Finance

Chinese President Xi Jinping met his Russian counterpart Vladimir Putin virtually for the second time this year on Wednesday.
The meeting came just days after the U.S. and the other Group of 7 major economies condemned Russia’s military build-up and “aggressive rhetoric towards Ukraine.” 
Beijing likely wants to ensure that if it were to take military action against Taiwan, “the Russians wouldn’t do anything,” said Angela Stent, a professor at Georgetown University. “I think both sides recognize, Putin knows, that if he invaded Ukraine, China [isn’t] going to send military help.”

Russia’s President Vladimir Putin and China’s President Xi Jinping (L-R on the screen) shake hands during an official ceremony, via teleconference, to launch Russian gas supplies to China via the eastern route.
Mikhail Metzel | TASS | Getty Images

BEIJING — International pressure may have pushed China and Russia closer together, but not enough for the two countries to send military support to each other, U.S.-based analysts said.
Chinese President Xi Jinping met his Russian counterpart Vladimir Putin virtually for the second time this year on Wednesday. It came just days after the U.S. and the other Group of 7 major economies condemned Russia’s military build-up and “aggressive rhetoric towards Ukraine.” 

“Beijing and Moscow are forging closer ties because both governments view deeper bilateral cooperation as beneficial to their respective national interests, and not primarily because of an ideological affinity between Xi and Putin,” said Neil Thomas, analyst for China and northeast Asia at consulting firm Eurasia Group.
China and Russia would rather “divide Washington’s political attention between strategic hotspots in Europe and the Indo-Pacific,” he said in an email. 
It’s not clear what Beijing’s position on Ukraine is, but China has come under similar international scrutiny over human rights issues, and territorial claims on the democratically self-ruled island of Taiwan.

Neither of them specifically endorsed the position of the other with regard to their points of sensitivity, so I think they both want to preserve some sort of flexibility.

William Courtney
adjunct senior fellow, Rand Corp

This year, while Moscow has sent troops to the border with Ukraine, Beijing has increased military activity near Taiwan. U.S. President Joe Biden recently made confusing statements on whether Washington would defend Taiwan upon attack.
Beijing likely wants to ensure that if it were to take military action against Taiwan, “the Russians wouldn’t do anything,” said Angela Stent, professor emerita and director of the Center for Eurasian, Russian and East European Studies at Georgetown University.

“I think both sides recognize, Putin knows, that if he invaded Ukraine, China [isn’t] going to send military help,” she said on CNBC’s “Squawk Box Asia” on Thursday. “But they’ll remain completely neutral and that allows them to do whatever they want in what they consider to be their sphere of influence.”

Official reports from both Beijing and Moscow portrayed the two leaders’ virtual meeting Wednesday as a yet another friendly conversation that strengthened the countries’ relationship.
Analysts highlighted the rare and more personal use of “you” in Xi’s address of Putin, as released by China’s Ministry of Foreign Affairs.
However, “neither of them specifically endorsed the position of the other with regard to their points of sensitivity, so I think they both want to preserve some sort of flexibility,” William Courtney, adjunct senior fellow at the Rand Corp. said on CNBC’s “Capital Connection” on Thursday. He is a former U.S. ambassador to Georgia and Kazakhstan.
In the video call, Xi said he looked forward to meeting the Russian leader in person at the Olympics in Beijing in February. The Chinese leader also “reaffirmed China’s commitment to firmly support Russia in maintaining long-term stability,” according to a release from China’s foreign ministry.

Russia talks up China’s goodwill

Moscow struck an even more optimistic tone.
In the video call, Putin said Russia’s relations with China were at their best level ever, according to statements from both countries.
A Kremlin aide also claimed to reporters after the meeting that Xi said the bilateral relationship was stronger and more effective than that of allies, although the two sides do not have such a formal alliance.
“President Xi stressed that he understands Russian concerns and fully supports our initiative to develop appropriate security guarantees for Russia,” said Yury Ushakov, Russian presidential aide on foreign policy.

Putin has said Washington should not allow Ukraine to join the North Atlantic Treaty Organization in return for assurances that Russia would not invade. But Biden told Putin in a virtual meeting last week that Washington would not accept such a demand.
An attack on one member of NATO — a powerful military alliance — is considered an attack on all member countries. Ukraine has wanted to join NATO since 2002, but Russia has objected on grounds that such a move would be a direct threat to its borders.

