Charlotte Street Partners

DAILY BRIEFING

DAILY BRIEFING

A new era of shareholder democracy?

Written by Li-Ann Chin, associate
Edited by Adam Shaw, associate partner

13 October 2021

Good morning,

Hedgefund Engine No. 1 was only six months old with a mere $250 million in assets under management when it successfully waged a battle against ExxonMobil, an oil and gas behemoth worth approximately $250 billion.
 
Against the energy giant’s wishes, the virtually unknown firm managed to persuade institutional investors to elect three of its four nominated directors to the board of Exxon with the goal of pushing it to reduce its carbon footprint – a stunning result that had climate activists across the world declaring a major triumph.
 
But it never would have happened if Engine No. 1 had not been able to gain the support of Exxon’s three largest shareholders, BlackRock, Vanguard and State Street.
 
Prior to the board election, Engine No. 1 held only 0.02% of Exxon’s shares, which gave it a similar portion of proxy votes. The three institutional investors together accounted for nearly 20% of the voting shares.
 
The media lauded it as a new David-and-Goliath tale for Wall Street. If there is a story that best encapsulates the power of shareholder voting, this is definitely it.
 
Last week, it was announced that BlackRock, as one of the world’s largest asset managers, is expected to give its clients – pension funds and institutional investors, in other words – the power to vote directly on issues such as executive pay and climate change at annual meetings starting next year.
 
While the vast majority of investors traditionally rely on their asset managers to cast proxy votes on their behalf, this marks the first, and potentially transformative, step by a major asset manager to provide the ultimate owner of voting rights in a company the power to use them. Come 2022, large investors will have a direct say on the governance, stewardship and direction of companies they are invested in.
 
The decision has been welcomed by many as a way to further embed responsible voting practices in the industry and directly facilitate investor participation in proxy voting. BlackRock has confirmed the move will apply to nearly half of the $4.8tn of index equity assets it currently manages.
 
Asset managers have previously dismissed giving clients the ability to vote directly in annual shareholder meetings as logistically challenging and expensive. BlackRock has now demonstrated that it is entirely possible. Counterparts are now likely to come under pressure to offer similar mechanisms to their clients. Will this usher in a new era of shareholder democracy?

News

A report by the Environment Agency (EA) has warned that hundreds of people in the UK could die in floods, similar to those in Germany, unless the UK takes urgent measures to prepare for the impacts of climate change and become more resilient to increasingly violent weather. In words that are unusually blunt for a public official, Emma Howard Boyd the EA’s chair, said: “It is adapt or die”.
 
Elsewhere, Fatih Birol, the head of the International Energy Agency, has stated that extreme volatility in energy markets will remain a continued risk in the future unless investment in clean power is tripled over the next 10 years. Projected investment in fossil fuels is now aligned with the changes to reach net zero emissions of greenhouse gases by 2050 but public spending on renewable energy is currently only at a third of the future levels needed. (£)
 
Cabinet office minister Stephen Barclay refused to apologise for the government’s handling of the coronavirus pandemic 11 times when he appeared on Sky News yesterday afternoon, after a highly-critical report said thousands of lives were lost due to delays and mistakes made by both ministers and their scientific advisers. “We followed, throughout, the scientific advice. We got the vaccine deployed extremely quickly, we protected our NHS from the surge of cases,” Barclay insisted.
 
The Duke and Duchess of Sussex are moving into the investment business after being recruited by Ethic, a New York-based ethical financial technology company as “impact partners”. It is Harry’s hope that their partnership with Ethic will encourage more interest and investment in sustainable companies, particularly among the younger generation. (£)

Business and economy

UK gross domestic product (GDP) grew by 0.4% in August 2021, according to the latest figures from the Office for national Statistics, remaining 0.8% below its pre-pandemic level. Services output grew by 0.3%, with output in consumer-facing services increasing by 1.2%.
 
