When a Wall Street Pirate Joins the Climate Fight

April 27, 2020

Sure he’s a bastard, but he’s our bastard.
Isn’t he?

Bloomberg:

The hedge fund industry has no shortage of aggressive, in-your-face players, but few are as tough as Chris Hohn. The British billionaire takes the typical playbook to new levels — scuttling deals, pushing to remove bosses, and battering companies with litigation and threats. One opponent was so peeved after losing a boardroom battle with Hohn that he titled a book about the experience Invasion of the Locusts. That approach made Hohn’s TCI Fund Management the world’s best-performing, large hedge fund last year.

Now Hohn is bringing his hardball tactics to the fight against global warming. The money manager, with $30 billion in assets, is pushing portfolio companies to dramatically reduce greenhouse gas emissions and disclose their carbon footprint. If they don’t, he says he’ll oust their boards or dump their shares. Just in case anyone doubts his commitment, last fall Hohn and his charity donated £200,000 ($260,000) to Extinction Rebellion, the radical climate change movement whose members have blocked traffic in London and glued themselves to jetliners.

“In the war against fossil fuels, you can’t be super-picky about your allies,” says Jeremy Grantham, co-founder of Boston money manager GMO, a legendary investor who has long warned of climate catastrophe. Hohn “has shown you can make a big impact on companies with a lot of arm-twisting.”

For Hohn, 53, a cerebral and deeply private financier who’s worth $2 billion, his campaign is just a first step in shaking up an asset management industry he says has ignored a planetary crisis. He’s calling on investors to fire money managers who don’t press companies to reduce their carbon footprint, and he wants banks to stop lending to companies that ignore climate change.

Still, for all of Hohn’s zeal, his crusade is fraught with the inconsistencies of green investing. TCI once held a big stake in an Indian coal producer; even now, it owns shares in three railroads that burn tons of diesel and ship fossil fuels, including from oil sands, one of the worst sources of greenhouse gases. Another key holding: Ferrovial SA, the Madrid-based conglomerate that runs airports that include London’s Heathrow.

“On the one hand, he’s trying to be green—and on the other, he makes money out of polluters,” says Jacob Schmidt, chief executive officer of Schmidt Research Partners, a London investment firm. “The question is, how committed are you in actually following your principles?”

Hohn says it’s far more productive to engage with carbon-heavy companies than to ignore them. On Nov. 30, TCI sent letters to the CEOs of the 17 companies in his portfolio with specific instructions on shortcomings that must be fixed. TCI said it will vote against directors of companies that don’t hit its targets, as well as auditors who fail to report “material climate risks,” and it may even sell all its shares in a company.

In a letter to Ferrovial, Hohn acknowledged that “de-carbonizing” airports is a massive challenge and lauded the company’s A grade for disclosing its greenhouse gas emissions. Yet TCI said Ferrovial’s target of cutting emissions almost a third by 2030 could be increased, and he called on the company to support measures such as a carbon tax and a mandate that airlines shift to greener jet fuel.

He told Canadian Pacific Railway Ltd. that its method of disclosing emissions got a C grade by the nonprofit Carbon Disclosure Project, and that its plan to boost that to a B would still be “unsatisfactory.” TCI, the railroad’s No. 1 stockholder, with an 8% stake, said it requires the company to have a “credible, publicly-disclosed plan” to reduce emissions that meets seven objectives, including offsetting emissions from corporate travel and making facilities more energy efficient. Canadian Pacific says it engages in dialogue with stockholders on topics including sustainability, and that it has long reported its emissions to improve its practices. Hohn declined to be interviewed for this story.

Still, for all of Hohn’s zeal, his crusade is fraught with the inconsistencies of green investing. TCI once held a big stake in an Indian coal producer; even now, it owns shares in three railroads that burn tons of diesel and ship fossil fuels, including from oil sands, one of the worst sources of greenhouse gases. Another key holding: Ferrovial SA, the Madrid-based conglomerate that runs airports that include London’s Heathrow.

“On the one hand, he’s trying to be green—and on the other, he makes money out of polluters,” says Jacob Schmidt, chief executive officer of Schmidt Research Partners, a London investment firm. “The question is, how committed are you in actually following your principles?”

Hohn says it’s far more productive to engage with carbon-heavy companies than to ignore them. On Nov. 30, TCI sent letters to the CEOs of the 17 companies in his portfolio with specific instructions on shortcomings that must be fixed. TCI said it will vote against directors of companies that don’t hit its targets, as well as auditors who fail to report “material climate risks,” and it may even sell all its shares in a company.

In a letter to Ferrovial, Hohn acknowledged that “de-carbonizing” airports is a massive challenge and lauded the company’s A grade for disclosing its greenhouse gas emissions. Yet TCI said Ferrovial’s target of cutting emissions almost a third by 2030 could be increased, and he called on the company to support measures such as a carbon tax and a mandate that airlines shift to greener jet fuel.

