How These Activists Find Ways That ESG Can Enhance Returns
Lauren Taylor Wolfe and Christian Asmar are activist investors: They angle for change at companies in order to generate superior returns for their investors—they just don’t do it in the way that Carl Icahn and Bill Ackman have made famous.
After spending a decade at activist hedge fund Blue Harbour Group, the duo launched Impactive Capital in 2019, with $250 million from the California State Teachers’ Retirement System. The concentrated hedge fund, which owns eight to 10 small companies, now oversees more than $1 billion in assets. (Blue Harbour closed in 2020 after operating for 16 years.)
Governance—especially when it comes to improving capital allocation and operational improvements—is the bread and butter of many activists. Impactive pays close attention to these factors, but differs from traditional activists by also pushing companies on the environmental and social parts of the ESG triad, in ways meaningful to their businesses. And Wolfe and Asmar stick with companies for at least three years to reap the returns.
Wolfe, 41, began her career as a consultant to banks and technology companies, and worked in a family office investing in small and private companies before joining Blue Harbour. There she met Asmar, 38, who previously worked in investment banking and as an analyst on
Like other value investors of their generation, they lean toward quality businesses with widening competitive advantages and the ability to generate free cash flow significantly in excess of what’s implied in their stock prices. They look for companies that can deliver a high-teens to low-20s percent annual return on their investments, identifying businesses where ESG improvements can help contribute to some of those returns.
Barron’s caught up with Wolfe and Asmar to learn more about their version of activism, how more female mechanics could unlock value at an auto dealer, and why green ammonia excites them. An edited version of our discussion follows.
How do you define activism?
Lauren Taylor Wolfe: There’s a broad spectrum of activists. On one side are the more hostile activists—like Carl Icahn, Will Ackman, and Starboard Value—all of whom I respect and who generate good returns.
Most activists are looking for a quick fix—forcing a company to sell a business or buy back shares. We are looking for long-term, systemic change that will make companies more competitive, which makes them more profitable and valuable. But that requires patience and stamina. Our approach is one of humility, where we demonstrate to management how working with us can drive substantial returns. That has led to [companies] inviting us on the board, instead of proxy contests.
How does the ESG view fit in?
Wolfe: While researching companies at Blue Harbour, we realized—and particularly among the younger generation—that customers and employees were voting their dollars and time, their two most important assets, in ways that aligned closely with their values. That meant increasingly thinking about climate change and diversity, equity and inclusion. We saw a huge opportunity to use tools, particularly on the social and environmental side, to drive return.
What do you think of Warren Buffett’s recent resistance to ESG?
Wolfe: When you reduce your investment universe, you reduce your opportunity for return. But if Buffett saw how we link it to accelerated returns and the economic case, it’s hard to refute. When a company is investing in ESG in a way that accelerates returns over a multiyear period, it’s like any other investment.
Christian Asmar: Every company has a responsibility to be a good ESG actor. The ESG opportunity is a factor in every one of our investments. Having a long-term horizon—three to five years—has enabled us to come to companies with ideas around ESG that are thoughtful, substantive, and tied to returns. For example, making…