China’s diplomatic self-interest

Releases from China’s foreign ministry did not describe the relationship with Russia as a kind of alliance. The two countries are major trading partners, with China buying significant amounts of energy products from Russia.
“China does not want a formal military alliance with Russia, because it wants to avoid direct involvement in the messy international politics of Moscow’s destabilizing moves in Eastern Europe, and has an ‘independent foreign policy of peace’ that opposes military conflict and emphasizes the importance of dialogue,” Eurasia Group’s Thomas said.

Read more about China from CNBC Pro

“Russia is very much the junior partner in the bilateral relationship,” Thomas said. “And Moscow’s ambition in Ukraine [is] not nearly important enough to Beijing for it to abandon its longstanding opposition to formal alliances in international affairs.” 
While looking out for its own interests, Beijing claims a core principle of “Xi Jinping Thought on Diplomacy” is “building a community with a shared future for mankind with a view to defending world peace and promoting common development.”
Earlier this week, China’s foreign ministry said Xi sent a message of condolence to Biden over the deaths and other destruction from strong tornadoes in the U.S.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 2, 2021.
Brendan McDermid | Reuters

U.S. stock futures were slightly lower Thursday evening as investors digested a trading day in which tech names struggled and dragged the rest of the market down with them.
Futures on the Dow Jones Industrial Average rose 0.06%. S&P 500 futures fell 0.01% and Nasdaq 100 futures fell 0.05%.

In regular trading, the tech-focused Nasdaq Composite fell 2.47% for its worst day since September. The other averages saw more modest losses. The Dow fell 0.08%, while the S&P 500 lost 0.8%.
The moves erased a rally in Wednesday’s session that followed the Fed’s announcement of a more aggressive plan to wind down its asset purchases, and that it is looking at hike rates in 2022.
As investors continued to digest the news, as well as the impact of both rising inflation and the spread of the omicron Covid variant, they appeared to be rotating from high-growth tech names to consumer staples.
“As the Federal Reserve turns more hawkish and expectations for higher interest rates rise, investors are lowering exposure to growth stocks,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “Typically, growth stocks exhibit a higher duration compared to value stocks because a higher proportion of their cash flows will be received in the more distant future.”
Bank stocks were among the biggest gainers of the day. Bank of America and Wells Fargo added more than 2%. Goldman Sachs and JPMorgan rose more than 1%. Shares of Verizon jumped more than 4% as one of the top performers in the Dow.

Weekly jobless claims came in slightly higher than expected Thursday, and housing starts for November were stronger than economists projected after declining in the prior month.
On Friday, Darden Restaurants and Winnebago are scheduled to report quarterly earnings results before the bell.

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Rivian employees stand beside the new all-electric pickup truck by Rivian, the R1T, as it sits at one of its facilities on November 09, 2021 in the Brooklyn borough of New York City.
Spencer Platt | Getty Images

Check out the companies making headlines in after-hours trading.
FedEx — Shipping company FedEx saw its shares jump 6% after reporting quarterly earnings and revenue that beat analysts’ expectations. FedEx also announced a $5 billion share repurchase program and reinstated its original fiscal 2022 forecast, which it lowered in September.

Rivian Automotive — Electric vehicle maker Rivian saw shares slide about 10% after reporting its first quarterly results as a public company. Rivian said reservations for its electric pickup and SUV increased 28% and announced plans to build a new vehicle assembly plant in Georgia.
General Motors — GM lost about 4% in extended trading following news that Dan Ammann, CEO of its San Francisco area-based self-driving car company Cruise, has left the company. Cruise founder Kyle Vogt will be interim CEO.
United States Steel — Shares of U.S. Steel traded about 4% lower after the company issued fourth-quarter 2021 adjusted EBITDA guidance. EBITDA is expected to be approximately $1.65 billion, which is lower than the $2.13 billion expected, according to Street Account.
Affirm — The installment loan company’s shares slid more than 1% after hours, continuing to slide after closing down 10%. The Consumer Financial Protection Bureau announced earlier Thursday it launched an inquiry into buy-now-pay-later credit. It asked Affirm and other companies offering a similar product to provide information that would help it shed light on industry practices and risks.
Jabil — Manufacturing services company’s shares edged 1% higher after reporting quarterly earnings of $1.92 per share on revenue of $8.58 billion. That was higher than analysts’ estimates of $1.80 per share earnings on revenue of $8.29 billion, according to Refinitiv.

