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Home / News & Reviews / News Wire / Union Pacific tangles with activist investor over annual climate-change vote proposal

Union Pacific tangles with activist investor over annual climate-change vote proposal

By Bill Stephens | April 1, 2021

Railroad says it shares environmental concerns, but yearly votes could be counterproductive

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Train passing under signal bridge
Train passing under signal bridge
A Union Pacific eastbound merchandise train climbs Sherman Hill in Wyoming with an ET44AC Tier 4 compliant locomotive on the point in June 2019. Tier 4 locomotives are the cleanest-burning diesel-fueled locomotives. (Bill Stephens)

OMAHA, Neb. — Union Pacific has resisted an activist investment firm’s push to allow shareholders to have an annual non-binding vote on the railroad’s efforts to reduce its carbon footprint.

London-based TCI Fund Management, which has investments in Canadian National, Canadian Pacific, and UP, contends that a company’s greenhouse gas emissions will have an impact on its long-term profitability, sustainability, and investor returns.

So TCI has asked the companies in which it invests to disclose their greenhouse gas emissions every year, develop a publicly disclosed plan to reduce emissions, and reach net-zero emissions by 2050, as outlined in the Paris Agreement.

To support low-carbon transition plans, TCI wants shareholders to have a say every year, similar to the so-called Say on Pay votes regarding management compensation.

CP and CN have agreed to TCI’s proposal and are encouraging shareholders to vote yes on the non-binding Say on Climate resolutions at their annual general meetings in April.

But UP is pushing back and recommends that its investors vote “no.”

UP says it has been reporting on its efforts to address climate change for a dozen years, had its plan to reduce emissions by 26% by 2030 approved by the Science Based Targets initiative, and has set science-based emissions reduction goals in line with the Paris Agreement.

UP says it shares TCI’s climate concerns. But an annual vote, UP said in its proxy statement filed yesterday, could be counterproductive.

“This proposal advocates for a year-over-year process, possibly leading to a short-term focus on what is an issue of long-term significance. For example, an annual vote as requested by this proposal could discourage the Company from pursuing new technologies or investments that create a potential for significant reductions in future emission but that do not reduce our near-term emissions as much as other technologies,” UP wrote in a resolution that will ask shareholders to reject TCI’s Say on Climate vote.

CP and CN are ahead of UP on climate issues, TCI says.

“These two companies do not agree with your arguments that disclosure of their reduction plans would result in an undue focus on the short term or restrict their ability to adapt to improved technologies,” Christopher Hohn, who heads TCI, wrote to UP last week.

UP’s statement notes that the railroad is “steadfast in its support of sustainable practices” and that “climate change requires urgent action.”

“We agree,” Hohn wrote in response to UP’s draft proxy statement. “We also remind you that a goal without a plan is meaningless.”

TCI is an activist investor that is CP’s single largest shareholder and is CN’s fifth-largest investor. But the fund holds less than 1% of UP’s outstanding shares.

Independent analyst Anthony B. Hatch was puzzled by UP’s stance, particularly since the railroad recently has been talking a lot about its environmental, social, and governance, or ESG, policies.

“UP has had a strong push on ESG, so this is surprising,” Hatch says. ESG, he adds, has come out of nowhere to be one of the top three themes in railroading, behind volume growth and adoption of technology.

The railroad industry’s efforts to reduce fuel use and, by extension, emissions, is a tactical move that helps save money while helping railroads maintain their fuel advantage over trucks, Hatch says.

But with truck manufacturers developing electric and alternative fuel rigs with the backing of Silicon Valley, trucking may eventually erode and ultimately eliminate railroads’ green advantage, Hatch says.

So he says railroads need to develop a strategy to better compete with zero-emissions trucks.

CP is developing a hydrogen fuel cell locomotive prototype that will enter service next year. CN is talking about piloting alternative fuel locomotives, including biodiesel, hydrogen, and electric.

And locomotive manufacturer Wabtec last month asked Congress to help fund a Freight Rail Innovation Institute that will develop zero-emissions locomotive technology to replace the diesel by 2030. Short line holding company Genesee & Wyoming would partner with Wabtec and Carnegie Mellon University.

Separately, BNSF Railway has been testing Wabtec’s battery electric hybrid locomotive in California, and Pacific Harbor Line will begin testing Progress Rail’s EMD Joule battery electric switcher later this year.

21 thoughts on “Union Pacific tangles with activist investor over annual climate-change vote proposal

  1. The UP must immediately dump its steam loco program because those engines spew toxic smoke and fumes into our fragile atmosphere. Oh, the utter horror of it – I.m choking and gagging here just thinking of this outrage. Down with Steam ! – We demand it !

