Released August 12, 2022 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Economic populism made a guest appearance at an oil and gas conference in Denver August 9, and the audience loved it.
Vivek Ramaswamy, co-founder and executive chairman of Strive Asset Management (Columbus, Ohio), a recently created asset-management company, spoke at the "EnerCom Denver:The Energy Investment Conference," in which he strongly pushed back on the prevailing wisdom about environment, social and governance (ESG) investing. He said ESG and stakeholder capitalism were "the single greatest threat to American democracy."
Ramaswamy decried a "small group of elites that were making consequential decisions in private," a practice he likened to the sensibility that led to the American Revolution. At one point, he explicitly referenced 1776, the year 13 colonies began their revolt against Great Britain, eventually leading to the founding of the U.S.
The "small group of elites" to which he was referring are asset-management companies such as BlackRock Incorporated (NYSE:BLK) (New York, New York), Vanguard (Valley Forge, Pennsylvania) and State Street Corporation (NYSE:STT) (Boston, Massachusetts) which make investment decisions according to ESG criteria. Those three firms collectively have more than $21 trillion in assets under management--nearly the size of the U.S. economy. Their adoption of ESG criteria shifts markets, particularly when shareholders are asked to approve or reject resolutions. Large asset management firms like BlackRock, Vanguard and State Street own large blocks of common stock, and how they vote on shareholder resolutions are an important force shaping corporate decision-making.
Fossil fuel companies have been hard hit by asset managers subscribing to ESG principles, most of which stem from the Paris Agreement of 2015, which sought to limit global emissions of carbon dioxide as a way to delay or reverse global temperature gain.
Ramaswamy's talk was interrupted once by audience applause.
He said asset managers like BlackRock and Vanguard "are not the owners of capital, they're the custodians." The owners of capital--individuals and institutional investors who have given their retirement and investment capital to asset-management firms to make investment decisions on their behalf--needed to stand up under the heading of "business excellence, not politics."
"When elites make decisions in private, they distort markets and threaten democracy," he told the EnerCom conference attendees. "ESG and stakeholder capitalism constitute the largest breaches of fiduciary duty in the 21st century. The energy sector is the sector that has been most harmed" by asset managers following ESG principles, he claimed.
He decried a number of recent pro-ESG shareholder resolutions involving Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), Phillips 66 (NYSE:PSX) (Houston, Texas), Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) and Chevron Corporation (NYSE:CVX) (San Ramon, California) that have unnaturally limited their business operations.
Ramaswamy cited Milton Friedman's famous essay in The New York Times Magazine, "The Social Responsibility of Business Is to Increase Its Profits," to argue that mixing politics and business was a bad idea. Friedman's essay, published in 1970, shaped decades of economic thinking that the primary purpose of publicly owned companies is generating profits that can be paid to shareholders.
More recently, business leaders have pushed back, arguing that businesses have multiple stakeholders--including investors, suppliers, employees and the communities in which companies operate--and businesses needed to make decisions that took all of them into account, not just investors. In mid-2019, for example, the Business Roundtable, in a major shift, said profit-seeking corporations had obligations to non-shareholder interest groups, such as employees, customers and the broader society, and needed to balance those against shareholder returns. For more on this evolving debate, see April 8, 2022, article - Big Oil Stands with Investors in Congressional Hearing.
Speaking to a supportive audience, Ramaswamy said his company on August 9 launched a new exchange-traded fund, $DRLL, that would focus on energy companies that made the highest returns, without considering those companies' ESG track record. "We will focus exclusively on (energy company) business operational excellence without regard to any social or political agenda," he said. He and other leaders of Strive rang the closing bell at the New York Stock Exchange August 10.
"ESG pushed the view that oil and gas profits would go away after 2030, and large asset-management firms bought it," he said August 9, adding his new fund was an attempt to push back on the narrative within the investment community and society that fossil fuels were bad.
U.S. energy company earnings have greatly exceeded profits from IT companies since 2018, but energy stocks have lagged IT stocks, Ramaswamy said. "Why is that? I have yet to get a straight answer."
In prior years, ESG and the oil and gas industry has been a topic of extensive discussion at prior EnerCom conferences. For more on that, see April 12, 2022, article - Oil & Gas Companies Detail Benefits of Integrated ESG Strategy; August 24, 2021, article - Conference: Private Oil & Gas Companies Can't Escape Reporting on Climate Risks; April 20, 2021, article - ESG Expectations Start to Winnow Oil & Gas Investment Capital, Supply Chains; and August 31, 2020, article - Conference: ESG Coming to the Oil Patch, But Questions Remain on Metrics.
Ramaswamy shared several draft resolutions he said Strive Asset Management planned to put before shareholders and energy company boards of directors where it owned a stake. These resolutions "will liberate oil and gas from the shackles of ESG," he said.
U.S. capital markets "could be poised for a great reversal over the next 12-24 months," where oil and gas companies displace IT companies as investor favorites. "I believe the energy sector is due for a significant expansion as investors realize that oil and gas companies will not disappear." He said a "conservative" view is that energy companies could experience double or triple the returns of IT companies, "if we can remove the ESG shackles from asset managers. We need to restore the voice of everyday citizens. Whether you're Black or White or Red or Blue, you rely on energy to live and prosper. We need to revive the unapologetic pursuit of excellence."
