Jeffrey Ubben, the co-founder and CEO of ValueAct Capital and its Spring Fund, is owning his mistakes. Even if — to much of the Wall Street establishment — they may not seem like mistakes at all.
NEW YORK — At a recent Reuters Breakingviews Predictions 2020 event, Ubben was interviewed by Rob Cox, the global editor of Breakingviews. “At ValueAct, we built unsustainable companies,” Ubben said. “The buy, build, and cut strategy — I own that. I better learn from my mistakes.”
The definition of capitalism today, he added, “is to dislocate employees,” citing the recent purchase of TD Ameritrade by Charles Schwab. “The whole business plan, from what I can tell, is to consolidate more so we can charge more to the customer, ultimately, and cut the acquired company’s employees.”
The $14 billion San Francisco-based ValueAct launched the Spring Fund in 2018; and with it, Ubben is pursuing a different investment thesis. Although he only stated it directly once, Ubben made it clear throughout the interview that he was surprised that so few financiers are looking at environmental and social factors — the pricing of carbon in particular — as investment opportunities. “The problem is that people are unwilling to speculate that carbon is going to be at an increasing price. We all know it’s coming,” he said, noting that 40% of the world already has renewables standards of some sort, often on the state or local level. “Why not speculate on that?”
Ubben was sharply critical of traditional energy companies, suggesting that the idea of digging a hole in the Permian Basin and “then repurposing that stock because it has good returns today is a stupid game.” Instead, he said, big energy companies should be using their resources — in terms of scientific knowledge, capital, and workforce — “to do hydrogen or carbon capture or whatever it is that is going to pay big dividends in 20 years.”
He said energy companies further hamstring themselves because of the way they position these activities to investors in annual reports and other communications. Their annual reports show hydrocarbon returns at 13% to 15%, he said, and returns from clean energy below 10%. “If those hydrocarbon assets in 2030 have zero terminal value, even if your current return is high, it’s a low IRR [internal rate of return] proposition,” he said. But by refusing to consider that terminal value, the company — in this case Shell, which he described as “one of the good guys” — has “armed the short-term investor with the very language they want to say, look, you can’t do clean energy.”
Changing Corporate Thinking
The interview with Ubben took place on the same day that BlackRock CEO Larry Fink released a letter to CEOs saying that BlackRock would make sustainability crucial to its portfolio. Fink said BlackRock would exit investments with high sustainability risks. When asked about the letter, Ubben said he thought it was “pretty exciting” though maybe didn’t go far enough.
“I don’t understand this idea of disinvesting,” Ubben said, adding that’s because he doesn’t believe it creates systemic changes.
Cox also asked about an August resolution from the Business Roundtable, which asked corporations to serve their customers, employees, suppliers, and communities, as well as shareholders. Ubben welcomed the statement as essentially an escape hatch from short-term thinking. He said that he and other prominent members of the board had been looking for a way to get companies off the 90-day hamster wheel, and sustainability was potentially one way to do it.
Ubben guessed that only about one-third of the CEOs who welcomed the Business Roundtable statement actually had ambitious environmental or social goals. The rest, he said, “just want their companies back.” Shareholders have too much influence, he said. “It’s not right that somebody in New York could write a letter and say, ‘sell your business’ and some vp who’d been at the company for 15 years has to go home and tell his wife he is losing his job,” he said, referring to letters from activist shareholders.
“That sort of stuff is not free,” Ubben remarked. “That letter is not free to society.” Cox described the Business Roundtable statement as “a way to fend off the old Jeff Ubben,” to which Ubben agreed.
In response to an audience question, Ubben said he wasn’t a fan of “villainizing” companies in the fossil fuel industry, and said he also wasn’t a fan of denying them capital. That’s because, potentially, those companies could be part of the solutions he seeks. For example, he is invested in a company called Nikola Motor, a hydrogen fuel-cell trucking company, he said, adding that vehicles powered by hydrogen fuel cells require a refueling infrastructure. Big energy companies do have the capital to build that infrastructure, said Ubben, and he’d like to convince them to do it.