Ronald Orol, Senior Editor

TCI Urges Carbon Disclosures in New ESG Push

The activist fund manager may be seeking to attract environmentally conscious investors with 17 environmental campaigns targeting Union Pacific, Canadian National Railway, Univar Solutions and others.

By Ronald Orol

Updated on December 02, 2019, 12:26 PM ET

Billionaire activist hedge fund manager Christopher Hohn is looking to improve his credibility with environmentally focused investors.

At least that’s the view of experts reviewing recently disclosed letters the insurgent fund manager behind London-based investment firm TCI Fund Management Ltd. sent to 17 publicly traded corporations last month, saying he would punish their directors if they failed to disclose their carbon dioxide emissions.

According to the letters, first reported by the Financial Times, TCI has warned Alphabet Inc. (GOOGL), Canadian National Railway Co. (CNI), Union Pacific Corp. (UNP), Univar Solutions Inc. (UNVR) and other corporations that it would vote against their directors in uncontested elections if they did not provide climate transparency.

The fund also urged other institutional investors to fire investment managers who do not push corporations to disclose information about greenhouse gas emissions. a comment that has led some observers to believe Hohn is seeking to compete with large active and index fund managers for investment allocations.

Andrew Freedman, partner at Olshan Frome Wolosky LLP, said the TCI effort comes as demand for so-called environmental, social and governance-focused investment vehicles has increased substantially.

“There's high demand these days for ESG-based investment vehicles,” Freedman said. “TCI's position vis-à-vis climate change shows there is a growing confluence between philanthropy and investing. Large money managers now have a means to ‘practice what they preach’ through these ESG initiatives.”

Unlike many ESG-focused investment vehicles, TCI, formerly the Children’s Investment Fund, holds large positions in targeted companies. For example, TCI is Univar’s largest shareholder with a 9.9% stake. As a result, the fund likely holds significant sway at the chemical and ingredients distributor. The fund also owns 4.7%, 2.7%, 1.6% and 0.7% of Charter Communications Inc. (CHTR), CN, Anthem Inc. (ANTM) and Union Pacific, respectively. Each of the companies received letters from TCI.

TCI’s large positions likely give it more leverage to negotiate on carbon disclosure issues than smaller pure-play ESG-focused investment firms such as Boston Trust Walden Co. or Trillium Asset Management LLC. In addition, a number of traditional active and index funds have begun to concentrate more on ESG issues, and TCI's initiative could help it gain the support of those investors. The allocation, however, raises questions about whether non-ESG investors who are focused on shareholder performance also would support the move. 

Gary Lutin, founder of the Shareholder Forum, said TCI is a lot better than the present set of presidential candidates at managing its voting constituencies.

“They have an understanding of what their own investors want, and they are marketing to them,” Lutin said. “They are also appealing very publicly to the investors whose assets are managed by BlackRock and other big index fund managers, encouraging those managers to support TCI's traditional activist campaigns.”

In addition, Lutin noted that this new TCI effort is an attempt at competing with other activist funds and index funds for the spotlight.

“Now BlackRock has to think about whether they will vote with TCI against companies that don’t disclose their carbon emissions,” Lutin said.

One London-based proxy solicitor said TCI’s effort provides further evidence that investors, even activists, are jumping on the bandwagon of ESG responsibility.

Another investment adviser, though, said he was less than convinced that TCI has transformed itself into an investor that really cares about environmental issues. He said TCI is seeking to join insurgent investors Jana Partners LLC and ValueAct Capital Partners LP, which are traditional concentrated activist investors that also have sought to focus on ESG issues. Last year, Jana Partners, for example, set up a social impact fund with a campaign seeking to curb smartphone and iPad addiction among children.

The letters and ESG strategy appear to represent a shift for Hohn, who is much more well known for his activist hedge fund approach that often involved launching insurgency campaigns with a focus on improving shareholder value. The strategy likely is part of a broader effort to attract ESG-specializing institutional investors, or big shareholders who are eager to have investment managers focus on ESG-related issues.

For example, TCI in 2018 engaged in campaigns at Twenty-First Century Fox Inc. (FOXA) and London Stock Exchange Group plc. The fund manager issued a publicly disclosed letter to Fox executive chairman Rupert Murdoch to consider a bid from Comcast Corp. (CMCSA). In addition, he pushed for the removal of then-LSE chairman Donald Brydon, who was replaced in January. In 2016, Hohn initiated a campaign with a scathing letter targeting Volkswagen Group AG, demanding it overhaul its “overpaid management” pay plans and improve share price performance.

The Deal reported in May that an activist campaign could emerge at Univar, where a number of hedge funds, including TCI, had accumulated significant stakes.