Is Big Oil Too Woke for Texas?
Welcome back to Troop’s Insights newsletter. We build tools for modern asset stewardship and we think out loud. In this space you’ll find our latest analysis of the corporate governance space, plus peeks into our product suite’s development. Consider it a conversation about the future; reply if you’d like to share thoughts or learn more.
Cloud Computing Credits Could Shake Up Corporate Governance
One of the weirder recent developments in the tech VC world could end up having an impact on the way new companies are governed. As pointed out in a Substack post from the investor Apoorv Agrawal, Silicon Valley’s new VC powerhouses are actually traditional tech firms like Microsoft and Google, rather than the giants of Sand Hill Road, like a16z and Sequoia. That’s because Microsoft and Google are sitting on a mountain of cloud computing power, which they’re now using to inflate the amount of funding they can dole out to new companies—particularly AI companies, whose LLMs and generative algorithms require a massive reserve of computing resources to stay operational. Microsoft and its peers have figured out that when they want to fund a new AI company, they can simply give out something called “cloud computing credits”—discounts on the cloud infrastructure they already control—in addition to (or instead of) actual money. It’s a kind of double dipping: where a cash infusion gives a startup free rein over its own investments, cloud credits ensure that that startup is tethered to a certain cloud ecosystem, catalyzing all sorts of new activity (and potential new revenue streams) in the realm of the investor.
As Agrawal wisely points out, this creates all kinds of new governance incentives: “[These new investing powerhouses] aren’t purely financial investors and will have strategic directives that may be misaligned with other purely financial investors.” That is to say, a company financed in this way may run up against decisions that could create value for traditional VC shareholders at the expense of the cloud computing rails on which it’s running. Or vice versa. For some AI startups, the essential charge of any corporate governance strategy—“make the choices that make the most money for shareholders”—is starting to get a lot more complicated.
Exxon Takes Shareholders to Court Over ESG Proposals
ESG activism in big oil is far from a new phenomenon; investment firms like Arjuna Capital and Follow This have been dogging these companies for years, filing shareholder proposals that consistently push for new climate benchmarks and reductions in supply chain emissions. These are almost always non-binding measures, which means that even if they passed (and they almost never do), the boards of these companies wouldn’t be legally required to do anything—but their presence on ballots each year has nonetheless seemed to bug some directors. Now, Exxon is suing both Arjuna and Follow This, arguing that their persistence in pushing for emission reduction amounts to a grand scheme to actually shrinkExxon, and thereby hurt shareholders.
“Arjuna and Follow This are aided in their efforts by a flawed shareholder proposal and proxy voting process that does not serve investors’ interests and has become ripe for abuse by activists with minimal shares and no interest in growing long-term shareholder value,” reads the suit.
The pro-ESG crowd likes to argue that reducing emissions is both good for the planet and the shareholders, since it reduces the risk of lawsuits, PR scandals, and regulatory action down the line, while the anti-ESG crowd tends to think of that logic as an excuse for pure degrowth—something that puts the health of the environment over profit (quelle horreur). Now, a Texas district court will have the pleasure of figuring that one out.
Is Big Oil Too Woke for Texas?
Speaking of oil in Texas, it turns out that Republican legislators’ efforts to bar ESG investments from pension funds in the state have inadvertently restricted access to billions in oil stocks—not exactly the “woke” financial instruments they set out to ban. Among the companies with funds on the Texas comptroller’s list of supposed energy industry boycotters are BlackRock, Fidelity, Invesco, and Deutsche Bank.
“Altogether, almost half the funds on the boycotters list have invested a combined $5 billion directly in the oil and gas industry. And two thirds of the now banned funds have more than $13 billion invested in Texas-based companies, including Tesla Inc. and Waste Management Inc…
The Bloomberg analysis of the list of prohibited investments highlights the confusion that continues to exist around the law two years after it was passed and the phrase ‘boycott’ of the energy industry — language that’s been criticized as vague. Firms like BlackRock have emphasized that they do invest heavily in fossil fuels on behalf of clients.”
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