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A day after a big market rally, stocks on Thursday fell sharply and government bond yields also declined.
One reason for the moves, especially in bonds, is that the market may not be quite convinced that the Fed can do what it outlined in its future projections.
With inflation running at a 39-year high, finding the right balance between stabilizing prices and supporting the economy will be challenging.

Federal Reserve Board building is pictured in Washington, U.S., March 19, 2019.
Leah Millis | Reuters

While the Federal Reserve this week managed to clarify its near-term plans, there are still more than enough questions left for the long term to give investors anxiety.
Markets initially reacted favorably to the Fed’s post-meeting statement Wednesday, in which it said it will strike back against booming inflation by accelerating the reduction of its monthly bond purchases and probably raising interest rates three times in 2022.

But Thursday’s market action was less convincing, with rate-sensitive stocks falling sharply and government bond yields, which could have been expected to rise in the face of the Fed’s tighter monetary stance, falling instead.
One reason for the moves, especially in bonds, is that the market may not be quite convinced that the Fed can do what it outlined in its future projections.
“The bigger challenge for the Fed and for the markets is that they may not have the scope to raise rates as much as they say they do without inverting the yield curve and slowing down the economy more than they want,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “What the market’s telling you is the Fed doesn’t have much scope to go beyond two or three hikes.”

On track to hike

The message from the “dot plot” of projections from the Federal Open Market Committee’s 18 members was that the Fed is prepared to go beyond just a couple of increases.
Every member penciled in at least one rate hike in 2022, with two even going as far as indicating four increases. The majority of members saw the Fed approving three quarter-percentage-point hikes next year, followed by three more in 2023 and two in 2024.

But Jones thinks that outlook could be too aggressive considering the challenges the economy faces, from the ongoing pandemic to the demographic and workforce limitations that have held inflation and rates in check for more than a decade.
“Pushing rates up that significantly could be pretty hard without causing much more tightening in financial conditions than they probably want to see,” she said.

Limits on raising rates could jeopardize the Fed’s credibility as an inflation fighter and stoke fears of asset bubbles. Markets reacted strongly positive to the statement on Wednesday, reflecting both relief that the FOMC’s statement was not excessively hawkish on monetary policy while the scope to tighten financial conditions was limited.
With inflation running at a 39-year high, finding the right balance between stabilizing prices and supporting the economy will be challenging.
“In our view, the Fed has been falling behind the curve since earlier this year and remains well behind the curve today,” Mark Cabana, Bank of America’s head of U.S. rates strategy, said in a note.
“The Fed’s new policy is highly nonlinear, creating a dangerous endgame,” Cabana added. “Once the Fed hits its goals, it should have a neutral policy stance, not a super-stimulative zero policy rate and massive balance sheet. In our view, the Fed has already essentially hit its goals.”

The tightening road ahead

Balance sheet reduction is a whole other issue that the Fed will have to face in the longer term.
Chair Jerome Powell said at his post-meeting news conference that policymakers have just started discussions about ultimately reducing holdings. That process would commence after the bond-buying taper is finished and likely not at least until the Fed has a few rate hikes under its belt.
It’s a tricky balance to engineer a soft landing from monetary policy that has been accommodative at unprecedented levels. Last time, from 2017 to 2019, “quantitative tightening,” or QT, as it became known, did not end well, with markets revolting after Powell said the process was on “autopilot” at a time when the U.S. economy was weakening.
It’s all part of what Krishna Guha, head of global policy and central bank strategy at Evercore ISI, calls the “Powell conundrum,” of having to tamp down inflation while supporting the economy through a challenging period.
“Relatively aggressive QT might be necessary if the Fed over time gets no traction on the longer end of the yield curve and wider financial conditions,” Guha said in a note. “This is the most obvious regard in which the ‘Powell conundrum’ needs to be considered carefully by investors and might contain the seeds of its own destruction, though this is relevant more on a through-2022-and-beyond timeline, not for the next few weeks or even months.”
In the interim, the ride for markets could get stomach-churning, particularly after Fed officials return to the public dais and start giving policy speeches again. New York Fed President John Williams will be on CNBC’s “Squawk Box” on Friday at 8:30 a.m. ET.
“Going through the motions of fighting inflation, which is what we’re talking about, could cause quite a lot of short-term volatility,” said Christopher Whalen, chairman of Whalen Global Advisors.
However, Whalen expects the Fed would acquiesce to markets if policy became restrictive.
“The unspoken truth of America is we need inflation in this society to keep the political peace,” he said. “I’m not looking for a great deal of inflation fighting from this guy [Powell], because if the market swoons he’s going to fold real fast.”

