Big Oil Gets Bigger as ESG Funds Are Falling Out of Favor

Big Oil gets bigger

To oil analysts and investors, Chevron’s $53 billion takeover of Hess confirmed that there’s a new cycle of consolidation in the industry, coming less than two weeks after Exxon Mobil’s $59.5 billion bid for Pioneer Natural Resources.

Even as fossil-fuel producers face pressure from climate-minded policymakers, investors and activists to embrace greener energy — more on that below — they’re instead focusing on getting bigger. That could create a larger gap in the industry between those who have the firepower and freedom to buy rivals, and those who, because of politics or finances, do not.

Chevron and Exxon are acting from a position of strength, striking deals while they sit on billions in cash because of rising oil prices. That’s also reflected in their share prices, which have been climbing, making it attractive to use as deal currency.

Being able to offer stock helped persuade their targets — whose shares have also been rising — to sell. “We’re not only locking in and preserving the value we’ve created over the last several years but we still participate in the upside that you’re talking about,” John Hess, the C.E.O. of Hess, told investors on Monday.

Many in the industry think consolidation is overdue. Investors increasingly aren’t willing to back dozens of drillers pursuing unprofitable exploration projects. “I think we’ve got too many C.E.O.s,” Mike Wirth, the chief executive of Chevron, told analysts on Monday.

Who’s next? News reports have suggested that midsize American shale producers are on the hunt, with Devon Energy looking at Marathon Oil and CrownRock while Chesapeake is studying a bid for Southwestern Energy. Analysts also point to ConocoPhilips, Diamondback and Occidental as being likely to look for deals.

A big question is what European oil giants like BP, Shell and Total will do. Until recently, all had emphasized their efforts to reduce carbon emissions, unlike their American rivals. Investors haven’t been pleased with that: BP, for instance, has a market capitalization of £180 billion, or about $220 billion, nearly half that of Exxon.

Analysts say that the Europeans risk falling behind if they don’t also double down on fossil-fuel production. But the Europeans also face more pressure from their governments to transition to clean energy. (And antitrust regulators would probably frown upon the merger that investors crave: a union of BP and Shell.)

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HERE’S WHAT’S HAPPENING

G.M. reports a 7 percent year-on-year drop in third-quarter earnings. The carmaker cited the U.A.W. strike as a primary reason for its lower profit, and said it was continuing to negotiate with the union. Meanwhile, the U.A.W. ordered 6,800 union members to walk off the job at a Stellantis factory in Michigan that produces Ram pickup trucks, one of that automaker’s most popular models.

U.S. Treasury yields fall. A rally in the bond market sent yields on the 10-year Treasury down to 4.86 percent on Tuesday, after hitting a 16-year high on Monday. (Yields fall when prices rise.) The rebound came as the billionaire investors Bill Ackman and Bill Gross announced they were abandoning their bearish bets on bonds. The other rally captivating investors: Bitcoin briefly topped $35,000 on hopes that regulators will soon approve the first spot exchange-traded fund for the digital currency.

The Justice Department expands an inquiry into Tesla’s business practices. Prosecutors are now examining how far the electric carmaker’s vehicles can travel on a full charge and the “personal benefits” given to some executives, the company disclosed in a regulatory filing. It’s the latest headache for Tesla: It’s stock price fell after a slump in third-quarter profit.

The money flowing out of E.S.G.

Money managers closed their E.S.G. funds at a record clip last quarter, as Wall Street appears to be souring on the sector amid a wider market slump, slowing economic growth and higher interest rates.

The shift away from funds that take into account environmental, social, and governance factors coincides with a regulatory crackdown on greenwashing and other misleading claims by investment funds. A number of Republican-led states are also stepping up boycotts against the asset managers.

Business leaders are increasingly feeling the heat on E.S.G. Some just wish that the larger debate would disappear.

E.S.G. investing is not going away … it’s shrinking. Investors pulled $2.7 billion out of E.S.G. funds last quarter, the fourth straight quarter of outflows from such funds, according to data from Morningstar. Most of the withdrawals were from two funds: BlackRock’s iShares ESG Aware MSCI USA ETF, and the Parnassus Core Equity Fund, run by the San Francisco-based Parnassus Investments.

For the first time, U.S. money managers closed more E.S.G. funds than they opened. This may be part of a long overdue shakeout: Following a three-year boom in E.S.G. fund creation, there were 661 in operation at the end of September, up 11 percent since the start of the year.

E.S.G. funds have grown into a trillion-dollar investing force in recent years. This has been driven in part by investors motivated by a cause they believe in and by those chasing strong returns, Alyssa Stankiewicz, Morningstar’s director of sustainability research, told DealBook.

The slump in E.S.G. investing, she added, can probably be explained as much by “performance expectations” instead of advocates of sustainability-investing having “a change of heart about topics like climate change or diversity.”

