Progressives love the story of Engine No. 1, a small activist investor that just fought its way onto the board of what many wokesters consider the most vile company in the world: oil giant ExxonMobil.
Most activists — think Paul Singer and Carl Icahn — are in it for the money. Engine No. 1 wants to make money with a progressive twist: The fund’s founders argue that there’s gold in green.
These savvy veteran investors say making the world a better and greener place will translate into big earnings for companies and bigger returns for shareholders. Windmills apparently can produce efficient energy at a profit. Electric cars will soon be replacing gas guzzlers.
Whether this sentiment expands beyond the woke is a matter of debate. I know plenty of investors who aren’t convinced that green investing is anything more than a politically induced fad that will never make money, and wouldn’t get financing if it weren’t for government grants. As proof, they point to the world’s greenest company — electric-car maker Tesla — which feasts on government subsidies and barely turns a profit despite its much-hyped stock price.
Of course, that hasn’t stopped the progressive celebrations over the news that Exxon will now have to place three reps from Engine No. 1 on its board to force change.
Engine No. 1 wants the company to figure out ways to reduce its carbon footprint, which again sounds good until you realize it’s also a fancy way of saying it wants Exxon to do less of what it’s good at. And by the way, what does Engine No. 1 know about running an oil company?
Giving credibility to this apparent lunacy has been one of the biggest and most profitable institutional investors out there: BlackRock. The $9 trillion investing monster run by Larry Fink may be the most powerful financial firm in the world because it holds shares in large doses of so many big companies and thus can direct corporate policy.
And guess what? BlackRock backed this no-name cadre of woke activists, even as Exxon persuasively argued that Engine No. 1 wasn’t qualified to help run an oil company. With BlackRock on the fund’s side, ExxonMobil eventually folded like a cheap tent.
A spokesman for Engine No. 1 and BlackRock had no comment. But a BlackRock company official said the company’s vote was a result of its concern that Exxon doesn’t have clear climate-change strategy and its long-term performance will suffer in a “low-carbon economy.”
Fink has been a huge cheerleader for so-called ESG (environmental, social and corporate governance) investing. ESG is all about ensuring that companies BlackRock holds in its multitudes of funds adhere to certain progressive edicts (like executives not paying themselves too much money).
Sounds good on paper — until you drill down. For starters, such investing methods are highly political and veer far to the left. Companies often get good grades for supporting lefty causes such as Black Lives Matter. Oil companies like Exxon will get higher marks for building wind farms that produce energy inefficiently.
Something else for investors to consider: These funds lately haven’t beat indices that are simply created to make you money and only do so when they pack themselves with high-flying tech names.
But here’s where Fink and BlackRock still come out ahead: They have sensed that with all the media hype of ESG investing as the next frontier, they can also make a lot of money creating a new type of fund dedicated specifically to ESG — and then charge more for it.
My sources inside BlackRock say that over the past year, Fink has transformed the place into an ESG cultural center. Fink talks ESG nonstop at company town halls. Seminars on ESG investing seem to take place every week. An executive named Brian Deese was promoted to push money managers to consider ESG in all their investment decisions.
Deese is now one of several BlackRock officials who hold key positions in the Biden administration, as director of the president’s National Economic Council.
This revolving door between Washington and Wall Street gives Fink a huge voice in US economic policy. It’s no surprise that the Biden White House is issuing new environmental rules left and right to satisfy its woke base and, by extension, those who want woke investments, which Fink is happy to provide.
By the end of the year, BlackRock could have as many as 150 so-called exchange-traded funds that adhere to ESG standards. ETFs are supposed to carry lower fees than normal funds because they mirror a typical basket of stocks like the S&P 500.
But with ESG screening methods, BlackRock has found a way to inflate management fees of this seemingly prosaic investment. In fact, studies show that management fees on ESG funds are more than 40 percent higher than other ETFs.
BlackRock currently manages about $200 billion in ESG client money, which means that number is likely to grow and add to BlackRock’s profits.
Now with Engine No. 1 likely to occupy three seats on Exxon’s board, it isn’t too much of a stretch to see the company passing Fink’s ESG screens for his ETFs with flying colors.
In short, Fink will look like a darling to Democratic politicians, he’ll get a lot of left-leaning rich people to put cash in what they feel are “moral” stocks — and he’ll laugh all the way to the bank.
Will the rest of the investors make money? Quibbles.