by Bloomberg 15
Feb 2020 by Saijel Kishan
Harris Associates, the US$120 billion money
manager, formally joined in the responsible investing trend a year ago,
pledging to press companies to disclose how climate change and social issues
affect their bottom line.
David Herro, Harris’s deputy chairman and an
investment chief, would arguably play a key role in the effort to align
its investments with environmental concerns. Having made his name in the
value-investing discipline pioneered by Warren Buffett, Herro isn’t shy about
pressuring C-suite executives. (Just ask Credit Suisse, Akzo
Nobel and Glencore, to name a few).
But that’s where things might get awkward. Herro
told the Financial Times in 2015 that man-made global warming remains
unproven, and that corporate executives who promise to tackle it are “appeasing
environmental extremism and zealotry” and putting “pop science” ahead of
shareholder value. More recently, he helped raise hundreds of thousands of
dollars for the Global Warming Policy Foundation (GWPF), the main UK think tank
pushing back against policies to fight climate change. Herro, 59, served as
treasurer for its US fundraising arm and has donated to other groups that
oppose significant climate regulation, according to tax filings.
Last February, Herro’s firm signed the
Principles for Responsible Investment (PRI), a United Nations-backed framework
that helps asset managers incorporate environmental, social and governance
(ESG) factors in their investing decisions. The PRI’s 2,700
signatories—including Harris Associates—agree to champion ESG strategies
internally, among their peers, and most importantly by the companies whose
securities they own.
The PRI is now considering a new level of
transparency—one that would require asset managers to disclose information
about their own executives. This would include their outside roles and
donations to groups that seek to influence government policy, according to
a person with knowledge of PRI’s work.
“My personal charitable donations which
include donations made to organisations ranging from education to arts have
nothing to do with my professional career or my employer,” Herro wrote in an
emailed statement. “Given the importance of ESG, one must listen to all sides
of any argument.”
While it’s debatable whether the private
donations of a money manager should matter to an investor, the transparency
issue could become more potent as climate change accelerates. Do pension funds
seeking to match their investments with sustainable goals want to reward
asset managers who fund groups that challenge the science of global
warming?
“We all have things we can do better, given all
the contradictions in our lives,’’ said Timothy Smith, director of ESG
shareowner engagement at Boston Trust Walden, which manages US$10 billion. “But
there are some contradictions that jump up and slap you in the face.”
Harris Associates said that while it signed the
PRI last year, it formally implemented its Responsible Investing Policy in
2017. In an emailed statement, the Chicago-based firm noted that its
“investment process is centred around the team rather than one particular
individual’s beliefs,” adding that “David Herro is one of several investment
professionals who provides input on the firm’s investment decisions.” The firm
said it doesn’t comment on personal donations by employees to non-profit
groups.
GWPF, based in London, didn’t return requests
seeking comment. Duncan Smith, a spokesman for the PRI, declined to
comment.
Carbon dioxide is the main driver behind
climate change, accounting for about three quarters of all greenhouse gases
globally, according to 2016 estimates from the World Resources Institute.
Peer-reviewed studies show that climate scientists agree that global warming
over the past century is likely caused by humans. Almost 200 countries pledged
to limit fossil-fuel pollution that causes climate change as part of
the 2015 Paris Agreement.
ESG is one of the fastest-growing areas of
asset management, thanks in part to demand from pension funds and other large
investors. About US$30.7 trillion was held in sustainable or green
investments in 2018, up 34% from 2016, according to the Global Sustainable
Investment Alliance. Such demand, however, has raised the spectre of
financial industry greenwashing, where misleading descriptions
create an exaggerated image of environmental responsibility.
PRI said climate change is the highest priority
for investors. By signing up, they commit to six principles,
including being “active owners and incorporating ESG issues’’ into policies and
practices. They also promise to pursue actions such as filing shareholder
resolutions when a company has gone astray.
Harris’s responsible investing policy, as
outlined on its website, largely echoes PRI. The firm said it both
considers environmental factors, such as climate change, that may “materially
impact” its investment analysis and encourages companies in which it
invests to build their own ESG strategies.