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
Vivek Ramaswamy, co-founder and executive chairman of Strive Asset Management (Columbus, Ohio), a recently created asset-management company, spoke at the "EnerCom Denver:The Energy Investment Conference," in which he strongly pushed back on the prevailing wisdom about environment, social and governance (ESG) investing. He said ESG and stakeholder capitalism were "the single greatest threat to American democracy."
Ramaswamy decried a "small group of elites that were making consequential decisions in private," a practice he likened to the sensibility that led to the American Revolution. At one point, he explicitly referenced 1776, the year 13 colonies began their revolt against Great Britain, eventually leading to the founding of the U.S.
The "small group of elites" to which he was referring are asset-management companies such as BlackRock Incorporated (NYSE:BLK) (New York, New York), Vanguard (Valley Forge, Pennsylvania) and State Street Corporation (NYSE:STT) (Boston, Massachusetts) which make investment decisions according to ESG criteria. Those three firms collectively have more than $21 trillion in assets under management--nearly the size of the U.S. economy. Their adoption of ESG criteria shifts markets, particularly when shareholders are asked to approve or reject resolutions. Large asset management firms like BlackRock, Vanguard and State Street own large blocks of common stock, and how they vote on shareholder resolutions are an important force shaping corporate decision-making.
Fossil fuel companies have been hard hit by asset managers subscribing to ESG principles, most of which stem from the Paris Agreement of 2015, which sought to limit global emissions of carbon dioxide as a way to delay or reverse global temperature gain.
Ramaswamy's talk was interrupted once by audience applause.
He said asset managers like BlackRock and Vanguard "are not the owners of capital, they're the custodians." The owners of capital--individuals and institutional investors who have given their retirement and investment capital to asset-management firms to make investment decisions on their behalf--needed to stand up under the heading of "business excellence, not politics."
"When elites make decisions in private, they distort markets and threaten democracy," he told the EnerCom conference attendees. "ESG and stakeholder capitalism constitute the largest breaches of fiduciary duty in the 21st century. The energy sector is the sector that has been most harmed" by asset managers following ESG principles, he claimed.
He decried a number of recent pro-ESG shareholder resolutions involving Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), Phillips 66 (NYSE:PSX) (Houston, Texas), Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) and Chevron Corporation (NYSE:CVX) (San Ramon, California) that have unnaturally limited their business operations.
Ramaswamy cited Milton Friedman's famous essay in The New York Times Magazine, "The Social Responsibility of Business Is to Increase Its Profits," to argue that mixing politics and business was a bad idea. Friedman's essay, published in 1970, shaped decades of economic thinking that the primary purpose of publicly owned companies is generating profits that can be paid to shareholders.
More recently, business leaders have pushed back, arguing that businesses have multiple stakeholders--including investors, suppliers, employees and the communities in which companies operate--and businesses needed to make decisions that took all of them into account, not just investors. In mid-2019, for example, the Business Roundtable, in a major shift, said profit-seeking corporations had obligations to non-shareholder interest groups, such as employees, customers and the broader society, and needed to balance those against shareholder returns. For more on this evolving debate, see April 8, 2022, article - Big Oil Stands with Investors in Congressional Hearing.
Speaking to a supportive audience, Ramaswamy said his company on August 9 launched a new exchange-traded fund, $DRLL, that would focus on energy companies that made the highest returns, without considering those companies' ESG track record. "We will focus exclusively on (energy company) business operational excellence without regard to any social or political agenda," he said. He and other leaders of Strive rang the closing bell at the New York Stock Exchange August 10.
"ESG pushed the view that oil and gas profits would go away after 2030, and large asset-management firms bought it," he said August 9, adding his new fund was an attempt to push back on the narrative within the investment community and society that fossil fuels were bad.
U.S. energy company earnings have greatly exceeded profits from IT companies since 2018, but energy stocks have lagged IT stocks, Ramaswamy said. "Why is that? I have yet to get a straight answer."
In prior years, ESG and the oil and gas industry has been a topic of extensive discussion at prior EnerCom conferences. For more on that, see April 12, 2022, article - Oil & Gas Companies Detail Benefits of Integrated ESG Strategy; August 24, 2021, article - Conference: Private Oil & Gas Companies Can't Escape Reporting on Climate Risks; April 20, 2021, article - ESG Expectations Start to Winnow Oil & Gas Investment Capital, Supply Chains; and August 31, 2020, article - Conference: ESG Coming to the Oil Patch, But Questions Remain on Metrics.
Ramaswamy shared several draft resolutions he said Strive Asset Management planned to put before shareholders and energy company boards of directors where it owned a stake. These resolutions "will liberate oil and gas from the shackles of ESG," he said.
U.S. capital markets "could be poised for a great reversal over the next 12-24 months," where oil and gas companies displace IT companies as investor favorites. "I believe the energy sector is due for a significant expansion as investors realize that oil and gas companies will not disappear." He said a "conservative" view is that energy companies could experience double or triple the returns of IT companies, "if we can remove the ESG shackles from asset managers. We need to restore the voice of everyday citizens. Whether you're Black or White or Red or Blue, you rely on energy to live and prosper. We need to revive the unapologetic pursuit of excellence."
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
