Christoper Hohn, founder of TCI Fund Management
Few investors on the planet made more money in 2020 than billionaire Christopher Hohn, head of $35 billion in assets hedge fund TCI Fund Management. Hohn’s firm generated $4.2 billion in net gains last year, according to research from LCH Investment NV, led by large holdings in profitable blue chip companies such as Google, Charter Communications, Canadian Pacific Railways, Microsoft and Visa.
Hohn deploys a unique blend of concentrated, long-term investing and corporate activism. In the past, he was one of the world’s most feared hedge fund investors, ready to wage war against perceived mismanagement or poor governance at massive companies like ABN Amro, CSX, Volkswagen and the London Stock Exchange. Last year, Hohn’s policing of financial markets played a role in the downfall of Wirecard, after he filed criminal complaints against payments processor, which has turned into one of Europe’s greatest accounting scandals. Most of all, Hohn’s stock picking has been superb in an era when active investment managers have struggled to keep pace with passive benchmarks like the S&P 500 Index.
In 2019, Hohn’s firm generated $8.4 billion in profits after returning over 40%, more than any other hedge fund, according to LCH Investment NV, which publishes an annual list of the top-2o hedge fund managers as measured from their inception-to-date net gains. After generating $12.6 billion in gains over the past two years, Hohn ranks thirteenth all-time in gains, making investors $27 billion since 2004, according to LCH’s report.
In recent years, Hohn has used his growing influence to pressure companies to better disclose their carbon dioxide emissions as a means to curb climate change. His ‘Say on Climate’ initiative is an effort to make companies better disclose emissions and benchmark their performance incentives to curbing carbon output. The initiative is backed by Hohn’s Children’s Investment Fund Foundation, a $6 billion philanthropy funded by TCI profits.
Recently, Forbes contributor Robert G. Eccles, a professor at the Saïd Business School, University of Oxford and an expert in in sustainability reporting critiqued Hohn’s Say on Climate initiative.
Eccles argues Hohn’s initiative is overly broad, forcing all companies to increase their carbon disclosures. He calls for a more targeted approach. For the worst carbon emitters, Eccles recommends old fashioned shareholder activism; oust the ineffective board members in proxy battles, drive change from within. Recently, Hohn asked Forbes to continue the dialogue, submitting a rebuttal to Eccles’ op/ed piece, which argues that broad disclosure will help surface the totality of the emissions issue and begin to create benchmarks and incentives for needed change.
Below is Hohn’s letter in full:
Companies are responsible for at least 35% of global emissions, but only a small fraction disclose their emissions or have a climate transition action plan specifying short-term targets and actions. The Say on Climate AGM resolution requires (1) annual disclosure of emissions and of a plan to manage those emissions and (2) an annual advisory vote on the plan and performance relative to plan. It works because it is a reasonable request by shareholders which can garner widespread support, whilst requiring companies to commit to concrete actions that will deliver the transition to net-zero. The information disclosed provides clear, transparent evidence to enable engagement with the board and justify voting by investors for those companies that fail to take effective action to reduce their emissions.
In his article about the Say on Climate initiative, Bob Eccles is correct that disclosure alone cannot drive the change we need to see from businesses to address climate change. The Say on Climate initiative combines disclosure with an AGM shareholder vote. His recommendation for ad hoc voting without public explanation against individual directors has so far failed to deliver results. Instead, we need sustained shareholder pressure through systematic engagement and voting, based on evidence, to secure the necessary change.
Bob Eccles cites academic studies which are focused only on disclosure, without an annual AGM vote, to justify his position. In the real world, I filed a resolution in 2020 on Aena (the world’s largest airport group) for a Say on Climate which won 98% shareholder support including from BlackRock, Vanguard and proxy advisors ISS and Glass Lewis. This led to a significant improvement in Aena’s climate transition action plan. Major companies including Unilever, Canadian National, Glencore, Rio Tinto, Royal Dutch Shell and Moody’s have recently adopted a Say on Climate for their 2021 AGMs.
Professor Eccles says that a Say on Climate vote would burden investors with analysis of climate transition plans and performance. But how can investors hold boards to account if they do not have the relevant information? Another concern as to the effectiveness of the Say on Climate is whether poor quality plans will be produced by companies and rubber stamped by shareholders. In order to address this we need benchmarks as to what constitutes best practice for the components of a plan and targets. The recently launched Climate Action 100+ Net-Zero Company Benchmark provides a good framework for assessing plans.
All plans need to contain short, medium and long-term targets which are aligned with the Paris Agreement. We also need a robust independent grading of those plans, and of performance relative to plans. Alongside this, we need independent auditing of company performance in reducing emissions. Say on Climate recommends reporting of emissions which is consistent with Task Force on Climate-related Financial Disclosures (TCFD) – it does not compete with TCFD. Absolute emissions and emissions intensity should be used as a clear and simple metric to grade performance. Whilst investors may not find it obvious how to evaluate all plans ex ante, it will be straightforward to evaluate them ex post based on performance. Critically, CEO compensation must to be tied to plan performance.
Whilst the AGM vote is advisory only, investors who choose to vote against climate transition plans and performance should also vote against directors of companies in order to force an improvement in their performance. For example, an initial vote against a sustainability or lead independent director could then escalate in the subsequent year to a vote against the Chairman if necessary. In addition, shareholders should consider nominating alternative directors with the skills required to address the climate transition.
Bob Eccles claims that weak results from Say on Pay votes in the US are relevant to Say on Climate, but it is not a good analogy. Higher pay may be justified but increasing emissions intensity can never be justified. I believe that shareholders care a lot more about climate change than executive pay and will be willing to properly hold companies to account.
CIFF is working with and funding NGOs, asset managers and asset owners to file more than a hundred Say on Climate resolutions globally, starting in 2021. However, it is in the hands of investors where this goes – it can be as powerful as investors want it to be. They are waking up to the fact that climate matters for long-term investment performance and company sustainability.
Bob Eccles references the work of Climate Action 100+. CIFF has been a strong supporter of this organisation, which has made some progress in engaging with corporates. However, an annual AGM vote is vital to meaningfully impact the 167 major emitters on the Climate Action 100+ target list.
It is critical that all investors now work together to combine the power of annual disclosure of actual emissions and a plan to manage those emissions with an AGM vote. In the words of Mark Carney, the co-founder of TCFD and former governor of the Bank of England and Bank of Canada, a Say on Climate “would establish a critical link between responsibility, accountability and sustainability”. A shareholder Say on Climate must now become a market, regulatory and social norm.
Sir Christopher Hohn
Founder and Managing Partner – TCI Fund Management
Founder and Trustee – Children’s Investment Fund Foundation, Harvard MBA (High Distinction)
I’m a staff writer and associate editor at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, mergers, and