Anti-ESG Activist Investor Urges Chevron to Increase Oil Production

Vivek Ramaswamy is bringing ESG battle to oil patch by calling on Chevron to slow spending on its energy-transition plan

By Amrith Ramkumar, Sept. 6, 2022 

A conservative activist turned investor who has criticized Wall Street’s efforts to address climate change and other issues is publicly urging Chevron Corp. CVX -0.97%▼ to pump more fossil fuels over the next decade.

Vivek Ramaswamy, who launched an energy-focused exchange-traded fund nearly a month ago, is among the most prominent critics of so-called environmental, social and governance—or ESG—investing. He quickly turned his sights on Chevron, arguing the country’s second-biggest fossil-fuel company should slow spending on its energy-transition plan, which he said was partially motivated by pressure from top shareholders such as BlackRock Inc. BLK 2.05%▲

In the letter Tuesday to Chevron CEO Mike Wirth and the company’s board, Mr. Ramaswamy said he wanted to “liberate you from constraints imposed on Chevron by its ESG-promoting ‘shareholders.’ ” Mr. Ramaswamy writes that he looks forward to engaging with the company before next year’s proxy voting season. The Wall Street Journal previously reported on the letter. 

Chevron didn’t immediately respond to a request for comment.

The author of “Woke, Inc.”, a book arguing businesses shouldn’t be affected by politics, Mr. Ramaswamy invested in Chevron through his Strive Asset Management’s ETF nearly a month ago. The ETF tracks an index of energy stocks. Strive, which counts investor Bill Ackman and tech executive Peter Thiel among its backers, is part of a pushback by conservatives against ESG investing. The fund has hit about $315 million in assets, a strong start for a new offering. 

The Chevron effort is a response to last year’s proxy victory by hedge fund Engine No. 1 at Chevron rival Exxon Mobil Corp. that forced Exxon to accelerate energy-transition efforts. Strive’s letter calls for energy producers to dump their current strategy of limiting investments and returning cash to shareholders. It is one of the first formal calls for an oil giant to do so. 

Mr. Ramaswamy, whose fund holds a roughly 0.02% stake in Chevron, would likely need support from large shareholders who have generally embraced Chevron’s current strategy to get the company to change course. He is unique in targeting a company that is posting stock-price gains and record profit. High oil-and-gas prices have lifted Chevron shares about 35% this year. 

A former pharmaceutical executive, Mr. Ramaswamy says Chevron could earn a higher valuation relative to earnings if it addresses possible supply shortages over the next decade. That approach is more appropriate than limiting output and devoting resources to the energy transition, he says. 

Large index-fund providers BlackRock, State Street Corp. and Vanguard Group own about 20% of Chevron. The asset managers have previously responded to criticism of ESG—the loosely defined practice of considering issues beyond short-term profits when making financial decisions—by saying companies that manage environmental risks and opportunities will be the most profitable over time. They don’t always oppose energy companies increasing fossil-fuel output and don’t always take the same stances on company proposals. 

Heavy long-term spending on fossil fuels when demand is expected to fall in the decades ahead is a failing strategy, many investors and analysts say. 

Mr. Ramaswamy’s letter marks a new front in this year’s war over ESG. Republican-led states such as Florida and Texas have recently taken steps to move their investments and retirement funds away from some Wall Street firms. Both sides have accused the other of being anti free market and inserting political views into business. 

Mr. Ramaswamy is counting on large shareholders like Warren Buffett to help Chevron shift its strategy. Mr. Buffett’s Berkshire Hathaway Inc. is Chevron’s largest individual shareholder with a roughly 8% stake it has built as part of recent bets on U.S. oil companiesFactSet data show. 

The letter says that the legendary investor’s independent thinking and opposition to ESG-disclosure proposals at Berkshire last year could make it easier for Chevron to fight the biggest Wall Street firms. 

Mr. Buffett has typically invested in companies where he likes the management and has opposed activist investors. He has historically supported strategies that maximize long-term earnings and share prices.

Mr. Buffett’s largest bet this year is Occidental Petroleum Corp., one of the energy industry’s biggest backers of new climate technologies like removing carbon directly from the atmosphere. Mr. Ramaswamy said in an interview he thinks there is room for many company approaches in an investment portfolio as long as they maximize financial performance and nothing else. 

Many investor campaigns are unsuccessful or end up having a limited impact, but any back-and-forth between Strive and Chevron could have implications for other companies that are defining their climate plans. 

The letter comes as the energy industry enjoys boom times but faces an uncertain future. Chevron, based in San Ramon, Calif., and which had $11.6 billion in second-quarter profit, last year pledged to triple its low-carbon investments to $10 billion through 2028. Chevron in March said its capital spending would range from $15 billion to $17 billion annually through 2026.  

CEO since February 2018, Mr. Wirth has said he plans for the company to continue raking in cash from fossil fuels while strategically investing in parts of the energy transition where the company has expertise. Many of those just became more attractive investments thanks to tax credits that are part of the Inflation Reduction Act. The company bought sustainable fuels company Renewable Energy Group for $3.15 billion earlier this year and has many startup bets tied to the energy transition. 

Mr. Ramaswamy says the company is well suited for bold action after Mr. Wirth recently rejected President Biden’s claims that oil companies weren’t producing enough and were taking advantage of consumers. Chevron has moved slower than competitors like BP PLC and Shell PLC on renewables, potentially making some of Strive’s proposals easier to accept.  

Engine No. 1’s campaign at Exxon last year won support from the largest asset managers, put new directors on the company’s board and forced the company to move more quickly to reduce its environmental impact. Chevron prepared for a similar campaign, then accelerated its energy-transition strategy, The Wall Street Journal previously reported.

—Collin Eaton and Akane Otani contributed to this article. 

Read the Wall Street Journal article here.