On the 7th of May, the Room for Discussion hosted an interview with Mark van Baal, the founder of Follow This. Follow This is a group of responsible shareholders in oil and gas companies who push for action against climate change. They choose to fight against the anthropogenic climate change by putting on the companies’ agenda resolutions that require them to commit to the targets of the Paris Climate Agreement. This article will introduce you to the concept of activist investment and present you with a summary of the interview.
Although the title of the interview was Activist Investment, Mark van Baal introduced himself as a responsible rather than activist investor, claiming that the latter term has bad connotations in the fossil fuels industry. He pointed out that the main characteristic of responsible investors is their long-term orientation. In the case of Follow This, the focus is on the planet, but responsible investors strive to tackle other environmental and social issues as well. This vision is not solely based on ideological arguments. Investors who push for environmentally responsible resolutions strongly believe that a business model change is in the financial interest of these companies as well. If they are to remain profitable when the climate change becomes undeniably destructive, they need to act today.
HOW DOES THE ACTIVIST INVESTMENT WORK?
But how does the activist investment work in practice? When an investment account of a group such as Follow This becomes large enough to be represented at a shareholders’ meeting, they may be able to pass a resolution. However, the threshold required to succeed in that widely differs among countries. In many European countries, the threshold is much higher than in the United States and Australia, which is the main reason why the activist investment is less common in Europe. To illustrate, in order to file a resolution in a Shell’s shareholder meeting in the Netherlands, the threshold is a 5% ownership in Shell shares, which equals more than 10 billion euros. On the contrary, the threshold for the same company in the United Kingdom is 5 million euros, which Follow This managed to pass with the help of other idealistic entrepreneurs. The resolutions ask oil and gas companies to set targets in line with the Paris Climate Agreement, the main one being limiting the global rise in temperature to 2 Celsius degrees. In general, this is done through investing in renewable energy and lowering the emissions from the existing production and use of fossil fuels.
Although the resolutions are the most concrete type of action, activist investors are constantly trying to make their visions visible. However, companies’ choices are often different than desired. Mark van Baal believes one of the reasons for this is the rhetoric of activist investors; management teams are used to aggressive shareholders, while the activist ones prefer a friendlier approach. Still, he believes that companies listen to responsible investors more than to governments, which is a motive for them to keep pursuing their visions. In fact, Mark decided to found Follow This after years of being an energy journalist and realising his influence was negligible compared to the influence of shareholders. He realised that the right way to make impact is through a company, in his case Shell. There is no time to wait for consumers to stop buying fossil fuels or for governments to regulate them more strictly, so reorienting the company from the inside seemed the most effective way.
MORAL DILEMMA AND OTHER CHALLENGES
Questions from the audience challenged the Follow This approach. When asked about the divestment as another method of fighting against the climate change, Mark acknowledged that there is a moral dilemma inherent in his approach. Why would you financially support an industry that has been ignorantly damaging the Earth for so long? However, he thinks Shell and other fossil fuels companies would be happy if activist investors sold their shares now; the pressure would be released. Trying to influence industries with a negative impact on the planet from the inside is an endeavour to prevent climate disasters, and these investors argue that there is no time to waste as long as enormous amounts of CO2 are still being released into the atmosphere. Investing into green companies, changing consumer behaviour and organising protests is worthy of praise as well, but it is not mutually exclusive with the activist investment according to the interviewee. The activist investment is a pragmatic solution, but surely not the only one.
There are many other challenges facing activist investors besides the moral dilemma. The lobby power of oil and gas industries is still huge and many powerful actors have incentives to keep the status quo. The interviewee explained how investors find it hard to counter a manager team. Members of these teams have been successful in the fossil fuels industry for decades, making it hard to change their views on climate change now. Those profiting from the industry can be trapped into groupthink, and are mostly focused on short term profits in the following quarter. Mark claims that even many activist investors are short term oriented, preventing visions of long term responsible investors come into being.
WHERE IS THE FOLLOW THIS TODAY?
But what has Follow This achieved since it was founded in 2015? The group currently consists of 4776 shareholders and they hold 704 462 shares (May 13th, 2019). Due to their efforts to pass resolutions in line with the Paris Climate Agreement and with a help of large institutional investors, Shell is now the only oil company that aims to decrease CO2 emissions not only of their operations, but of their products’ consumption as well. Many companies have claimed they would decrease emissions released during their production process, but Shell is the only one that finally accepted responsibility for what their consumers do, i.e. burn oil. The company has slowly started investing in renewables as well. In 2019, the Follow This Climate Resolution is on the agendas of the shareholders’ meetings of Shell, BP, ExxonMobil, Chevron, and Equinor.
A month ago, Follow This made an agreement with Shell to give them a year off, during which the company has to align with Paris. In return, the shareholders will refrain from pressuring the company. Mark admits this was his most difficult decision since the start of Follow This. However, he believes this will enable activist investors to focus on other oil companies while Shell, who has already set ambitions to fight against climate change, will have time to made their green targets a reality. In the end, Follow This is not obsessed with one company’s resolutions but with the climate change as a whole. Their decision has been supported by other large investors who explicitly expressed the point of the year off. We need to wait for 2020 to see if this was the right decision, but activist investment surely is a courageous strategy. Constant criticism comes from both climate change activists and sceptics but the investors are determined to keep their fight on. I encourage you to learn more about Follow This here and support them if you believe in their mission.