familiar with some of the terminology: not just what it can mean, but how it can be used for manipulating perceptions.

 

‘Activist’ does not always mean someone

carrying a protest sign who wants you

to become a vegan and ride a bike.

 

First off, be warned that “activist” does not always mean activist in the sense of someone carrying a protest sign who wants you to become a vegan and ride a bike.

Activist investors are simply investors who do not passively accept the decisions of corporate boards and executives, but instead try to shape corporate action using a range of tactics — shareholder resolutions being only one of them.

Much of the time, activist investors are acting out of simple greed …  er, self-interest. For example, they may want the corporation to pay them more money in dividends. An example is activist investor Carl Icahn, also described as a “corporate raider.”

Another kind of activist buys corporate stock in order to get a shareholder vote, then proposes a resolution at the annual meeting urging the corporation to take some desired action.

Keep watch: This could mean changing environmentally harmful actions to environmentally friendly ones.

For decades, it was a “given” that corporate management usually opposes greenish shareholder resolutions and that insurrectionist resolutions invariably lose the shareholder vote, sometimes failing even to reach the threshold of support needed to trigger the vote itself.

Not so anymore.

 

Green funds gain power

For one, there are now more “green” hedge funds, and they’re getting bigger.

Such investment funds come in many flavors. Green mutual funds have been around for decades. Investment firms like Vanguard or Fidelity offer people shares of a collection of stocks or other investments that have non-harmful, or even environmentally beneficial, characteristics. So you can have a 401(k) and a clean conscience.

Some funds just avoid companies that do obvious environmental harm. Others pick companies doing environmental good (let’s say building wind turbines). Still others try to aim for a broader range of socially responsible activities.

Another big category of funds includes things like university endowments, or employee or union pension funds. The dollars invested are huge. As fiduciaries, such funds have historically just invested in the safest and highest-yielding stocks.

Those investment strategies, however, are changing.

 

Student climate activists are

succeeding more often in trying to

get university endowments to divest

their portfolios of fossil fuel stocks.

 

For example, student climate activists for years have been trying to get university endowments to divest their portfolios of fossil fuel stocks. They are succeeding more often today. When pension funds are run by politically active groups like unions, they too may invest selectively.

Then there are outfits like BlackRock, which defy easy description. They are “asset management” companies — they manage investments for large funds belonging to others.

BlackRock’s most notable quality is its size (something like $6.84 trillion in assets managed). Its second most notable (subscription required) quality is its loudly professed emphasis on sustainability (may require subscription), with an accent on clean energy.

 

Squishy sustainability

This is where the terminology gets tricky — and important. There is not necessarily an official definition of “sustainable,” nor is there a universally accepted and objective test of sustainability. The term can be squishy.

In the investment world, the jargon often includes terms like “ESG” — which stands for environmental, social and corporate governance. Let’s just say this can include a whole lot of things besides solar panels.

You will find a lot of funds trying to sell themselves with the ESG label. Some deserve it. According to Investopedia, “Trian Partners, Blue Harbour Group, Red Mountain Capital Partners, and ValueAct Capital are among the top funds that have prioritized ESG in various forms.” There are more.

 

It’s worth remembering that there

are multiple tactics for environmental

campaigners to use in the corporate arena.

 

It’s worth remembering that there are multiple tactics for environmental campaigners to use in the corporate arena: Shareholder resolutions. Divestment campaigns. Electing directors to a board. Removing directors. Proxy battles. Litigation. Disrupting meetings. Joint projects and statements. Coalitions. Pledges. Press conferences and media events. PR campaigns. Stunts of all kinds.

Many corporations and governments today are loudly declaring “net-zero” climate pledges — typically to be achieved a decade or more into the future, when many of today’s readers may have forgotten about them. Pledges cost little; action costs more.

One way to translate “net-zero” is that it may not involve actually reducing greenhouse gas emissions — but may rather involve merely buying offsets that are just notional.

 

One focus is financial risk

Mainstream media often give such pledges both ink and credibility, and sometimes they deserve it. Still, there is reason for journalists to be skeptical.

Treasury Secretary Janet Yellen. Photo: World Bank/Brandon Payne, Flickr Creative Commons. Click to enlarge.

Many observers of this scene today say that green activism is a trend sweeping corporate governance. In some cases it is. But it is also worth noting that a great deal of money is being made by consultants who help companies resist and survive green shareholder insurrections.

New initiatives started or contemplated by the Biden administration are amplifying the trend, with several parts of Biden’s team pushing climate policies within the corporate sphere.

Treasury Secretary Janet Yellen has declared her interest in climate policy. The Federal Reserve, in its own more independent way, has also signalled intent to fold climate into its policies. So has the Securities and Exchange Commission, which regulates companies whose stock is traded publicly.

One key argument in the investosphere is that climate change and the energy transition actually do pose financial risks to companies — and consequently to their shareholders.

A company whose assets consist mainly of fossil fuel reserves may lose value catastrophically if those fuels can not be extracted and burned. A company whose facilities (e.g., offshore platforms or refineries) can be damaged by hurricanes may also recalculate risk in the face of climate change.

Part of the job of regulators is to make companies disclose these risks to shareholders.

What may have won the day on May 26 when the Earth shook for Exxon and Chevron may simply — finally — have been the argument for financial self-interest. The insurrectionists convinced a majority of shareholders that more climate-adaptive corporate policies would preserve profits and stock value (as well as saving the planet).

 

Resources for reporting

If you are writing about the green investment revolution in any of its forms, there are some standard sources to keep abreast of.

There is, of course, the mainstream financial press, which includes The Wall Street Journal, Financial Times, Forbes, Business Insider, Barron’s, The Economist and The Motley Fool (plus others here, here and here). Most cost money.

There are some fairly reliable reference sources like Investopedia or even Wikipedia. Almost anything with the name Bloomberg on it is a solid bet.

Also, the Sustainable Investments Institute tracks and analyzes many greenish shareholder resolutions.

It is also worth keeping an eye on some “green activist” players. The group Ceres has been involved in various aspects of sustainable investing for decades. Environmental Defense Fund, for years, has worked through environmental-corporate partnerships quite successfully. Another is Green America.

Joseph A. Davis is a freelance writer/editor in Washington, D.C. who has been writing about the environment since 1976. He writes SEJournal Online's TipSheet, Reporter's Toolbox and Issue Backgrounder, as well as compiling SEJ's weekday news headlines service EJToday. Davis also directs SEJ's Freedom of Information Project and writes the WatchDog opinion column and WatchDog Alert.

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* From the weekly news magazine SEJournal Online, Vol. 6, No. 23. Content from each new issue of SEJournal Online is available to the public via the SEJournal Online main page. Subscribe to the e-newsletter here. And see past issues of the SEJournal archived here.