Dan Loeb promotes ESG investing with his latest activist play urging Royal Dutch Shell PLC, an oil giant, to separate into multiple companies.
Dan Loeb’s Third Point stake in Shell is reportedly worth over $500 million, and he believes that pressurizing the break-up of Shell will lure investors back into the stock.
Shell’s current stock price represents one of the cheapest large-cap stocks in the world as its price trades at a 35% discount on most metrics to its peers ExxonMobil and Chevron.
“Dan Loeb’s Third Point stake in Shell is reportedly worth over $500 million, and he believes that pressurizing the break-up of Shell will lure investors back into the stock”
Dan Loeb promotes ESG investing as he calls for the break-up of Shell, which he believes will trigger positive capital flows into Shell
Many investors left the stock in recent years as they deemed the company to be environmentally unfriendly.
ESG means using Environmental, Social, and Governance factors to evaluate companies and countries on how advanced they are with sustainability.
The number of funds adhering to ESG criteria grows as they become increasingly popular amongst the next generation of investors.
Middle-Aged Millennials who have grown into adulthood during the Great Recession, pandemic lockdowns, student loans, stagnant wages, and most recently, the rising cost of living are spurring the growth of sustainable investing.
Investors contributed $51.1 billion to sustainable funds in 2020, compared with less than $5 billion five years ago, according to an MSCI ESG Research Report.
“ESG means using Environmental, Social, and Governance factors to evaluate companies and countries on how advanced they are with sustainability”
Dan Loeb’s Third Point fund achieved double-digit returns in Q3, and now Dan Loeb promotes ESG investing as his latest strategy to return alpha
The billionaire activist investor with a sizable investment stake in Shell is pressuring the oil giant to conduct its activities in a way that embraces environmentalism. Put simply Dan Loeb is betting that the business of saving the planet is likely to return profits.
Shell, compared to its rivals, generates a large percentage of its cash flow and earnings from stable businesses that have a significant role to play in the energy transition.
“We are early in our engagement with the company but are confident that Shell’s board and management can formulate a plan to accelerate decarbonization while simultaneously improving returns for its long-suffering shareholders” – Dan Loeb
Dan Loeb’s Third Point suggested, in its latest letter to investors, that Shell should consider creating at least two stand-alone companies: one with legacy businesses such as refining that would provide steady cash flow and another that houses renewable and other units requiring substantial investment.
Here are some of the key extracts from Dan Loeb’s Third Point letter to investors;
“For example, a stand-alone legacy energy business (upstream, refining and chemicals) could slow CAPEX beyond what it has already promised, sell assets, and prioritize the return of cash to shareholders (which can be reallocated by the market into low-carbon areas of the economy),” the letter reads.
And a standalone LNG/Renewables/Marketing business could combine “modest cash returns with aggressive investment in renewables and other carbon reduction technologies,” with the business benefiting from a “much lower cost of capital,” wrote Dan Loeb.
“A lesson from our prior engagements is that it is often most impactful to invest in companies where the opportunity for positive change is the greatest.
While daunting, there is perhaps no bigger ESG opportunity than in “Big Oil”, and specifically, at Royal Dutch Shell,” he wrote.
“We are early in our engagement with the company but are confident that Shell’s board and management can formulate a plan to accelerate decarbonization while simultaneously improving returns for its long-suffering shareholders,” he added.
Needless to say, Shell’s stock price lifted as Dan Loeb promoted ESG investing.