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The Adobe Systems logo is displayed outside one of the company’s offices.
David Paul Morris | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Adobe — Shares of Adobe sank 11.4% after issuing weaker-than-expected guidance. Adobe forecast fiscal year 2022 adjusted earnings of $13.70 per share versus the $14.26 per share consensus expectation from Refinitiv.

AT&T — Shares of telecom giant AT&T rallied 7.4% after Morgan Stanley upgraded the stock to an overweight rating from equal-weight. The firm said AT&T shares look attractive after the stock’s underperformance this year. More visibility into AT&T’s WarnerMedia and Discovery deal should provide a growth catalyst next year, according to Morgan Stanley.
Robinhood — Shares of the stock trading app fell more than 6% after Bank of America initiated coverage of the stock with an underperform rating. The Wall Street firm said “the perfect storm” from the pandemic is over for Robinhood, and it estimated that the broker’s organic growth and trading activity could face a multi-year headwind as client engagement fades.
Accenture — Shares of Accenture surged 7.2% after the consulting firm reported better-than-expected quarterly profit and revenue. The company posted earnings of $2.78 per share on revenue of $14.97 billion. Analysts surveyed by Refinitv expected a profit of $2.63 per share on revenue of $14.19 billion. Accenture also raised its earnings guidance for fiscal 2022.
Lennar — Lennar shares fell 4.2% after the homebuilder’s quarterly report missed Wall Street expectations. The company posted earnings of $3.91 per share, below the $4.15 consensus estimate from Factset, and the homebuilder’s revenue also fell short of projections. Lennar reported higher lumber and labor costs increased labor costs and raw material shortages.
Novartis — Novartis shares gained 5.6% after the drugmaker launched a share buyback program of up to $15 billion. The company expects to execute its program by the end of 2023.

Petco Health — Shares of Petco gained 1.6% after Needham initiated coverage of the pet products retailer with a buy rating. Needham said Petco should outperform competitors in the pet category.
Bank of America — Bank of America rose 2.5% after JPMorgan named it a top stock pick for 2022. JPMorgan said Bank of America is a “larger beneficiary of higher rates” as the Federal Reserve prepared to raise interest rates next year.
Medtronic — Medtronic shares rose 2.8% after Wells Fargo downgraded the stock to equal weight from overweight. The firm cited “recent setbacks and delays to four of MDT’s key pipeline products.”
Under Armour — Shares of Under Armour fell 4.1% after Stifel downgraded the stock to a hold rating from buy. Stifel said it has “lower confidence” in Under Armour’s revenue and margin upside.
Airbnb — Airbnb shares fell 6.7% after RBC downgraded the stock to sector perform from outperform. The firm said Airbnb’s risk versus reward is “ultimately appearing too balanced at current levels to warrant the Outperform.”
Ford — Ford shares rallied 1.6% after Wells Fargo named the auto stock a top pick in the new year. The firm said, “We expect the auto recovery trade will finally start to work in 2022.”
— CNBC’s Yun Li and Tanaya Macheel contributed reporting

