By Emel Akan
A few years ago, it would have been hard to imagine an activist hedge fund gaining three board seats at America’s largest oil and gas company. A fledgling fund called Engine No. 1 with just 0.02 percent ownership in ExxonMobil, voted out three board members at the oil giant in 2021, scoring a victory for the climate change movement.
The fund had backing from “big three” institutional investment firms BlackRock, Vanguard, and State Street.
Exxon wasn’t the only target of shareholder activism. The world’s largest oil producers, such as Shell, Chevron, and BP, have all faced shareholder revolts from activist investors who urged them to address climate change.
However, actions of these investors have crippled the U.S. oil and gas production, contributing to the current energy crisis, according to Vivek Ramaswamy and Anson Frericks, co-founders of Strive, an Ohio-based asset management firm.
Launched in May, Strive says it wants to replace the voices of large investment firms in the American economy with those of everyday citizens.
The founders claim that large fund managers breach their fiduciary duties by placing too much emphasis on climate change and “stakeholder capitalism” rather than higher returns.
Among Strive’s notable backers are billionaire investors Bill Ackman and Peter Thiel.
US Energy Crisis
On Independence Day, the startup announced that it launched a “five-week national education campaign to draw attention to the American energy crisis and how U.S. citizens are unknowingly contributing to the problem through their investment accounts.”
“Americans do not just vote in November at the polls, they vote every day with how they choose to allocate their investment dollars. Today their money is often used by large asset managers to erode U.S. energy independence and increase their own energy bills,” the company stated in a press release.
The founders of the firm believe that every day firefighters, police officers, teachers, doctors, and small business owners funnel their money into these large asset managers through their retirement funds. But, the shareholder voting and engagement behaviors of these investment funds in the last few years, they contend, have pressured U.S. energy companies to produce less oil and natural gas in the United States, causing high energy prices.
“Our expectation from this campaign is to make the energy sector more successful in the United States,” Frericks told The Epoch Times.
He criticized BlackRock, Vanguard, and State Street for investing based on ESG (environmental, social, and governance) standards that may be in conflict with the interests of their clients.
Most big European and American oil companies have net-zero targets for 2050, as well as interim emissions-reduction goals. However, activist investors find these proposals unambitious. Thus, they use their voting powers to push corporations to adopt more stringent climate change goals in line with the Paris Agreement.
Since losing board seats to activist investors, Exxon cut long-term production plans, maintaining oil output at its lowest level in two decades, according to Strive’s founders.
“The same large asset managers who pressure U.S. companies to adopt climate change strategies by reducing oil and gas production stay notably silent as their Chinese portfolio companies behave in the opposite manner,” Ramaswamy said in the press release. “American citizens are left holding the bag twice, both as investors and as consumers at the pump.”
In coming weeks, Strive plans to promote a series of digital videos to raise awareness of the domestic energy crisis. As part of the education campaign, Ramaswamy will also tour the United States for the next five weeks speaking to Americans about the significance of regaining energy independence.
The big three asset managers, which hold nearly 20 percent of the outstanding shares of the S&P 500, have made substantial climate pledges during the last few years, according to an article by Harvard Law School Forum on Corporate Governance.
They manage collectively about $20 trillion worth of assets and wield enormous power on corporate boards due to their voting rights, Frericks says.
This is problematic, he argues, since these three asset managers are all promoting the same ideology, namely stakeholder capitalism and ESG.
The World Economic Forum promotes stakeholder capitalism as a better system in which corporations seek long-term value creation by considering the requirements of all its stakeholders and society at large.
Opponents, however, criticize these trends, stating that they’re politicizing investment decisions and creating an expensive deviation from basic financial investing principles.
“We try to bring new ideas, diversity of thought, diversity of opinion, because we think there are 100 to 150 million American investors who want a depoliticized asset management company,” Frericks said. “Our mission is to advance excellence over politics in boardrooms across America.”
As part of the education campaign, Ramaswamy will also present shareholder resolutions at the EnerCom Denver, a major energy investment conference in August, with the goal of “rectifying damage inflicted” on the oil and gas sector by large asset managers.
Strive has raised $20 million from venture capitalists to help hire staff and build investment products. The first fund of the company will be launched in the third quarter of this year.
Similar to those offered by Blackrock, State Street, and Vanguard, the business is developing large, predominantly passive investment products, Frericks said.
“We’ve been incredibly humbled by the outpouring of support we’ve received” from investors and prospective employees, he added.
Vanguard and State Street did not respond to a comment request from The Epoch Times.
BlackRock, the world’s biggest investment manager with more than $10 trillion in assets, declined to comment but referred to its proxy vote bulletin for Exxon that explained the asset manager’s position at last year’s annual meeting.
“Over the past several years, we have intensified our focus with the company on its long-term strategy and Exxon’s underperformance relative to both its peers and the S&P 500 over the last five years,” the fund manager explained.
“In our vote bulletin explaining our vote at last year’s annual meeting, we emphasized our prevailing view that the risks of climate change and the transition to a lower carbon economy present material regulatory, reputational, and legal risks to companies that may significantly impair their financial position and ability to remain competitive going forward.”
The energy crisis is fueling a backlash against big asset management firms.
In February, the Wall Street Journal Editorial Board criticized Larry Fink, CEO of BlackRock for pressuring public companies and their executives.
“As Americans have poured savings into exchange-traded and mutual funds, index providers have become the de facto largest shareholders of public companies,” the editorial board wrote.
The publisher criticized the investment firm for using its market power for political purposes.
Fink has repeatedly said “climate risk is investment risk.”
“Every company and every industry will be transformed by the transition to a net zero world,” he wrote in his most recent letter to company CEOs.
“The question is, will you lead, or will you be led?”