Personal Politics Cloud Investment Firm’s Environmental Responsibility Pledge
The head of an investment firm that has signed on to an environmentally responsible portfolio plan is himself being scrutinized for his association with a think tank dedicated to opposing climate regulation—raising questions about how a money manager’s personal choices do or should sway investor decisions.
David Herro, deputy chair of Chicago-based Harris Associates—which handles $US120 billion in assets—“would arguably play a key role” in the company’s publicly declared commitment, since February 2019, to abide by the Principles for Responsible Investment, writes BNN Bloomberg. The PRI is a framework that helps asset managers build environmental, social, and governance (ESG) factors into their investment choices.
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Under its current guidelines, the PRI requires its now-2,700 signatories to “agree to champion ESG strategies internally, among their peers, and, most importantly, by the companies whose securities they own.” With those provisions, the framework focuses on activities and decisions that are made while asset managers are on the clock.
On the horizon, however, is “a new level of transparency” that would require asset managers such as Harris to “disclose information about their own executives,” including “their outside roles and donations to groups that seek to influence government policy,” Bloomberg writes.
Herro might well fall afoul of such increased scrutiny, given recent revelations that as recently as 2018, he acted as a fundraising champion for the Global Warming Policy Foundation (GWPF), a UK think tank dedicated to obstructing climate regulations, and once held the role of treasurer for its U.S. fundraising arm.
“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,” writes Bloomberg, adding that “recent postings on its website include ‘Carbon Policies Are “Futile Gesture Politics”’ and ‘Climate Models Have Been Predicting Too Much Warming.’”
Herro, “reportedly a prominent Republican donor and self-described libertarian,” has also donated significantly to the Heartland Institute, famous for its fossil cheerleading and promotion of climate denial, and to the Competitive Enterprise Institute, which lobbied heavily for the U.S. withdrawal from the Paris Agreement, Bloomberg adds.
Herro has responded that his personal donations are unrelated to his career and his employer, and that, “given the importance of ESG, one must listen to all sides of any argument”.
Whether or not the public currently believes a money manager’s personal donations should play a factor in investment decisions, “the transparency issue could become more important as climate impacts accelerate and institutional investors begin to ask questions. “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?” Bloomberg asks.
For some asset managers, the answer is already an emphatic “no.” Timothy Smith, director of ESG shareowner engagement at Boston Trust Walden, which manages $10 billion in assets, told Bloomberg that, while some work-life contradictions are to be expected, some “jump up and slap you in the face.” Faith Ward, chief responsible investment officer for the Brunel Pension Partnership, which manages close to US$39 billion for various UK government retirement plans, said “such behaviour by fund manager executives would be an issue of deep concern,” adding that “shared ambition on climate change is a core element of our manager selection criteria.”
But not all investor groups are as concerned with a given asset manager’s personal actions. German insurer Allianz SE, a PRI signatory, told Bloomberg that how employees and business partners spend time and money off the clock is not relevant “as long as it does not negatively affect their job-related performance or behaviour at or in relation to work.”
Harris Associates said its “investment process is centred around the team rather than one particular individual’s beliefs.” A Responsible Investing Policy Statement posted on its website, however, does urge corporate leaders to “provide clear and relevant disclosure of information that may influence our investment decisions.”
And responsible investment criteria are increasingly shaping investment decisions. Bloomberg writes that ESG is “one of the fastest-growing areas of asset management, thanks in part to demand from pension funds and other large investors,” Citing figures from the Global Sustainable Investment Alliance, it states that “about US$30.7 trillion was held in sustainable or green investments in 2018, up 34% from 2016.”
The ever-accelerating power of ESG presents a “conundrum” for Harris Associates, said Bruce Freed, president of the Washington-based Center for Political Accountability.
“People are free to do what they want,” he told Bloomberg. However, the “reputational challenges” posed by Herro’s climate-denying activity “could turn into business challenges” for a company that has positioned itself so clearly as one “that’s forward-looking on ESG issues.”