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A drop becomes a flood: on climate-positive investing
First of all, episode 1 of the Everybody in the Pool podcast is live. Second, I am now obsessed with shareholder voting. Please, read on!
Welcome to the first edition of the Everybody in the Pool newsletter that is accompanied by the podcast! I hope to pair these things together each week so that the newsletter has a little more information, like expanded show notes if you will.
Oh, had you not heard there’s a podcast now? THERE IS! Get it here on Apple Podcasts, or wherever you like to listen, and yes, please do rate and review on Apple. My heroes. Thank you.
So this week on the pod, I talked with Daniel Naim of Fennel Markets, which is a new investing app for buying and selling stocks that offers much more information about companies’ impact and, crucially, helps investors get informed about their rights are shareholders.
The reason I love this kind of thing is that one of my core theories about solving big problems is that a drop becomes a flood. No, I do not expect that you or I are market-moving investors. We’re not big institutions or pension funds (but someone out there might work for one!).
But people are moving their money in drops that are starting to add up.
In 2021, according to the SEC, about $2.7 trillion was invested in ESG funds—out of a total of 250 trillion invested in public markets globally.
There’s also another half a trillion dollars in green bonds—debt that you buy a chunk of that goes to finance some kind of climate-friendly project, like a solar farm or an environmental cleanup.
And big investors are increasingly dumping fossil fuel stocks from their portfolios. This is called divestment, and there was about $40 trillion worth of that as of last year.
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So the idea behind Fennel and some other companies and initiatives is to get more money moving in this direction and create a flood of change, through the buying and selling of stocks, lots more transparency about ESG metrics, and—this is the part I’m really into—lots of information about shareholder votes, how to participate in them, and how to make sure the trading platform you’re using doesn’t actually control or worse, sell your vote!
Yeah! Turns out, that happens! And you don’t want it to!
The deep end
I’m probably like many of you in that I’m generally invested in The Market, a 401k here and there, and then I occasionally (much more post-journalism restrictions) buy individual stocks. I had never thought much about the shareholder voting implications of those purchases, other than getting emails and, once in a while, a bunch of paper in the mail about an upcoming vote. No one reads this. But it turns out, this is maybe where there’s a lot more power than we might have realized.
I was, of course, aware of the exciting moment in 2021 when an activist hedge fund called Engine No. 1 managed to convince Exxon Mobile shareholders to vote in three new board members, a third of the total board seats, over the objections of Exxon’s CEO.
The board takeover was a stunning development because it didn’t happen in the normal way a board takeover might occur. Usually, this involves an activist buying a significant number of shares and then using their newfound voting power plus rallying support among other shareholders to force the change they want.
In this case, Engine No. 1 made a relatively tiny investment—about $40 million (Exxon’s market cap at the time was about $265 billion, it’s more like $423 billion today). And then the company spent an equally tiny (relatively speaking) $12.5 million convincing other shareholders that Exxon’s diehard approach to fossil fuels was a huge business risk. From Reuters:
The fund successfully rallied support from institutional investors and shareholder advisory firms upset with Irving, Texas-based Exxon for its weak financial performance in recent years. Among those were BlackRock Inc (BLK.N), Exxon's second-largest shareholder, who agreed to vote for three members of Engine No. 1's slate.
… in another signal of investor dissatisfaction with the company's approach to climate change, shareholders also approved measures calling on Exxon to provide more information on its climate and grassroots lobbying efforts.
Ok, now, again, we’re not spending like $50 million between us to take over the Exxon board. I get it. But first of all, you do get a vote, and if it’s easy for you to show up and cast that vote (or do it by mail, etc.), and then talk about that vote on Twitter or Mastodon or Facebook or Reddit or whatever, why wouldn’t you?
Second, you get a peek behind the curtain. Public companies present financial information at their annual general meetings (which are required) and hold votes on board appointments, executive pay, future direction, appointing auditors, shareholder dividends—and shareholders can often ask questions or raise issues in those meetings, like a messy little city council situation. And you can also tattle about what happened with impunity because these meetings and the votes and the minutes are public, but no one ever looks them up.
And! Shareholders can file resolutions to ask a company’s board to vote on a particular issue, such as, I don’t know, demonstrating some actual care with the planet or reducing emissions or disclosing emissions or whatever you like. In fact, in 2022, shareholders filed a record number of resolutions related to ESG, mostly focused on carbon emissions and workforce diversity.
Ok. You can see by the increasing use of italics that I am way too interested in this, but here’s why this scratches such an itch for me. The biggest Problem Porn Pushback I hear is that you, the individual, cannot possibly hope to have an impact because we need big businesses to change their practices.
So … change them. Most of these are public companies, with shareholders and AGMs and some susceptibility to public pressure. Start there—again, if you can. Not every solution will be applicable for every person.
But hey, turns out, even if you aren’t in the position to be an individual investor, you can also start to have an impact if your company offers you, say, a 401k. Most of those funds are a basket of stocks that you don’t get to pick and many of them include fossil fuel companies or potentially other unsavories you’d rather not put money into. Ask for alternatives! Two startups (at least) are working on products in this arena:
Sphere: Has created the Sphere 500 Climate Fund, which is available to 401(k) administrators (aka, your company can add it) through Vanguard, US Bank, Interactive Brokers, and a couple of others. When you invest in the fund, Sphere does control your voting shares, and votes them in favor of climate-friendly policies.
And here is where, perhaps against my better judgment, I’m going to include another brief note about this whole ESG investing controversy/conversation. I wrote about this in-depth not too long ago, but it’s obviously not going away—so much so that there was a Congressional hearing about it the other day and … Jesus be a fence1 and protect me from whatever the hell is happening in American politics.
Here’s a wonderful and very patient write-up about the whole thing:
Which I will summarize thusly:
On the one hand, there is some reasonable confusion about what metrics are being used to evaluate companies and their designation or inclusion in ESG funds. This has led to some equally reasonable frustration and questions about what it actually means. Plus, markets go up, markets go down, energy prices are on a tear right now, everyone’s like wait a second, is this real?
On the other hand:
Listen. This is not a serious conversation. It’s racism and sexism and an apparent desire for corporate corruption, all with a massive side helping of climate disinformation. And it’s being perpetrated in large part by the American political party that gets the most lobbying and donation dollars from the fossil fuel industry (check my newsletter on it. There are charts). It’s a particularly potent new line of attack, I suppose, but it’s the rhetoric of people who said that if they were to secede, it would be at least partly so they could keep burning fossil fuels.
Should we get better metrics and a framework for responsible investing? For sure. Should we talk about ways to separate the E from the S and G so we can talk to companies very specifically about their climate policies? This is one of my more controversial viewpoints, but honestly, if it gets it out of culture war territory, then maybe. But first of all, even though I believe capitalism is and will be a core driver of climate solutions, it does not have to be capitalism that only works for rich, white conspicuous carbon emitters. In fact, as is evidenced over and over and over and over again, that kind of capitalism isn’t even very good capitalism.
Ok. We’re done here. Thank you as always for reading, and for listening, and I’ll see you in the pool again next week!