The climate investor who bet on ExxonMobil to stay ahead of the market over the next decade

Jennifer Grancio was among many executives of Engine No. 1, the upstart investment agency focused on local weather and vitality transition, which beat ExxonMobil in a 2021 proxy contest, upset by few . Perhaps equally shocking was what the #1 engine decided to do next: move away from the activist investor method that worked so well in the board seats of big oil and gasoline.

Now CEO, Grancio would not need the agency to be described by Exxon’s title, but rather by a long-term method of investing that could be a model for how companies should consider adjustments. big programs like the energy transition, and how Buyers need to capture the value that will be created by the companies that get it and scale the reworked companies.

“Investing is something you can do in the very short term, but for the overwhelming majority of asset owners…they’re all looking for performance over time,” Grancio said at the CNBC ESG Affect digital event on Thursday. . “The market may be confused about investing just for ideology or for the very short term, but driver #1 goes deep with companies, looking primarily at the business model and how it works. could change over time to create shareholder value. ”

The ExxonMobil The marketing campaign touches on the big themes: having the right governance in place to see companies through huge program adjustments, making the right investments and avoiding the wrong ones. “We joined Exxon as an investor because we knew if it was smart and had the right administration for the business transition and how the business is valued after the business transition, that will be good. for shareholders,” she said. “We see ExxonMobil’s campaign as being about governance and long-term capitalism,” she said.

Grancio shared several of his fundamental concepts for investing sooner or later and staying ahead of the market at ESG Affect.

Lots of expertise, but no tech stocks

“As buyers, we like to talk about Google and Amazon, but where the returns will really be generated over the next decade, we look to agriculture, automotive and energy,” said said Grancio.

Engine No. 1 does a lot of work with the cars, of which it has been made public, as well as funding in GMon what she describes as a long-term transition.

“People know about Tesla, but they forget about GM and Ford,” Grancio said.

“We can have this big transition and it needs scale, and it’s hundreds of thousands and hundreds of thousands of automobiles and there’s a lot of room for incumbents like GM and Ford to participate in the creating and assembling all of this demand,” she said. . That doesn’t mean Tesla won’t be a winner, she added, but GM and Ford will be too, Grancio said.

Don’t just be an index fund investor

Engine #1 has a passive index ETF – Grancio was among the top executives of the BlackRock iShares ETF company before becoming a No. 1 engine member – but she warns buyers that the same way they could deal with Tesla and ignore the rest of the auto sector, they will pass alongside huge funding alternatives if they maintain index portfolio weightings.

“When you put your money in a passive index fund, otherwise you’re only buying super-growth stocks, you’ll have a huge downside in your portfolio,” she said. “Buyers underweight massive transition concepts if they are in indices,” she added.

Grancio said owning the market in an index fund allows buyers to use the voting power of their shareholders to drive results, which he has done by teaming up with many massive institutional shareholders to fight against Exxon, but many of the biggest transitions are happening, from vitality to transportation. , are underweight for almost all buyers due to the use of index funds.

Another prominent example she cited is agriculture, and one organization she mentioned is doing it right: Deere. “It makes tractors and tractors dirty, but if we reverse that and take into account printing and the global food crisis and repair, Deere’s strikes in precision agriculture are better for local weather and yield. and profitability for farmers,” she said. Deere is building a business to solve a huge systemic problem that also has a print investment perspective, she said.

However, investing in huge amounts of oil and anticipating that the vitality transition will take a “little bit longer”

Grancio says Engine No. 1’s work with Exxon is an indication that ESG investing is working. “Look at the appreciation of different companies in terms of vitality and Exxon more than doubled, way more than its friends, and it wasn’t just the price of oil,” she said.

She further cited Oxy (formerly Occidental Petroleum) which has been a leader in the energy transition area and more than doubled in 2022 “because it’s different from friends,” she said. “We consider it to be essentially funding points,” she added. Another necessary problem that made Oxy completely different from its friends: a large financing made by Warren Buffett within the company.

The No. 1 engine continues to be a dynamic owner of energy companies, committed to many of the same things as Exxon, even if it was not a proxy battle: managing the allocation of the capital, set clear emissions targets and invest in inexperienced companies. vitality business.

But she says the last 12 months in which the price of oil has soared due to the battle in Ukraine and major energy shortages in Europe have been discovered implies that the energy transition “will probably take a little longer. “.

“Individuals are using fossil fuels and we haven’t made that transition yet, and if we want ownership of fossil fuel we would want it to be managed by the bigger corporations in a way that can also be new science applied to maintain value after the transition, we will need more renewable energy and carbon capture,” she said.

That’s why she continues to see large vitality companies as a funding alternative. “They know how to do these items on a large scale. We need to bring energy to the world as we speak, but as we come to the other side of the energy transition, how they deal with these issues will be necessary so that they always have a great business,” she said. “We expect there will be plenty of room to work constructively with companies on these points.”

Relocating production to the United States must be a whole new priority

While this doesn’t neatly align with an ESG area like local weather, Grancio mentioned that one of the biggest funding alternatives she’s looking for sooner or later would be US manufacturing, transportation and logistics companies tied to a huge resurgence in manufacturing and home manufacturing. .

“Buyers don’t own railroads, not assuming cars or chips will be made in the United States,” she said.

On Thursday, President Biden touted a plan to IBM to speculate $20 billion in New York-based chip maker two days after Micron expertise brings up to $100 billion in semi-manufacturing investment into the state.

Without providing details, she said that the No. 1 engine will sooner or later create funding in the alternative to invest money in the American supply chain. “We’re going to do one thing,” she said.

The revival of home manufacturing in the United States is, in a way, a kind of “change of programs”, as the globalization of yesteryear is disrupted. And that aligns with the general self-discipline of driver #1. “We actually assume that perceiving programs and companies at a deep level is essential to making good selections. Investing should never be ideological. It has to be about understanding these companies and how the industries evolve,” she said. And at a time of great political backlash to ESG investing entirely targeted at energy companies and local climate change, she added, “I hope we don’t let the theater get in the way of this.”

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