‘Advocacy Investors’ Are Activist Wolves in Sheep’s Clothing
Religion & Liberty Online

‘Advocacy Investors’ Are Activist Wolves in Sheep’s Clothing

Over at GreenBiz last week, reporter Keith Larson profiled Andrew Behar, chief executive officer of shareholder activist group As You Sow. In the article, Behar attempts to rebrand AYS activities as “advocacy investment.”

 For some capital market watchers, the term “activist investor” may bring to mind corporate raiders such as Carl Icahn or Bill Ackman.

That’s why Andrew Behar, CEO of the nonprofit As You Sow, prefers to call social and environmental activist investors something a little more aspirational: “advocacy investors.”

In the absence of large-scale government regulation to force the issue of sustainability with corporate executives, some investors have taken it upon themselves to try to force companies to change. One way these shareholders are advocating change is through filing shareholder proposals or resolutions.

Sure, whatever. To-may-to, to-mah-to and all that. So, it seems, these activists…errrr…advocacy investors at As You Sow are working in cahoots with yet another group of advocacy investors, Arjuna Capital. Puffing its activities as “Enlightened Engagement in the Capital Markets,” Arjuna celebrates its partnership with AYS that introduced resolutions that would force Chevron Corp. and ExxonMobil Corporation to return capital to shareholders rather than invest it in fossil fuels, which, you know, is kind of both companies’ core business.

Much like the nominally religious groups represented by AYS, Arjuna cloaks itself in such leftist tropes as “sustainability” and “social inequity.” Arjuna defends its brand of enlightened engagement as follows:

 Conservatives, partisans of the Right in politics, often tend to focus on economic issues while dismissing or even denying the relevance of environmental and social considerations. The liberal left emphasizes the environmental and social while at times giving short shrift to real and vital economic concerns. Both can fail to see what the concept of sustainability expresses: that they are mutually dependent.

Understanding this and taking it seriously as an investor is a central element of what we mean by “enlightened engagement in the capital markets.” The professionals at Arjuna Capital have been participating for nearly three decades in a broad social movement aimed at integrating the concept of sustainability into the investment community’s thinking and practice. Arjuna Capital was formed to take that effort to the next level.

The baffling fossil-fuel rationale employed by AYS and Arjuna is … well, it’s just that: baffling. Larson continues:

 This year, sustainability focused investment advisory Arjuna Capital attempted a different approach to get ExxonMobil and Chevron to take action on their shareholder proposal.

“I took a page from the mainstream activists and corporate raiders like Carl Icahn,” said Natasha Lamb, director of equity research and shareholder engagement at Arjuna Capital. “Given the amount of money you’re spending on high-cost, high carbon projects … given your demand restraints due to carbon asset risks, we think a more prudent use of capital is to return more money to shareholders through dividends and share buybacks.”

So far, financial regulators are somewhat split on what to make of this logic.

I feel your pain, financial regulators, but allow me an attempt to explain. It goes something along the lines that renewable energies will displace carbon-based energy, rendering carbon investments foolhardy, which, in turn, will force ExxonMobil and Chevron to strand fossil-fuel assets in the ground. Remind me again, exactly why would Arjuna and AYS invest in energy in the first place if the companies making it possible didn’t earn money for their shareholders?

 In March, a proposal filed by Arjuna Capital and As You Sow, which requested more dividend allocation among ExxonMobil’s shareholders, was exempted by the SEC from the ballot at its shareholder meeting. Yet, the SEC also ruled in March that a similar shareholder proposal to Chevron could not be blocked and will be voted on in May.

Larson explains that California and Germany are leading the way in renewable mandates. The Golden State, he writes, derives 25 percent of its energy from renewables, and has raised the bar to 50 percent by 2030, the same year Germany hopes to harvest 45 percent of its energy from renewable sources. Determining whether these scenarios are pie-in-the-sky or somewhere in the galactic neighborhood of reality is a detailed topic for another time, but suffice it to say ExxonMobil disagrees:

 The universal importance of accessible and affordable energy for modern life is undeniable. Energy powers economies and enables progress throughout the world. It provides heat for homes and businesses to protect against the elements; power for hospitals and clinics to run advanced, life-saving equipment; fuel for cooking and transportation; and light for schools and streets. Energy is the great enabler for modern living and it is difficult to imagine life without it. Given the importance of energy, it is little wonder that governments seek to safeguard its accessibility and affordability for their growing populations. It is also understandable that any restrictions on energy production that decrease its accessibility, reliability or affordability are of real concern to consumers who depend upon it.

Frankly, this sounds far more enlightened than Arjuna and far more theologically sound than AYS. However, readers may question whether ExxonMobil is a reliable source to refute Arjuna and AYS claims. Let’s take a look at Germany’s renewable mandates, shall we? According to a 2012 article in Spiegel:

 The fast pace into the renewables future has meant that German consumers are faced with skyrocketing electricity bills and that the country’s energy grid has suddenly become outdated. Indeed, Environment Minister Peter Altmaier now finds himself in the awkward position of having to put the brakes on the country’s energy revolution….

At issue is the German Renewable Energy Act, which requires power companies to buy wind and solar energy from producers at fixed prices, which are much higher than electricity produced by traditional methods such as coal- and natural gas-fired power plants. At the same time, power-hungry industries receive generous subsidies — the country’s largest industrial consumers use some 18 percent of the electricity produced but pay only 0.3 percent of the extra costs generated by the mandated feed-in tariffs. German consumers have to cough up the difference.

