December 3, 2019 / 2:19 AM / 6 days ago

Breakingviews - TCI plays outrider to Mark Carney’s climate drive

FILE PHOTO: Governor of the Bank of England Mark Joseph Carney makes remarks during a "Governor Talks" session of the IMF and World Bank's 2019 Annual Meetings of finance ministers and bank governors, in Washington, October 18, 2019. REUTERS/Mike Theiler/File Photo

LONDON (Reuters Breakingviews) - Chris Hohn made his name by assaulting the entrenched boards of European companies. Now the boss of activist hedge fund TCI is deploying those skills for a higher purpose. He’s planning to vote against directors of companies that don’t disclose how their balance sheets would be hit by climate change, the Financial Times reported on Sunday. Doing so would help outgoing Bank of England Governor Mark Carney’s push for greater transparency about the financial risks of global warming. Yet for Hohn there’s a fine line between being an outrider or a guinea pig.

The Task Force on Climate-related Financial Disclosures, which Carney has championed, is founded on the notion that more information makes markets more efficient. If the body gets its way, every company will not only disclose its carbon emissions but also an analysis of the risks to its business from a warmer planet, and which assets could be devalued by the move to a zero-carbon world. That would allow markets to better sort sheep and goats, and value them accordingly. Greater clarity could then translate into higher multiples for stocks that Hohn owns, including Charter Communications and Airbus.

The catch is that such lucidity is way off. Carney, who on Sunday was appointed as United Nations special envoy for climate action and finance, asserts that companies representing assets worth $120 trillion already support the idea of transparency. But in most sectors, full disclosure on strategic resilience – the most important area – is limited. And despite warnings by Carney and others about government action to make it mandatory, this is still uncertain and at least 18 months away, even in the United Kingdom.

Meanwhile, the link between disclosure and investment success is not straightforward. Even if all companies divulged more information the price of BP shares, for example, would still depend in part on whether politicians collectively decided to tackle climate risks by imposing carbon taxes and other green measures.

In a speech in October Carney cited Bank of England and PwC research that has found a positive correlation between companies’ stock prices and how many climate-related disclosures they have made. For Hohn, meanwhile, presenting activist investment as part of the solution to the climate problem is good marketing. Especially as it has the virtue of being true.

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