He told Canadian Pacific Railway Ltd. that its method of disclosing emissions got a C grade by the nonprofit Carbon Disclosure Project, and that its plan to boost that to a B would still be “unsatisfactory.” TCI, the railroad’s No. 1 stockholder, with an 8% stake, said it requires the company to have a “credible, publicly-disclosed plan” to reduce emissions that meets seven objectives, including offsetting emissions from corporate travel and making facilities more energy efficient. Canadian Pacific says it engages in dialogue with stockholders on topics including sustainability, and that it has long reported its emissions to improve its practices. Hohn declined to be interviewed for this story.


Yet he has suffered defeats that show the limitations of his activism. In 2012, TCI sought to force Coal India, a state-controlled producer, to boost dividends and stop selling super-cheap coal to nearby power plants. But the government had little interest in seeing energy prices rise; in 2014, TCI gave up and bailed out of the stock, which had fallen 19% during the campaign. Four years later, the London Stock Exchange Group Plc spurned Hohn’s demands to oust its chairman and renew the CEO’s contract. After that effort was rebuffed, TCI sold most of its 5% stake in the company, only to see its shares almost double the following year.
Value vs. “values”
Hohn is rolling out his green efforts as the asset management industry struggles to find a way to address climate change while delivering the kind of returns investors demand. Index fund giants have long used an investing style dubbed ESG—based on environmental, social, and governance criteria—but they maintain that investment stewardship is ultimately about maximizing value, not imposing social “values” on companies.
But amid mounting anxiety about record-breaking global temperatures, Larry Fink, chief executive officer of BlackRock Inc., acknowledged on Jan. 14 that climate change has become a “defining factor” in the long-term prospects of companies worldwide. BlackRock, the world’s biggest investment firm, with $7.4 trillion in assets, will start cashing out of firms with “high sustainability-related risk” and plans to make emissions a fundamental consideration in investments.

12 Responses to “When a Wall Street Pirate Joins the Climate Fight”

  1. Sir Charles Says:

    Hedge funds should be banned, worldwide. Period.

    • rhymeswithgoalie Says:

      Hedge funds should be banned, worldwide. Period.

      The basic premise of a hedge fund is to invest money into flexible financial instruments to protect against losses in mainstream securities. In the US, they are restricted to clients which are large funds or “high net worth” individuals under the premise that rich people and fund managers exercise their own due diligence on these risky and exotic investments. [pause for laughter]

      I think any attempts to outright ban them as a class would just result in a semantic reclassification (e.g., gambling is illegal were gaming is not) with the same underlying shenanigans.

      Personally, I would be happy if “naked shorts” were made illegal, and people shorting stocks would have to explicitly buy the stocks they were shorting rather than scribbling an IOU on a torn slip of paper. (On top of that, put a tiny—say 1¢—tax on every buy, sell, put and cancel order put through any stock market as built-in friction on high-speed automated trading.

  2. Sir Charles Says:

    Short overview:

    BlackRock – The company that owns the world?

    • pendantry Says:

      If it does ‘own the world’ then it would make sense for Blackrock to want to save it so that all its trillions of inedible cash aren’t flushed down the toilet with the rest of us.

  3. pendantry Says:

    Is the repetition of the text from

    Still, for all of Hohn’s zeal, his crusade…

    to

    … declined to be interviewed for this story.

    a Cunning Plan to identify whether anyone has actually read the text?

  4. doldrom Says:

    The last thing we need is more financial muggers, even if they’re mugging companies with poor fossil fuel optics. It’s just a cudgel to beat money out the victims, nothing will actually be built. All the money hedge funds make is pure extraction, there is no building of real world capital going on.

    We are heading pall mall into a situation where we have gazillions of dollars but no earth, what exactly does that money mean? Will we buy another earth? This confusion between money and debt and wealth (creation) will be the end of us. We need to start thinking in terms of public and environmental assets that will enable a future, not about “making” money.

  5. greenman3610 Says:

    As in Game of Thrones, if climate change is the Army of the Dead on the march, I’ll take help from anyone that might offer it. We’ll figure the details out later.

    • Sir Charles Says:

      Well. It’s not an easy issue (which one is that?). On the one hand, we cannot expect the system which has driven us into this mess being our saviour all of a sudden. At the other hand, the end justifies the means (which end?).

      I’m afraid that Trump is getting a second term because the Dems are still sticking to their neo-liberal course with Joe Biden. Also, Biden’s performance is very poor. He has no connection to the young people whatsoever. Sanders would really have made a difference. I only hope that the left will recognise that change can sometimes take its time (it’s called evolution), and enough people will go to the ballots this time in November, even with some collywobbles, and vote for the less evil. Burnie or bust has not paid off. It has only made the situation worse and caused the ultra right-wingers getting stronger than ever before. Fake news and constant lies have finally established to become the new normal in the White House.

      My 50 cent. Hope springs eternal.

      BTW, I have never watched or played Game of Thrones. Not my genre.


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