(Bloomberg Opinion) -- The financial community has spent most of the past decade or so coping with the aftershocks of the global economic crisis. In the coming years, it’s likely to find most of its attention consumed by the need to tackle a far more serious threat — the climate emergency posing a clear and present danger that imperils more than just money.
As envoys from almost 200 nations corralled by the United Nations meet in Madrid to discuss the climate crisis, a billionaire hedge fund activist has weighed in on the need for companies to come clean about their contributions to global warming, and for investors to use their financial firepower to demand action to combat the climate crisis.
QuicktakeWhy Climate Terms Matter
Christopher Hohn accused his fellow asset managers of having an “appalling” voting record on resolutions that challenge companies to do better environmentally. “Major asset managers such as BlackRock have been shown to be full of greenwash,” Hohn said, according to the Financial Times.
Hohn runs TCI Fund Management Ltd., which manages more than $30 billion. The London-based firm wrote to companies including Airbus SE, Charter Communications Inc. and Moody’s Corp., threatening to divest its holdings if they don’t improve their greenhouse gas emissions reporting.
Hohn has already put his money where his mouth is now going. His personal charity, the Children’s Investment Fund Foundation, donates about $150 million a year to organizations involved in the climate crisis, according to the FT. In October, he gave 50,000 pounds ($64,525) to Extinction Rebellion, the group’s biggest ever individual contribution. “I made the donation because humanity is aggressively destroying the world through climate change and there is an urgent need for us all to wake up to this fact,” the FT reported him as saying.
One issue facing investors trying to align their portfolios with more principled strategies is the sheer proliferation of firms claiming to be able to rank companies based on their environment, social and governance performances. Sustainable Market Strategies reckons there are more than 100 data providers competing to compile and sell ESG data. (Bloomberg LP, the parent of Bloomberg News, provides ESG data, analytics and indexes.)
“The multiplication of ESG data providers and scoring methodologies is making it more difficult for ESG-minded investors to actually find value in ESG ratings,” the research firm said in a report published last week. “ESG is still a jungle, and ESG scores — with all their biases — still lack price prediction power.”
The report cites research by MIT Sloan School of Management that found ESG scores from different providers have a correlation of just 61%, compared with the 99% tracking found across credit ratings. “The ambiguity around ESG ratings is an impediment to prudent decision-making that would contribute to an environmentally sustainable and socially just economy,” the researchers said.
Central banks are debating whether to add climate risk to their roster of responsibilities. Christine Lagarde, who recently became president of the European Central Bank, has said central banks should prioritize their role in mitigating the effects of global warming. Bank of England Governor Mark Carney, one of the most vocal central bankers on the financial risks posed by the climate crisis, will become a special envoy for climate action and finances for the United Nations, the bank just announced.
And in Norway, the opposition Labor Party has called for the nation’s sovereign wealth fund, the world’s biggest with more than $1 trillion of assets, to take on a more political role. “Climate change will frame all politics,” party leader Jonas Gahr Store said last month.
Climate activism is set to become more common in asset management in the coming years. Hohn’s intervention is a timely reminder that shareholders of all shapes and sizes need to engage with the companies they invest in, using their financial clout to compel executives to improve their environmental performance — for all of our sakes.
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Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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