In addition, Germany’s power grid hasn’t kept up with the explosion of new alternative energy sources — particularly the offshore windparks being built in the Baltic Sea and the North Sea off the country’s north coast. Many of those projects are at a standstill, with no way to deliver the power they generate to the mainland. On Wednesday Merkel’s cabinet hopes to agree on a stop-gap measure to compensate power companies for losses accrued as a result of the delays, but again it will be German consumers who will ultimately suffer.

Finally, the Renewable Energy Act, while it provides excellent incentives to build wind turbines, does not provide incentives to build the natural gas-fired power plants the country needs to fill the holes with the sun isn’t shining and the wind isn’t blowing. Changes, in short, are necessary.

The costs of Germany’s renewable programs have been astronomical. A 2011 paper from the Institute for Energy Research, a Washington-based nonprofit, reported:

According to the study Economic Impacts from the Promotion of Renewable Energies: The German Experience, Germany’s experience with renewable energy promotion is often cited as a model to be replicated elsewhere, being based on a combination of far-reaching energy and environmental laws that stretch back nearly two decades.” But, the researchers say: “German renewable energy policy … has failed to harness the market incentives needed to ensure a viable and cost-effective introduction of renewable energies into the country’s energy portfolio.”

Key findings:

  • Financial aid to Germany’s solar industry has now reached a level that far exceeds average wages, with per worker subsidies as high as $240,000.
  • In 2008, the price mark-up attributable to the government’s support for “green” electricity was about 2.2 cents per kWh. For perspective, a 2.2 cent per kWh increase here in the United States would amount to an average 19.4 percent increase in consumers’ electricity bills.
  • Government support for solar energy between 2000 and 2010 is estimated to have had a total net cost of $73.2 billion, and for wind, the cost was $28.1 billion. A similar expenditure in the United States would amount to about half a trillion dollars.
  • Green jobs created by government actions disappear as soon as government support is terminated, a lesson the German government and the green companies it supports are beginning to learn.
  • Government aid for wind power is three times the cost of conventional electricity.

Despite adhering to the facts generated by a simple Google search, however, AYS and Arjuna persist in pursuing fossil-fuel divestment strategies or strategies that would strand fossil-fuel assets. Larson continues:

Although socially responsible investing long has been a linchpin of advocacy on a variety of subjects, mainstream market trackers are also scrutinizing the financial disparities between portfolios that include fossil fuels and those that don’t.

According to MSCI (PDF), which provides indexes for over 6,000 pension and investment funds, investing in a market index free from fossil fuels would generate a higher return than an index that included fossil fuels. The fossil fuel free index garnered a return of 13.23 percent since 2010 whereas the fossil fuel index had a return of 11.22 percent.

“Investing in Exxon is like investing in whaling fleets in 1910,” said Behar. “I think Wall Street is wising up. I think that Wall Street’s realizing you can actually have a successful portfolio without having fossil fuels in it.”

So, I have to ask, what option are Arjuna and AYS actually pursuing? Is it forcing energy companies to become more compliant with the climate-change agenda; is it complete shareholder divestment from energy companies; or is it an effort to send stock prices of oil companies tumbling by stranding assets in the ground? All? None? Or do they simply enjoy listening to themselves make noise to the detriment of earnest shareholders and the energy companies in which they invest? One thing seems certain, however, and that’s AYS and Arjuna care little beyond whatever confusing agenda they champion.

The Wall Street Journal last week noted the importance of fund managers holding the feet of underperforming companies to the fire, and defending investor efforts to maximize shareholder value. The WSJ, however, makes an important distinction between investors and activists: “‘Activists’ isn’t the right word because it connotes a special interest pursuing a pet cause.”

Changing the nomenclature from activists to advocacy investors doesn’t change Arjuna’s and AYS’ agenda one bit. Neither is interested in maximizing shareholder value, which performs a shameful disservice to fellow shareholders – not to mention those in developing economies reliant on fossil fuels to lift their populations from dire poverty – for what really amounts to a pet cause that’s a wolf in Lamb’s clothing.

Bruce Edward Walker

has more than 30 years’ writing and editing experience in a variety of publishing areas, including reference books, newspapers, magazines, media relations and corporate speeches. Much of this material involved research on water rights, land use, alternative-technology vehicles and other environmental issues, but Walker has also written extensively on nonscientific subjects, having produced six titles in Wiley Publishing’s CliffsNotes series, including study guides for "Alice’s Adventures in Wonderland" and "One Flew Over the Cuckoo’s Nest." He has also authored more than 100 critical biographies of authors and musicians for Gale Research's Contemporary Literary Criticism and Contemporary Musicians reference-book series. He was managing editor of The Heartland Institute's InfoTech & Telecom News from 2010-2012. Prior to that, he was manager of communications for the Mackinac Center's Property Rights Network. He also served from 2006-2011 as editor of Michigan Science, a quarterly Mackinac Center publication. Walker has served as an adjunct professor of literature and academic writing at University of Detroit Mercy. For the past five years, he has authored a weekly column for the mid-Michigan Morning Sun newspaper. Walker holds a bachelor’s degree in English from Michigan State University. He is the father of two daughters and currently lives in Flint, Mich., with his wife Katherine.