Ubben: Getting companies like Exxon invited is a clear goal because carbon-emitting companies haven’t been part of the conversation thus far. — Reuters
LONDON: Jeff Ubben, the veteran hedge fund manager who’s just closed his sustainable investing firm, is calling out what he’s dubbed the “echo chamber” of traditional climate summitry.
The 62-year-old, whose Inclusive Capital Partners told clients last week it was selling investments and returning their money after not being “rewarded” by markets, said he’s worried about what he describes as entrenched points of view preventing progress in climate talks.
The tone has historically has been “so divisive,” Ubben said in an interview. “We all need to work together.”
Ubben has long been an advocate of bringing big oil to the table. He joined Exxon Mobil Corp’s board in 2021, the same year as activist fund Engine No. 1 secured three seats.
He’s now on the advisory committee of Conference of the Parties (COP28) in Dubai, which is hosting more oil executives than any other United Nations (UN) climate summit.
The setting of this year’s COP has drawn warnings from climate activists that the event risks becoming a deal-making venue for oil majors and the finance industry, with such vested interests compromising a strong final climate agreement.
This year’s COP will likely be the best-attended ever, with more than 100,000 delegates, according to a provisional list compiled by the UN Framework Convention on Climate Change.
That’s roughly twice as many as attended last year’s COP in Egypt.
Sultan Al Jaber, president of the COP28 summit and head of the United Arab Emirates’ national oil company, Adnoc, has denied reports that he’s using his position at the talks to strike oil and gas deals.
He also said he wants as many interests as possible represented to ensure a “successful” outcome.
Last Saturday, Exxon was one of 50 oil and gas producers at COP28 to pledge to cut emissions from their own operations.
Darren Woods, the first Exxon chief executive ever to attend a COP summit since the gatherings began in the early 1990s, said in an interview that there’s “a much more diverse group of people recognising” that climate change is a “hard problem” to solve.
Woods also said there’s now a greater recognition that the energy transition will require a breadth of technologies, which “opens the door for us”.
The deal struck by oil and gas producers will be controversial given none of the companies is actually agreeing to reduce production.
“The pledge doesn’t cover a drop of the fuel they sell, which accounts for up to 95% of the oil and gas industry’s contribution to the climate crisis,” said Melanie Robinson, global climate programme director at the World Resources Institute.
But signatories will pledge to stem releases of methane, one of the most dangerous greenhouse gases, to near zero by 2030 to stop routine flaring of natural gas.
Ubben said getting “companies like Exxon invited” was a clear goal because carbon-emitting companies “haven’t been part of the conversation” thus far.
Instead, “it’s been this echo chamber of diplomats going to these conferences and putting out flowery language and goals, but it doesn’t have traction,” Ubben said. “There’s no money behind it, which is why company balance sheets are so important.”
Ubben launched Inclusive Capital three years ago during a boom in green investing, and after two decades of running activist hedge fund ValueAct Capital.
At the time, he told investors his new venture would back companies focused on tackling problems ranging from environmental damage to food scarcity, and his goal was to raise US$8bil for that purpose.
Inclusive Capital had US$2.6bil of assets, including borrowed money, at the end of last year, a March regulatory filing shows. Its closure coincides with one of the worst years for climate investing, as higher borrowing costs and supply-chain bottlenecks batter capital-intensive green companies.
Despite historic subsidies into climate technologies in the United States, China and Europe, the S&P Global Clean Energy Index is down about 30% this year, while the S&P Global Oil Index is broadly unchanged over the period.
When Ubben created Inclusive Capital, the plan was to “collaborate with companies whose core businesses address essential societal needs with a focus on reducing negative externalities,” according to the memo handed to clients informing them of its closure.
But it’s a strategy that “unfortunately hasn’t been rewarded in the public markets,” the memo read.
In reality, over the past three years, the “exact opposite” has played out, it continued.
“Shares of companies pursuing capital-intensive projects needed to drive lower greenhouse gas emissions have been ‘sold off’ in the public markets as being too risky or too far out in terms of any potential reward.”
For now, there’s little to indicate that markets are about to shift tack. In fact, Bloomberg’s recent Markets Live Pulse survey showed that the slump that’s dragged down green stocks is expected to continue into 2024.
Oil companies like Exxon, meanwhile, are also seeing their share prices decline as the spike in demand fanned by the energy crisis fades. Exxon’s share price is down roughly 14% from a September high. Chevron Corp is down 15% in the same period.
A key goal of the COP28 talks is to get governments to agree to a tripling of global renewable energy capacity by 2030. That would require investments equivalent to around a 10th of the world’s 2022 gross domestic product, according to BloombergNEF.
For investors trying to calibrate their climate strategies, the outlook remains challenging.
“Energy use is going to grow,” Ubben said. “And we need to keep energy affordable for those people that want the right to develop.” — Bloomberg
