When shareholders of the country’s largest railroad companies hold their annual general meetings virtually this month, investors will vote on bold climate-change resolutions that could compel both Canadian National and Canadian Pacific to publicize their carbon footprints, and give shareholders a say in how they can improve them. The resolutions are an example of the kind of shareholder activism that boards and corporate executives typically make every attempt to snuff out. So far, though, CN and CP are supporting them.

The proposals stem from an ambitious campaign launched by billionaire U.K. hedge-fund manager Christopher Hohn. He wants every public company to eventually make it common practice to give shareholders a voice on climate change. The initiative—called Say on Climate—is billed as a simple and necessary way to curb companies’ emissions. CP has endorsed the shareholder proposal from Hohn’s firm, The Children’s Investment Fund Management (TCI), and CN is asking shareholders to vote in favour of a similar resolution from its own management. 

TCI is CP’s largest shareholder, with almost 8.4 per cent ownership, and the fourth-largest at CN, holding a 2.9 per cent stake in the company. As climate change quickly becomes a top concern for investors and shareholders, analysts believe Hohn—with a US$6.65-billion combined stake in CN and CP and a famed history of shareholder activism—will buck the anti-activist trend and clinch victory at Canada’s railroads.

“This kind of support is unusual,” said Anthony Hatch, a New York-based transportation analyst and consultant who has long covered CN and CP. “ESG isn’t new, but it hit the crossroads of becoming overwhelmingly large in the last year, and railroads are really trying to show that they’re on the right side of history with this.” 

Companies almost always oppose shareholder proposals and encourage investors to vote against them; most of the time, they do. And while firms around the world have seen an increasing number of resolutions related to climate change over the past decade, they’re still a rarity in Canada. In the 2020 proxy season, companies listed on the S&P/TSX 60 Index received 40 shareholder proposals related to environmental, social and governance (ESG) issues, six of which touched on environmental issues, according to an analysis by corporate law firm Norton Rose Fulbright. Proxy-advisory firm Glass Lewis identified just one Canadian firm that received majority shareholder support that year. 

“The world of ESG shareholder activism is kind of nascent in Canada,” said Tom Lorber, a senior manager at the Children’s Investment Fund Foundation, a London-based non-profit that Hohn co-founded and that is TCI’s partner in the Say on Climate campaign. “There haven’t been a lot of shareholder proposals filed, and managers and asset owners have a poor record on supporting ESG proposals when they are filed.” 

In an email to The Logic, a CP spokesperson said the company supported the shareholder proposal because it aligned with its existing sustainability commitments. “In 2020, CP issued a public climate statement for the first time, we completed a climate scenario analysis and expanded our climate-related reporting,” said Salem Woodrow. If the proposal is approved, the company will publish its “Reduction Plan,” report annually to shareholders on its progress and have them vote on it. “If the proposal is not approved at the meeting, we will continue to advance the CP Climate Strategy and report to shareholders on our progress, but there would not be an annual, non-binding, advisory vote by shareholders on this subject,” said Woodrow. 

CN declined to comment for this article. But Walker said the company’s response to the campaign was virtually ideal. “In CN’s case, they wanted to propose their own resolution, which we were very happy about,” he said. “We don’t mind who makes the proposal, though we would like all companies to do it voluntarily; that’s preferable.” 

The notoriously private Hohn—co-founder of one of the world’s best-performing hedge funds, managing US$30 billion in assets—launched Say on Climate last fall. He eventually wants to change global security laws to mandate every company disclose climate action plans annually for shareholders to vote on. Canada’s rail juggernauts are two of just seven portfolio firms Hohn is targeting to initiate the campaign.

Hohn did not respond to The Logic’s request for an interview. However, his colleagues said his uncomplicated but insistent approach to shareholder activism has made the Say on Climate campaign hard for companies to ignore.

In a virtual information session for asset owners in November 2020, Hohn summarized his pitch to companies. “If you have a [climate] strategy, show it to us,” he said, nonchalantly. “Because of the simplicity of the concept—disclose your emissions, disclose your plan and let us have a non-binding advisory [vote at the AGM]—it’s very hard to resist supporting it.” 

The proposal’s non-prescriptive design is meant to encourage more companies to support it. While it insists that companies disclose their emissions rates, set reduction targets and produce annual progress updates, it doesn’t dictate what their numbers or targets should be. It’s up to shareholders to decide by voting whether the plan is robust enough or if the company needs to revise it. 

So far, the campaign has worked at one company: Spanish airport group Aena. The firm, with a market capitalization of more than US$20 billion, had created a climate action plan that TCI and other shareholders deemed weak and vague, said Hohn. “I told the board and the management I intended to put it to a vote and vote against it,” he said in the November webinar. “They weren’t happy to see and to hear that.” While the company initially recommended shareholders vote against Hohn’s proposal, after a number of back-and-forths with the firm, he said he convinced management they could take more ambitious climate action. Aena updated its plan and endorsed Hohn’s proposal to put it to an annual vote. “Management was forced to back down and support it,” he said. “In the end, 98 per cent of shareholders supported the vote, including BlackRock and the proxy advisors ISS and Glass Lewis.”

Hohn has a track record of pressing companies for change. In 2008, his fund led a campaign with 3G Capital Partners against directors at U.S. rail company CSX. TCI and 3G argued the company was underperforming. They demanded the company split its CEO and chairman positions and adjust management compensation to shareholders’ liking. The activists also wanted to vote in five dissidents to the company’s board. CSX opposed the investors’ proposals in a fight that wound up in court; TCI and 3G ultimately won four of the five board seats they sought. (TCI sold most of its investments in CSX shortly thereafter, amid the financial crisis.)

With ESG principles nearly a given now at most major companies, Ben Walker, a partner at TCI, said Hohn’s climate campaigns should be less fraught. Certainly, railroads may be more receptive to climate-change proposals these days than to attempts to overthrow their boards. “They can see the way the world is going. They consider themselves leading companies in terms of addressing climate change,” said Walker, noting that railroads benefit from an increased focus on emissions, given their fuel efficiency relative to other shipping methods like trucking or air transport. “They pretty much did exactly what we wanted them to do.” 

While Walker and Lorber are both encouraged by the early support from Canada’s railroads and other firms that have endorsed the campaign, Hohn has said he doesn’t expect the movement to be painless. “Not all companies will support Say on Climate. There will be fights … as we saw with Aena,” he said. “But we can win the votes; I believe that there’s strong support.”