War is the big topic in Riyadh (on the sidelines)

Saudi Arabia’s global investment conference kicked off on Tuesday to a packed house of business leaders.

Questions about who would attend the Future Investment Initiative event in Riyadh as the Israel-Hamas war intensified appear to have been settled: Nearly all of the big names who were invited were present. But, as The Times’s Kate Kelly writes for DealBook from Riyadh, many attendees chose their words carefully when asked about the region’s geopolitics.

Jamie Dimon urged Saudi Arabia to push for peace. “Despite what happened in Israel,” the C.E.O. of JPMorgan Chase said on a panel that featured other top financiers, “I urge you all to keep up that effort.”

Others refrained from speaking at length about the war. Steve Schwarzman, the billionaire co-founder of Blackstone, briefly mentioned the Yom Kippur war of 1973 onstage, pointing out that it was followed by recession.

On the sidelines of the event, an aide cut off the FIFA president, Gianni Infantino, as he attempted to answer a reporter’s question about the Israel-Hamas war. “Can he comment on what?” asked the aide. “It’s not really the moment,” he said, stepping in front of Infantino, who resumed posing for selfies with fans.

Some audience members expressed concern about the civilian casualties in Gaza — but refused to discuss them on the record.

Larry Fink of BlackRock may have been the most outspoken. “There’s consequences to war and to fear and instability, and I think it will lead to less hope, a lot more fear and it will then lead to a much greater contraction if we don’t navigate this as a world,” he said on the investment panel, speaking of the conflict’s economic impact. “And that’s why I think we all have that responsibility to talk about it.”

The top donors to the would-be House speakers

After weeks of chaos without a leader speaker in the House, the number of Republican candidates for the role of speaker is now down to eight and party infighting shows little sign of abating any time soon. Here’s a look at the pre-political careers of the relative unknowns vying to be speaker and lists their top donors, based on Federal Election Commission data from Open Secrets.

• Tom Emmer, Minnesota — The Majority Whip ran his own law firm before running for office. He’s on the Financial Services Committee and his biggest givers are AIPAC, a pro-Israel lobbying group, and the private equity firms Bluff Point Associates and Apollo Global Management.

• Austin Scott, Georgia — Scott owned an insurance brokerage. He’s on the Intelligence, Armed Services and Agriculture Committees, and his top donors are in the insurance and farming sectors, including WSR Insurance and the National Cattlemen’s Beef Association.

• Byron Donalds, Florida — Donalds worked in finance and insurance, and is on the Financial Services Committee and the Oversight and Accountability Committee. His top donor is Robinhood Markets, the retail trading app.

• Kevin Hern, Oklahoma — Hern was an aerospace engineer before owning a McDonald’s franchise. He is on the Ways and Means Committee and his top donors include the asset manager Blackstone, the insurer Cigna and Marathon Petroleum.

• Gary Palmer, Alabama — Palmer worked in engineering construction before pivoting to policy. He’s on the Energy and Commerce Committee and the Oversight and Accountability Committee. His biggest funders are local industrial and construction companies.

• Jack Bergman, Michigan — A retired Marine Corps lieutenant general, Bergman is on the Armed Services and Veterans Affairs Committees. His biggest donor is a company that helps veterans claim their benefits, followed by the financial services firm Atlanticus and the tech giant Oracle.

• Mike Johnson, Louisiana — A longtime lawyer, Johnson is on the Judiciary and Armed Services Committees. His biggest givers are the pharmaceutical distributor Morris & Dickson and the software developer Praeses.

• Pete Sessions, Texas — Sessions worked at Southwestern Bell Telephone and is on the Financial Services and Oversight and Reform Committees. His top donors are Bankers Life, an insurance company, and Deason Capital, an investment firm.

• Bonus candidate: Patrick McHenry, North Carolina — The interim speaker is not officially running for the top role, but there is discussion about giving him the powers to conduct legislative business. He chairs the Financial Services Committee and often sides with the Chamber of Commerce in its feuds with Democratic regulators. His top donors are Apollo, Truist Financial and AIPAC.

THE SPEED READ

Deals

• The drug makers Novo Nordisk and Eli Lilly are racing to buy makers of weight-loss treatments. (FT)

• The aluminum giant Rusal agreed to buy a 30 percent stake in a Chinese aluminum oxide plant, the first major deal by a big Russian company since the invasion of Ukraine. (Bloomberg)

• Northvolt, Europe’s biggest maker of batteries, is reportedly looking to go public with an I.P.O. in Sweden that could value the company at $20 billion. (FT)

Policy

• The Biden administration chose 31 regions as potential federally funded tech hubs, to help drive innovation beyond Silicon Valley. (NYT)

• Gavin Newsom, the California governor, is embarking on a campaign to export his state’s climate laws worldwide. (NYT)

Best of the rest

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