Maersk, the world’s largest container shipping company, was forced to direct some of its biggest vessels away from Felixstowe, Britain’s biggest port, to northern European ports as it was deemed too full yesterday afternoon. The shipping containers are reported to have been carrying toys and electrical goods, leading to fears there could be shortages of these goods this Christmas. (£)
 
The global economy is entering a phase of inflationary risk, the IMF warned yesterday, as it urged central banks to be “very very vigilant” and implement early action to tighten monetary policy should inflationary pressures prove persistent. The IMF’s central forecast is that global inflation will rise sharply towards the end of 2021 and moderate in mid-2022 before falling back to pre-pandemic levels. (£)

Columns of note

Military tension around Taiwan increased last week as China sent a record 52 warplanes into the country’s air defence identification zone after the US and five of its allies held a large naval exercise off the Japanese island of Okinawa. International tensions are ratcheting up between the US and China, and Taiwan is at the root of it. The question of whether America would go to war for Taiwan has seemed fairly abstract for decades. Now it is increasingly urgent, writes Gideon Rachman in the Financial Times.
 
To solve the climate crisis, the amount we consume needs to drop dramatically. Take fast fashion, for example. We know that the fashion industry is one of the most polluting sectors in the world. And yet adverts on the latest fashion styles are so ubiquitous and sophisticated that overconsumption seems almost inevitable. Writing in The Guardian, Andrew Simms points a finger at the advertising industry for fuelling the climate disaster. “There must be pushback”, he says.

Markets

What happened yesterday?

London stocks ended in negative territory yesterday as investors fretted about global inflation and a possible default at Chinese property developer Evergrande.
 
The FTSE 100 closed the session 0.23% weaker at 7,130.23, and the FTSE 250 was down 0.08% at 22,468.90.
 
Sterling was in a mixed state, last trading 0.01% weaker against the dollar at $1.3593, but advancing 0.14% on the euro to €1.1783.
 
Wall Street stocks closed lower on Tuesday as investors weighed surging oil prices, economic worries and major third-quarter earnings results ahead.
 
At the close, the Dow Jones Industrial Average was down 0.34% at 34,378.34, the S&P 500 fell 0.24% to 4,350.65, and the Nasdaq Composite dipped 0.6% to 14,465.93.
 
In company news:
 
Athleisure business Gymshark was reported to have started putting together plans for an Initial Public Offering (IPO) in London.
 
THG, formerly known as The Hut Group, stocks tumbled as much as 33% on Tuesday afternoon after its management claimed during a presentation to investors that the London-listed online retailer was under a “short attack” from hedge funds betting against its shares. Founded in 2004, THG raised £1.9bn last year in one of London’s largest recent IPOs.
 
NatWest is pledging to make £100 billion of climate and sustainable funding available by 2025 and is expected to soon launch a “green loan” for small and medium firms to encourage them to transition away from carbon.

What’s happening today?

AGMs
Barratt Developments
Mobilityone

Finals
Applied Graph.

Interims
Angling Direct
Sndrsn Dsn

Trading Announcements
Audioboom Grp.
Marstons

UK Economic Announcements
(07:00) Manufacuting Productions
(07:00) Gross Domestic Product
(07:00) Industrial Production
(07:00) Index of Services
(07:00) Balance of Trade

UK Economic Announcements
(07:00) Consumer Price Index (GER)
(10:00) Industrial Production (EU)
(12:00) MBA Mortgage Applications (US)
(13:30) Consumer Price Index (US)
(15:30) Crude Oil Inventories (US)

Source: Financial Times

did you know

Chocolate is the only edible substance to melt around 33° C – just below the human body temperature.

Parliamentary highlights

House of Commons

The House of Commons is in recess. The House will next sit on 18 October 2021.

House of Lords 

Oral questions
Various
 
Legislation
Skills and post-16 Education Bill [HL] – report stage
 
Orders and regulations
Regulation of Investigatory Powers (Criminal Conduct Authorisations) (Amendment) Order 2021 – motion to regret

Scottish parliament 

No business scheduled.

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