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THE BANK OF ENGLAND has sprung its second surprise in as many months. In November it failed to raise interest rates after it had steered markets to expect an increase. On December 16th it did raise rates after all, surprising investors—despite the most obvious change in the economic outlook being a worsening of the pandemic. The bank’s monetary policy-committee voted by a margin of eight to one to raise interest rates from 0.1% to 0.25%. That makes Britain the first big rich economy to experience interest-rate rises since the pandemic struck. A defence of the Bank of England’s toing-and-froing would start with the argument that now is an exceptionally tricky time to be doing its job. The global economy has been battered by a series of unusual shocks. With the state of the economy so uncertain, investors should not expect clear predictions about the path of policy. Indeed, the minutes of the bank’s meeting said that the decision was “finely balanced”. The motivation for the rate rise is, in part, a worry that uncomfortably high inflation might stick. The bank’s decision came a day after the publication of inflation figures for November. Consumer prices rose at an annual rate of 5.1%, higher than economists had expected, and well above the bank’s target of 2%. The bank expects inflation to stay at around 5% throughout most of the winter, peaking at 6% or so in April 2022. Although it saw few signs of inflation expectations spiralling out of control, it saw signs of “greater persistence in domestic cost and price pressures”. Moreover, there are indications that Britain’s labour market is making a rapid recovery. The latest data show that it has shrugged off the end of the country’s furlough scheme with little fuss. Wages are growing faster than they were before the pandemic, and unemployment has fallen more quickly than expected. Maintaining very loose monetary policy could therefore risk juicing up an economy already at full capacity, fuelling future price rises that would be painful to bring under control.The main surprise was not the fact that the Bank of England chose to raise interest rates—in November it had said that it would do so “over coming months”. Instead it was the timing. Britain is in the throes of an enormous wave of infections caused by the Omicron variant of covid-19. To be sure, that could exacerbate inflation problems, if it means that people continue to splash their cash on goods rather than services, in turn extending retailers’ supply-chain woes. But if fiscal support is not forthcoming, confidence takes a knock and spending slumps, inflation could start to flag. Although successive waves of the virus have caused decreasing damage to the British economy, this one could buck that trend if vaccines prove less effective at stopping its spread. Silvana Tenreyro, the lone dissenter on the committee, pointed out that Britain’s economy was still smaller than it had been before the pandemic. Although the new variant could raise inflationary pressures, she argued, there were scenarios in which sticking with rock-bottom interest rates would be best. The Bank of England has been more hawkish than other big central banks like the Federal Reserve or the European Central Bank. On December 15th the Fed indicated that it would start raising interest rates next year. The ECB, which met on the same day as the Bank of England, announced a reduction in its overall asset purchases but gave no hint that interest-rate rises were imminent. The Bank of Japan, due to meet on December 17th, is expected to stand pat. The obvious risk is that, by being the first to raise rates, the Bank of England has to change course if the recovery falters. There could be more surprises to come. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

The American Rescue Plan raised the maximum value of the child tax credit to $3,000 or $3,600 per child (depending on age) in 2021. It will fall to $2,000 next year absent congressional intervention.
The value would be further reduced to $1,000 starting in 2026 due to a provision of the 2017 tax law.
Democrats had hoped to pass the Build Back Better Act by the end of the year; that no longer seems likely. The measure would extend this year’s enhanced tax credit through 2022.

A demonstration organized by the ParentsTogether Foundation in support of the child tax credit portion of the Build Back Better bill outside the U.S. Capitol on Dec. 13, 2021.
Sarah Silbiger/Bloomberg via Getty Images

The enhanced child tax credit may expire in 2022, yielding a smaller financial benefit for parents. But that haircut may not be the last — the credit’s value is scheduled to fall further in a few years’ time.
Democrats are still trying to marshal 50 votes in the Senate for President Joe Biden’s social policy and climate agenda, which would extend a temporary increase to the child tax credit for another year.

The American Rescue Plan, a pandemic-relief law, raised the credit’s maximum value to $3,000 or $3,600 per child (depending on their age), from $2,000, in 2021. It also converted the tax break into a monthly income stream families started getting in July.
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The credit will revert to its $2,000 value next year if Congress doesn’t intervene. It’s poised to fall further starting in 2026, when the tax break would decline to $1,000 per child due to “sunset” provisions in a 2017 tax law passed by then Republican-controlled Congress.
Of course, Congress won’t necessarily let the tax credit revert to that $1,000 value.
“There’s a long history of the child tax credit being expanded temporarily, and when the deadline hits it gets extended again,” Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center, has told CNBC.

