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Climate skeptic asset managers face pressure to reveal donations

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Harris Associates, the $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 U.K. think tank pushing back against policies to fight climate change. Herro, 59, served as treasurer for its U.S. 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 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.

Harris Associates investment chief David Herro has given money to conservative U.S. think tanks that support President Trump’s efforts to roll back climate regulations, according to 2018 federal and state tax filings from Herro’s family foundation.
Harris Associates investment chief David Herro has given money to conservative U.S. think tanks that support President Trump’s efforts to roll back climate regulations.

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 organizations 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 $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 centered 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 $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 specter 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.”

Harris Associates was founded in 1976, formed out of the family office of Chicago businessman Irving Harris. Herro joined in 1992.

Herro co-runs Harris’s $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, 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 CEO 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 $590,000 for the organization, tax filings show.

Founded by Nigel Lawson, the former Chancellor of the Exchequer under U.K. 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 behavior by fund manager executives would be an issue of deep concern.”

Herro has also given money to conservative U.S. think tanks that support President 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 $100,000 to the Competitive Enterprise Institute (CEI) in Washington. He also gave $50,000 to The Heartland Institute in Arlington Heights, Illinois.

Although roughly 40% of the actively managed industry beat their indexes, the worst-performers eked out an average gain of just 1.07%.
February 12

The CEI pushed for the U.S. 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 and two of the biggest U.S. 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 skeptics.

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 behavior 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 $39 billion for local U.K. 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 $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 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 behavior at or in relation to work."

Bruce Freed, president of Center for Political Accountability, a nonprofit 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.”

Bloomberg News