As the world’s most renowned corporate raider and its 31st wealthiest citizen, with an estimated personal fortune of $22.5 billion, Carl Icahn is as unlikely to receive an award from Greenpeace as he is to accept to one. Confirmed as one of the real-life Wall Street characters who inspired Gordon Gekko and his ‘Greed is Good’ outlook, Icahn and his fellow financiers in the 1% club are exactly the people that the environmental campaign group accuse of holding the world back from a "just and sustainable" future.
But for such an honouring to take place in the future, is not beyond the realms of possibility. Marrying the environmentally minded values of groups like Greenpeace with the sound financial assessment and cut-throat approach of Icahn, a new breed of investment fund is seeking to invade the boardrooms of big oil and take it to task on its ignorance of the financial risks posed by climate change.
Leading the way in this new class of investor is sustainable wealth management fund Arjuna Capital and non-profit As You Sow, who in March sought and succeeded in breaking Exxon Mobil’s vow of silence on the business risks of climate change regulations.
Armed with a compelling argument that its most ambitious exploration projects, such as those to be carried out in the Arctic, were under threat from both a drop in oil price – backed up by figures showing that all of Exxon’s production that had come online in the previous two years required $70 per barrel to break even – and an increase in global efforts to reduce carbon emissions, the groups tabled a shareholder resolution calling for the company to come clean.
Exxon opens up on the risky business of climate change
With almost a fifth of shareholders, representing more than $1 billion of assets, coming out in support of the resolution, the Exxon Mobil board was left with little option but to accept defeat and duly announced that it would publish an assessment of the potential impacts on its business.
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Despite this early victory, celebrations were short lived. Just a little over a week later, Exxon’s report was released with an opening line that summed up the little regard it gave to the risks. "All energy sources, including carbon-based fuels, are necessary to meet future global energy demand growth as society manages the risks of climate change," the press release announced.
After all the hard work, campaigning and number crunching by Arjuna and Built To Sow to compel the publication, Exxon saw fit to simply respond with the well worn gambit that as the world grows, so does demand for oil and gas. But if Rex Tillerson and his fellow chief executives of the world’s publicly listed oil giants had expected that to be the end of the matter, they were very much mistaken.
By January 2015, the brand of climate conscious shareholder activism pioneered in the US had spread across the Atlantic. Turning its attention on both Royal Dutch Shell and BP, the Aiming For A investment coalition, led by the Church of England and comprising a number of other religious and pension funds, repeated the act of submitting resolutions demanding increased transparency on climate change.
With Shell, success came quick but with a sting in the tail. In a letter to shareholders dated 29 January, the company endorsed the resolution. "The board has given consideration to the resolution and has decided to recommend that shareholders support the resolution," wrote JJ Traynor, executive vice president of investor relations at the oil giant.
The formal backing for the proposal, which will likely pass at the 2015 annual general meeting in May and would compel Shell to publish further detail on emissions management and its assets resilience to climate change regulations, was welcomed. But to further highlight the issue of contention, it was accompanied by a pledge to progress plans for Arctic exploration.
In the case of BP, which held its AGM in April, the ‘Strategic Resilience for 2035 and Beyond’ resolution has already passed with the near unanimous support of 98% of shareholders and the promise of firmer accounting for the impact of a lower carbon economy on earnings.
Appealing to investors inner emotions to inspire change
As an opening attack, the success in securing increased transparency from the companies on climate change and its potential to negatively impact earnings was welcomed as a clear sign of progress. But with little to no influence over how seriously such risks would influence management’s approach, even the prime orchestrators of the action were aware that more would need to be done.
"To effect real systemic change, environmentally focused shareholder activism must evolve beyond a simple request for reporting," explained Natasha Lamb, Arjuna’s director of equity research & shareholder engagement. It was at that juncture, as Lamb went on to explain, that the eco-minded investors sought inspiration from Icahn.
Admitting that his character may well not sit well with all of its supporters and that he was in many ways someone they wished not to emulate, Lamb accepted that his approach could prove effective: "He appeals to investors’ most basic emotion – greed. And in so doing, garners broad support."
Upon this realisation, and inspired by Icahn’s series of successes in wrestling capital out of companies and into the pockets of shareholders in the form of increased dividends, Arjuna and As You Sow sought resolutions against Exxon and Chevron compelling capital for risky projects to instead be returned to investors.
In the case of Exxon, the group attacked the imbalance between an increase in capital expenditure of 51% against only a marginal 6% increase in production since 2009 as a sign of diminishing returns. In that case, its actions were cut short, with The Securities and Exchange Commission (SEC) ruling in favour of Exxon’s rejection that the proposal was ‘too vague’, contained multiple proposals and went beyond the scope of the role of shareholder by seeking to change operations rather than strategy.
Wrestling control on cash out of the boardroom
In the case of Chevron, things are turning far more in their favour. In response to a similar defence to the one put forward by Exxon, the SEC rejected Chevron’s claim that the proposal was too ‘vague or indefinite’ to be valid. As a result, provided any further attempts to have it debarred from debate are successful, the fate of whether the funds are best invested or returned as extra dividends, lies in the hands of Chevron’s shareholders rather than its management team.
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If successful, this latest incident of activist investment will send shockwaves across the boards of big oil, proving beyond doubt that they are not only under threat from the activities of environmental campaigns launched from outside its operations but also from within. But even if it fails, the fact that it got so far will stand as testament that the approach holds hope.
Throughout his more than 35 years of taking holdings in companies and aggressively forcing change, Carl Icahn has blazed an impressive trail of corporate disruption. From forcing through the split of Motorola and ousting the CEO of Yahoo, to his ongoing, and already successful, effort to get Apple return more money to shareholders, Icahn has proven how a compelling case, fiercely fought, can find favour and support from those who see the same goodness in greed as he inspires.
For the likes of Arjuna and the other eco-activists investment firms to emulate such successes will be an eye-watering challenge. Where his campaigns are launched on whatever provides the greatest potential for profit, they are confined to only where climate change risk is being overshadowed or discounted altogether. However, while he gains acclaim for the attention grabbing ways in which he fuels animosity with his targets, the original and often undeniable faults on which he latches are frequently underplayed.
Environmental activists, whether holding placards or calculators, are unlikely to ever enjoy greed being good. But if they can prove beyond doubt that big oil’s apparent ignorance of the threats of climate change are putting existing fortunes in jeopardy, they might just be able to make some good from somebody else’s greed.