If existing law does expire, low-income households would bear the brunt of the impact, while middle and high earners would generally see limited to no impact, said Maag, who specializes in income-support programs for low-earning families.
The Build Back Better Act, which House Democrats passed in November, would extend the tax credit’s monthly income stream for parents whose income is below $75,000 (single) or $150,000 (married) a year.
It would also make the credit fully refundable on a permanent basis — a particular benefit for low earners, who would get the full value of the credit regardless of their income or tax liability. Prior to the pandemic relief law, this wasn’t the case, and nearly all the credit’s benefits went to middle-earning households, Maag said. (The highest earners weren’t eligible.)

Democrats had hoped to send the legislation to Biden’s desk by year-end. The bill has stalled in the Senate, where Joe Manchin, a conservative Democrat from West Virginia, remains a holdout on the $1.75 trillion proposal. The party needs all 50 Democrat votes in the Senate due to unified Republican opposition.
An earlier version of Democrats’ legislation, originally pegged at $3.5 trillion, would have extended the enhanced child tax credit value through 2025 instead of 2022. The party scaled back the measure after cost objections from Manchin and Sen. Kyrsten Sinema, D-Ariz.

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Engine No. 1 was founded a year ago this month, and since then, has made a splash in the investing world. Most notably, the ESG-oriented investment firm took on Exxon Mobil in a proxy battle and won. It also launched an ETF and published a white paper, largely supportive of General Motors. 

Engine No. 1 CEO Jennifer Grancio sat down with Delivering Alpha to discuss her strategy and what comes next for the firm. 
 (The below has been edited for length and clarity.)
Leslie Picker: You have a lot of buckets that you’re operating in: activism, ETFs, constructive research, maybe more that we don’t even know about yet. What do you think is the best way to achieve the means to the ESG end?
Jennifer Grancio: We founded Engine No. 1 on the simple idea that you have to understand the relevant E, S, and G data and then you simply use that to think about what are companies valued at today? Are they misvalued? And how do you drive economic value over time? And this data is critical to long-term value. So we start there. And then in everything we do, we also engage very deeply with the companies. So our point of view is, if you care about ESG, you want to engage with the companies to put them on the right path. And if you’re just investing, and you’re looking to build wealth, and have strong performance over these transformation cycles, you care about ESG data, and you also really have to engage with the companies. You have to hold them and we don’t believe in divestment. Maybe we can talk more about that later. You have to hold the companies and engage with them so you can help them over the transformation cycle.
Picker: I want to hone in on this word engage, because Exxon, it was more of a critical engagement. You looked at a company, you felt like they were doing potentially bad things with regard to ESG and sustainability, in particular. With GM, you’re engaging but in more of a complimentary way. Are both of these strategies you think effective? Is there one that you’re more focused on than the other?