Harris’s “Responsible Investing Policy
Statement” states that the firm, when dealing with company executives,
discusses “management’s plans to proactively deal with business risks and
opportunities, including ESG issues when relevant,” and urges “corporate
leaders to provide clear and relevant disclosure of information that may
influence our investment decisions.”
Herro co-runs Harris’s US$15.1 billion Oakmark
International Fund. The pool has outperformed its benchmark since its 1992
inception, as well as over the last 10 years through Dec. 31 2019, according to
its fund documents. However, it has underperformed on a five, three and one-year
basis, the documents show.
Reportedly a prominent Republican
donor and self-described libertarian, Herro has become a regular on cable
financial news programs, often taking sides in high profile corporate fights.
In the 1990s, he led a group of investors intent on forcing out Maurice
Saatchi as chairman of the advertising agency Saatchi & Saatchi. More
recently, he was an avid backer of Tidjane Thiam, who was ousted as Credit
Suisse’s chief executive officer last week.
As recently as 2018, Herro served as treasurer
for the American Friends of the GWPF. Over a three year period, he helped raise
about US$590,000 for the organisation, tax filings show.
Founded by Nigel Lawson, the former Chancellor
of the Exchequer under UK Prime Minister Margaret Thatcher, the GWPF calls
global warming “contested science’’ and said it’s “deeply” concerned about
the costs of climate change policies. Recent postings on its website
include “Carbon Policies Are ‘Futile Gesture Politics” and “Climate Models Have
Been Predicting Too Much Warming.”
In December, the GWPF filed a complaint with the
British Broadcasting Corp. accusing nature documentarian David Attenborough of
misleading the public about the declining state of Canada’s polar bear
populations. In a detailed response to the GWPF, the BBC stood by Attenborough
and the documentary.
“Such behaviour by fund manager executives would
be an issue of deep concern.”
Herro has also given money to conservative US
think tanks that support President Donald Trump’s efforts to roll back
climate regulations, according to 2018 federal and state tax filings from
Herro’s family foundation. In 2018, Herro gave US$100,000 to the Competitive
Enterprise Institute (CEI) in Washington. He also gave US$50,000 to The
Heartland Institute in Arlington Heights, Illinois.
The CEI pushed for the US withdrawal from the
Paris Agreement; Heartland seeks to promote fossil fuels and counter the
science around global warming. CEI declined to reveal its donors. Heartland
didn’t respond to a request for comment.
France’s AXA Group and two of the biggest US
institutional investors, the New York State Common Retirement Fund and the
California Public Employees’ Retirement System, declined to comment about asset
managers who—outside their professional rules—help fund climate science
sceptics.
Last year, Calpers and Axa were among the larger
money managers listed as part of PRI’s “Leaders Group’’ last year, described as
being on “the cutting edge of responsible investment.”
At least one institutional investor focused
on sustainability sees the need for asset managers to have similar goals.
“Such behaviour by fund manager executives would
be an issue of deep concern,’’ said Faith Ward, chief responsible investment
officer for the Brunel Pension Partnership, speaking of the industry in
general. Brunel manages almost £30 billion (US$39 billion) for local UK
government retirement plans. “Shared ambition on climate change is a core
element of our manager selection criteria,” she said.
“It presents reputation challenges that could
turn into business challenges.”
Other investors were more sanguine about what
individual asset managers do in their spare time.
The Strathclyde Pension Fund, which manages £20
billion (US$26 billion), said it tends to focus on the activities of asset
management firms and the companies they invest in, rather than on individuals.
Still, its officers would look at potential conflicts of interest on a
case-by-case basis, a spokesman for the Glasgow, Scotland-based fund said.
German insurer Allianz SE said it aspires to a net-zero
economy when it comes to emissions. But how its business partners and employees
spend their money, the company said, isn’t “relevant to us as long as it
does not negatively affect their job-related performance or behaviour at or in
relation to work.’’
Bruce Freed, president of Centre for Political
Accountability, a non-profit in Washington that advocates for transparency in
corporate contributions, said such a conflict presents a “conundrum” for
Harris Associates.
“People are free to do what they want,” Freed
said. “But given this person’s senior position in a firm that’s forward-looking
on ESG issues, it presents reputation challenges that could turn into business
challenges.”
Copyright Bloomberg News
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