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.