Grancio: We actually think there are a lot of different ways to engage with a company. And so everything we do is based on a total value framework, which is this idea of when you look at a company’s business and you look at their material impacts, how does that then relate to what the company’s value is over time. And so when we looked at Exxon, we saw, you know, a problem. It’s an outlier. So from an E and S and a G perspective, the company was making choices that were leading to negative long-term value outcomes for shareholders. And so that’s a case where maybe the company doesn’t see it that way and as investors, you really have to engage to think about how do you do something differently. 
In the case of GM, the company actually understands they have a good CEO, they’ve got a great governance approach to running their business, and they understand the E and the S, and they’re using it to drive value for shareholders. So they’re two very different examples. So in a case, like Exxon, where it’s an outlier, you may as investors – and we feel like we were able to go and make this argument – make an economic argument be the sort of tip of the spear on this conversation, and a lot of people came with us and followed us that we took an activist approach. In most everything else we do, we think it will be much more of a constructive approach, like what we do with General Motors.
Picker: After the Exxon campaign, a lot of CEOs across corporate America were studying their ESG chops worried that they could be vulnerable for the next situation. Do you feel like you can use that halo and do something similar in the future on the activism front, because you were so successful with Exxon, that now you have kind of the wind in your sails to do a next campaign?
Grancio: Well, the way that we think about it for now is we have information, we have a way of thinking about the world where we can actually help CEOs. And what we found on the back of the network with Exxon is that CEOs want that help. So many CEOs, they have ESG reports, they have studies and a lot of them, frankly, would love somebody to talk to, to help think about what are the key things in ESG that they should think about? And we think that’s, that’s really the magic, which is doing the math and figuring out which of these impact areas are most critical to a business and then how do they engage so that they actually drive value for shareholders over time. And we’ve had great conversations with a lot of CEOs where we’re not coming to be threatening activist, we’re coming to be deeply constructive about how they run their companies and make money for investors over time.
Picker: Recently, your head of activism left the firm. And if I’m reading between the tea leaves, it sounds like proxy battles are not going to be the norm for Engine No. 1. Am I understanding that correctly?
Grancio: We think a lot of the opportunity is very constructive. The opportunity for CEOs to get to the nub of how they make E, S, and G part of their, basically just running their business. They want to do that, we think that’s a huge opportunity for investors. So that’s right, we may occasionally need to do a proxy campaign or an activist campaign but mostly we’re going to be constructive. 
Picker: So it’s not fair to call you an activist investor…
Grancio: It’s fair to call us an investor that’s trying to drive performance for everybody that we work with.
Picker: There are reports out there that you met with Chevron and some of the other executives from the oil and gas industry. Anything materialized from those conversations that you’d like to share?
Grancio: We’ve talked to a lot of people and so our point of view on that whole sector is that companies are working to figure out, as we go through an energy transition, how they manage their business for optimal returns over time. So we don’t comment on exactly what we’ve done with who but we are having a number of constructive conversations. And again, we think it’s a big opportunity for energy companies and a big opportunity for investors to get this right.
Picker: What do you make of Exxon’s recently announced goals to reduce company-wide greenhouse gas intensity by as much as 30% by 2030? Are they going far enough?
Grancio: We’re glad Exxon is starting to make some progress on these issues since we started the campaign a year ago. But our perspective is still that it’s a company that has work to do on governance, and work to do on sharing with the market a strategic plan over time for how their business transforms. So we’d like to see more there and we’re happy that we were able to lead a campaign that puts the right capabilities in the boardroom so there’s an opportunity to have that conversation now.
Picker: If they don’t get to where you need them to be, would you be open to running another proxy battle at Exxon?
Grancio: Well, we’ll be watching them.
Picker: You’ve taken a different approach, as you mentioned with GM. This was a white paper largely complimentary of the automaker, saying that they’re a leader among incumbents to make the transition to electric vehicles. Is this something that we’re going to be seeing more of? And will it always be related to sustainability? Or will there be other research on maybe the social part of ESG or the governance part of ESG? 
Grancio: Our point of view on this is that all of those things matter. So governance: how good is your board? Does your board have the right capabilities? Are the people on the board people that have successful track records in running prior businesses? The governance matters. And then from a climate perspective, it’s just a little bit right in front of our nose because companies already have disclosed a lot of information. So it’s very easy to have math and economics-based conversation about how environmental relates to long term value. Then on the social side, as well, and the data is on the come on the social side. 
We use the data that’s available today and there are clear causalities and relationships between how a company brings people up through leadership perspectives and how a company thinks about their impact on the community, how a company thinks about the quality of wages for their workforce. So absolutely, those are all areas that are in our sights.
Picker: If you were to kind of speak broadly to CEOs out there, which of those ‘S’ factors would you say, “Get that in order right now, or, you know, you may be receiving a call from us soon.” 
Grancio: Yeah, I think I think it’s a little bit different for every company, depending on their business, and where they have the most impact. So if you’re a professional services firm, you know, how are you bringing people up through the leadership ranks? If you’re a firm that employs people, at average, lower wages, are you employing people in a way where they have more than a living wage, and you’re hiring in proportion to the communities that you serve? So it’s a little different for different companies. But our guidance would be [to] think about materiality. Think about running a business the right way so it’s sustainable, and you’re serving customers, and you’re kind of beating out your competitors over time. So make it about that long-term economic value and it makes it much easier, we think, for companies to do the right thing. More