Why companies should give their investors a say on climate as well as bosses pay

The Local Authority Pension Fund Forum (LAPFF) is backing an initiative aimed at forcing companies to submit climate action plans led by TCI, one of the market’s feistiest hedge funds. Others should join them, argues James Moore

Investor efforts to curb climate change have been focused on the biggest polluters. The LAPFF argues that more is required  (AP)

Which is more important for investors: a say on pay or a say on the climate crisis?

The answer, obviously, is the climate crisis. Excessive executive pay is an ongoing bugbear that deserves all the attention it gets. There is no evidence that bloated awards enhance either corporate or economic performance, rather they waste shareholders money and are frequently antithetical to their long-term interests. That’s particularly true when packages are badly put together and incentivise the wrong sort of executive behaviour. I refer you to the pre-financial crisis banking industry for perhaps the best example of that happening, but there are plenty of others.

That so few fund managers are willing to make a fuss about poor practice, even today, might have something to do with the bloated pay packages they themselves are fond of. But I digress, because even the most grotesque and damaging examples of executive excess pale by comparison to the impact the climate crisis is going to have on the global economy and thus on the investment returns shareholders seek. Really, it isn’t even close.

Which brings us to the Local Authority Pension Fund Forum and the support for the ‘Say on Climate’ initiative it has just announced, in part because it argues that investors’ ability to influence the climate change responses of the companies they hold are much more limited than their ability to influence pay. 

The initiative aims to change that. It calls on all publicly listed companies to each submit their own climate transition action plan and to then put it to a shareholder vote, preferably an annual vote (like the ones on pay).

It is being led by the Children’s Investment Fund – or TCI. Run by Christopher Hohn, it is a feisty hedge fund that has been involved in some of the world’s most contentious takeover situations and corporate actions. Seeing its name on the shareholder register is apt to make company directors very nervous, and with good reason. Hohn is not the sort of person to let an issue drop, which bodes well for the success of the campaign.

The LAPFF, which accounts for £300bn of assets, is a very different type of activist. Its members are long-term investors with a keen interest in good corporate governance. They have demonstrated their willingness to vote for it too.

Having the forum joining a club of mostly hedge funds could serve as a catalyst to encourage a wider level of support from more mainstream asset managers.

That would be a welcome development because the campaign is absolutely on the right track. Investor efforts to force companies to address the climate crisis have, to date, mostly been directed at the biggest polluters as you might expect. Activists have for years sought to prod them into action by filing resolutions. The record of this has, regrettably, been mixed partly because even though lots of big money managers are keen to talk the climate talk these days, they aren’t always so willing to back it up by using the votes they conrol.

The Climate Action 100 initiative, the stated aim of which is force the world’s biggest emitters to take necessary action on climate change, has secured the support of 545 investors with nearly $52tn of assets, including the LAPFF, so perhaps that will change.

However, the forum says that concentrating on the big emitters isn’t enough. The climate crisis is a problem for all companies and something they all need to take seriously.

Having them submit annual climate plans to the vote would clearly help with achieving that aim.

It would also hold the feet of the asset management industry feet to the fire by putting pressure on its leading lights to back the bold talk we’ve recently heard with action.

It should be said that British and European fund managers have a markedly better record than their US counterparts. They should take the lead again by standing alongside the LAPFF and backing TCI’s campaign.