  2. Here’s a thought…with electric trucks replacing diesel trucks there’s going to be a need to rethink how we fund the Highway Trust Fund. I say a kWh fee at charging stations sounds about comparable to the per gallon fuel tax, only make automatically adjustable to inflation, and start it at what should be the actual current rate for diesel fuel taxes(which honestly, if adjusted for inflation would be over a $1 per gallon right about now).

  3. I like Geralds idea for a kWh fee for charging stations, right now electric cars and trucks pay no fuel taxes and that will need to change if we want to fund our roads and highways. Full disclosure my wife has a Tesla and it is a great car.

  4. While I prefer electrification over diesel for mainline service.. The fact is DL’s are a fraction of air pollution compared to on-road vehicles. UP knows this will be expensive. So glad to hear they are pushing back.

    1. Yes, but one does have to factor in the costs of producing the electricity. Renewable energies are great, but will we be able to produce enough to electrify all main line railroads? I reckon several decades will be required to create sufficient generation. A lot of today’s “clean” electric energy comes from fossil-fueled power plants.

  5. 1. Reducing every fraction, DL’s, on-road, off-road, buildings, everything is what will be needed in the end.
    2. Many states already charge an extra cost registration fee for electric vehicles based on an estimate of what they would have paid in fuel taxes, payable into their highway funds.

  6. Kudos to TCI for learning the ropes how to change policy & accountability from within but good luck with Congress where you need to “buy” a congressman as many Corporations do to further their agenda.

  7. By the way the Trust Fund has been broke for over a decade they’ve siphoned over $100 billion from the General Fund to subsidize it so I don’t think the electric car owners are any more so deadbeats than the regular drivers.

  8. It is clear the Greens have taken over Wall Street. All those years of institutional brainwashing have finally reached the C-Suite. Railroads, Car makers, Financials, etc. Lets face it, they have moved from the hippie fringe of Greenpeace to the new wolves of Wall Street. Maybe Elon Musk is on to something by moving to Mars.

  9. I agree with John Rice above. “Green” is no longer the arena of a few Leftist kooks as it was circa-1980 – Now, “Green” is everywhere and you can’t escape it. This UP news item is a perfect example.

  10. Just remember, you get nothing for nothing. Power has to come from somewhere. Everything produces some form of pollution. Especially the TCI. Their alternate goal, is simply power to control our transportation industry.

  11. Good for TCI. Mr. Hatch is neither a slouch or a treehugger, so folks should note his response. UP’s knee jerk reaction to sensible proposal for accountability and transparency is the actual threat to the future of US freight rail.

    An industry committed to growth would shed its obstruction and obfuscation, and instead celebrate the dramatic advantages of rail transport – and its potential to accel at decarbonization. An industry committed to replacing coal with the 1 trillion annual ton miles of >500 mile truck freight crowding freeways each year would be banging down the doors of Congress and the White House to stop the unnecessary wear and tear of public roads, expand capacity for mode shift and electrify its mainlines.

    Instead of greenwashing PR campaigns about symbolic, one-off projects, it would leverage batteries to bring down the cost of catenary power, stop making excuses, and design itself out of the hole it’s been digging.

    Or, the Class 1s can continue their self-congratulatory “envy of the world” and “level the playing field” pallaver, insist on “no strings attached” and that “electrification is a nonstarter” and continue their slow-motion going out of business sale, all the while wasting calories fighting potential allies and denying the reality that railroads actually are critical national infrastructure.

    As the Chinese proverb says, “The best time to plant a tree was 20 years ago. The second best time is now.” Now would be the perfect moment for US railroads to pivot away from denying problems and toward a future where they are at the gravitational center of solving them.

    Bill Moyer

  12. Thoughtful reply by Stationary Rail. The future of North American railroading needs to be planned for now. If we stand still rail transportation will continue to slip behind other, more farsighted modes.

  13. I sold my stock in UP because I did not think that senior Management had a real and viable plan or outlook for a future beyond a couple of years. Their reply to TCI shows that they still don’t.

  14. It’s good to see some pressure towards a greener future from investors-corporate culture, especially rail, seems very resistant for the most part to be thinking about the future beyond the next year or so. Is electrification actually a route towards lower carbon emissions, after considering the source of power, the energy expended to extract it, and/manufacture the generating and distribution components? Coal powered generation vs tier 4 diesel vs nukes vs renewable with base power from nukes, NG or coal-any results available?
    A committed approach towards a viable future for the rail industry would be better than cutting service and abandoning business to reduce demand which is how it appears now.

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