Does shareholder activism cool things down or heat things up?
...and new ways to invest in climate!
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📖 read time - 5 min
Last week we highlighted Tesla stock’s lack of fit as an impact investment. Impact investing requires intention to bring about additional change, something that 99.9% of individual stock market investors just don’t consider. However, if creating impact through public equities is your aim, there’s one lever you can potentially try — it’s called shareholder activism.
The evolution of shareholder activism
Shareholder activism, the concept of buying a significant minority of shares in a company to put pressure on management to make changes, extends back to the earliest corporations.
History is littered with mythic accounts of individual larger-than-life figures strong-arming their way into boardrooms.
In the 1980s, rich magnates like Carl Icahn and T. Boone Pickens were euphemistically referred to as “corporate raiders” because their hedge funds would buy their way into a company’s boardroom, demand that management make changes, and then sell the shares within a few years to net a handsome profit. These demands sometimes improved companies but this method of activism was often associated with short-term changes inspired by greed and extraction.
Shareholder activism has recently transfigured into something a little different…
In December 2020, Chris James purchased a minority stake in ExxonMobil on behalf of Engine No. 1, his impact-focused investment firm. This $40 million ownership position (about .02%) allowed Chris and his organization to lead a climate-centric campaign to replace a handful of board members on the company’s board of directors.
They published a letter explaining that ExxonMobil was delinquent in its duty to address risks associated with oil/gas:
…given the Company’s long-running underperformance and the challenges it faces, it is time for shareholders to weigh in. While the idea of ExxonMobil prioritizing returns over growth, diversifying its strategic options, and reevaluating its role in the energy transition may have seemed farfetched in years past, our conversations with many energy industry executives, analysts, and public and private investors have given us confidence that the time for change at the Company has come.
Engine No. 1 quickly gained the support of larger shareholders like California State Teachers' Retirement System, and by the time the May 2021 shareholder meeting arrived, the campaign had the backing of BlackRock, The Vanguard Group and other large institutional investors.
Eventually, three of Engine No. 1’s recommended board members were elected to ExxonMobil’s board with an agenda to reconsider an energy transition. The company also pledged investment in carbon capture and low emissions technologies, but these investments may have happened regardless of the board change. In general, it’s too soon to measure whether these actions result in any real, downstream climate impact.
So how does shareholder activism actually work?
If you buy a share in a company, it usually comes with a vote! During annual meetings, shareholders can propose resolutions for a company to take a specific action, which any shareholder can then vote to support. Resolutions are typically management related, requesting a shakeup of board seats, compensation changes, strategic pivots.
The vast majority of individual shareholders don’t exercise their right to vote, but instead give their vote, called a proxy, over to whichever company is holding their shares.
For example, if you own shares of a Fidelity mutual fund, then Fidelity’s fund managers can use the shares within those funds to vote however they wish, unless you’ve opted to vote on your own. This makes financial custodian companies like Fidelity powerful because they can aggregate many votes to support resolutions that they like.
There’s been increasing pressure on custodial companies like Fidelity or BlackRock to demand that climate be incorporated in company decisions. However, these massive institutions prefer neutrality and tend to defer to company management. There’s no better example than BlackRock, which famously pivoted towards ESG and then backed away from it all within a few years. The company’s CEO recently had this to say about using proxy votes to spur decarbonization:
"We have clients who wish for that, but we also have clients who are not interested in that, and our job is to be working with our clients."
It started as a tool just for powerful institutional investors, but now…
There’s an entirely new crop of companies that are attempting to allow small retail investors to aggregate their votes together to conduct shareholder activism. This is an exciting democratization of corporate governance. Companies trying this include:
🌲 Engine No. 1 - Their VOTE ETF bundles proxy votes to attempt shareholder activism at companies like ExxonMobil.
🌲 Fennel - Their ESG-focused mobile investing app makes it easy for investors to engage in shareholder votes.
🌲 Troop - Troop is a community app for shareholder activism, where everyday investors organize to change companies they own for good.
🌲 Sphere - The first climate-friendly fund made for 401(k)s. Sphere works with As You Sow to vote your shares in a climate-conscious way.
🌲 Carbon Collective - CC allows you to invest in portfolios built for solving climate change, and they also promise to “take a seat at the table” on company boards that they believe can do better.
It’s worth noting that Robinhood’s Say Technologies is also trying to strengthen ties between individual investors and companies.
It’s early, but we’re optimistic.
We’re optimistic about these new efforts to incorporate the retail investor’s voice into shareholder activism on climate issues. The bulk of the average investor’s assets are in market-tracking ETFs and mutual funds, so it’s important to innovate on ways to use investments to generate impact. We’ll be paying close attention over the next few years as these solutions gain steam and researchers accrue data to measure decarbonization impact.
📈 New ways to invest in climate
What’s new since last week’s newsletter. Disclaimers: selection based on company description but impact not assessed. Not investing advice.
Energea (12% IRR, equity): Build your renewable energy portfolio in minutes and start earning monthly cash dividends.
Azure Printed Homes, Inc ($32M valuation cap, crowd SAFE): 3D printed homes made from recycled materials—fast, affordable, and sustainable.
Thrive and Grow Farms (2.16% of revenue, 3x payback multiple): Enhancing local food systems with regenerative agriculture.
Netsave ($20M valuation cap, SAFE): A safer way to sell & buy used products locally.
New climate investing/finance podcasts
👇 see you in the comments section👇
What’re you investing in this week? Do you elect to vote in shareholder proposals? Let the community know below.