The chequered history of an unlikely anti-coal "hero"

Published by MAC on 2014-06-09
Source: Washington Post

Tom Steyer's slow, and ongoing, conversion from fossil-fuels investor to climate activist

By Carol D. Leonnig

The Washington Post

9 June 2014

At the base of the mountain, Tom Steyer was a billionaire hedge-fund manager with oil and gas investments and a seemingly conflicted conscience. But by the time he and environmentalist Bill McKibben finished a hike up two tall Adirondacks peaks on that summer day in 2012, Steyer had revealed that he was ready to change his life - he would unload his investments in fossil fuels and become an activist in the fight against global warming.

Just two years later, Steyer, 56, has become the environmental hero he set out to be, giving the left its own billionaire donor to counter the powerful Koch brothers on the right. Steyer has vowed to spend up to $100 million in 2014 to help elect Democrats who are committed to fighting global warming. And with an eye on playing a similar role in the 2016 presidential race, he has positioned himself as a potent new force in the growing world of big-money donors.

Yet, though Steyer has described his newfound activism as "my personal version of a ‘Paul on the road to Damascus' moment," his conversion has been more of a slow evolution - and it is still ongoing.

While Steyer said in 2012 that he was halting his "ecologically unsound" investments, a review of his ties to the $20 billion hedge fund he led for two decades shows that he is only now becoming fully divested from energy firms linked to climate change. Responding to questions last week from The Washington Post, a Steyer spokeswoman said that his holdings will be free of all fossil-fuel firms by the end of this month.

When he gave up his ownership of Farallon Capital Management in late 2012, Steyer directed that his personal holdings be divested only from tar sands and coal, two of the dirtiest energy sources, said the spokeswoman, Heather Wong. In late 2013, he directed that the ban be extended to natural gas and oil investments beyond those in the tar sands, Wong said.

"Tom does not have an ownership stake in Farallon Capital Management, which reflects the fact that when Tom left Farallon he sold his management stake and directed that his investment holdings be divested from Farallon's tar sands and coal related financial positions," Wong said via ­e-mail. "Moreover, since directing Farallon to divest the coal and tar sands holdings, Tom expanded the divestment directive to include all of his fossil fuel energy holdings and as of this month he will be divested out of fossil fuels altogether."

Wong did not provide details as to why Steyer decided against divesting from all fossil fuels at first. She said that he had identified coal and tar sands as "the fossil fuels that are having a specific impact on climate" and expanded his restrictions later "because he felt it was simply the right thing to do."

A Farallon spokesman said the firm created a special investment "screen" in 2013, at Steyer's request, to help steer his personal investments away from particular companies. The spokesman, who spoke on the condition of anonymity, citing the sensitive nature of the topic, declined to explain or describe the criteria for companies or investments that would qualify for being screened out of consideration.

Steyer declined requests for comment. His staff did not provide documents showing the new guidelines he has placed on his investments.

A slow untangling

The complications of Steyer's untangling from fossil-fuel investments were clear even on the day of his hike with McKibben.

Steyer had sought out McKibben as a potential ally and adviser as he pondered a shift to activism, and he agreed over the course of their brisk morning walk to help McKibben campaign against the proposed Keystone XL pipeline, which would bring crude oil to U.S. refineries from the Canadian tar sands. The project has been a focus for environmentalists because the process of tapping the tar sands produces far more pollution than traditional drilling.

But Farallon, still led at the time by Steyer, had just invested in a company seeking to extract oil from the same area.

Even after his departure from the hedge fund, Steyer continued to lend his name to endorsements of Farallon's traditional funds, which still include fossil-fuel firms. In his "goodbye" note to investors in late 2012, he encouraged them to keep their money with Farallon, stressing that his exit would not change the firm's "mode of operation" and that his successor and longtime partner at the firm, Andrew Spokes, embodied "the values in which I believe and which distinguish our firm."

McKibben said he was not bothered by Steyer's slow unwinding of his fossil-fuel investments. The environmentalist said that Steyer deserves praise for his willingness to give up a lucrative career and that even many of the most ardent anti-fossil-fuels activists have benefited from the industry at some point.

Steyer "was one of the very first - maybe the very first - to say he'd get rid of his holdings," McKibben said. "That seemed good to me."

Relinquishing his Farallon management shares was a costly move for Steyer because he gave up enormous tax advantages and a share of additional profits. He "left millions on the table," according to a person familiar with the decision.

Steyer apparently chose a different approach than Mitt Romney, whose decision to accept executive compensation after leaving Bain Capital proved damaging to his 2012 presidential campaign as he sought to distance himself from controversial decisions by the firm.

"I'm impressed," Victor Fleischer, a law professor at the University of San Diego and an expert in hedge-fund and private-equity compensation, said when told what Farallon disclosed to The Post last week. "It's unusual for somebody who has been involved in the founding of a company to completely separate from it."

Steyer has described his exit as a matter of personal morality.

"I came to realize I could no longer in good conscience remain in a business that by definition was invested in every sector of the economy, including the energy sector," he said in an April statement.

He told students at the University of California at Santa Barbara last month that he left his firm because he saw global warming as a defining challenge for his generation, just as World War II was for a previous one.

"If it doesn't change, we are completely screwed," Steyer said, exhorting the audience to action. "What we have to do is push to make the change. . . . And that's actually why I quit my job - to try to be one of the pains in the ass."

Profits vs. values

Steyer's move into big-money politics would not be possible had he not reaped a fortune in part through fossil-fuel investments.

A native New Yorker who graduated from Yale and got an MBA from Stanford, he moved aggressively and quickly into the world of money management. He named his new hedge fund, Farallon, after a group of islands off the Northern California coast favored by sharks. Farallon would become one of the largest and most successful hedge funds in the world.

Public records filed with the Securities and Exchange Commission show that Steyer invested in fossil fuels at multiple points over the years, with Farallon buying shares of oil, coal and natural gas firms. Investments included BP and mining companies in the United States and around the world. Farallon's second-largest holding in September 2012, a month before Steyer announced his departure, was a $220 million investment in the oil-and-gas giant Nexen.

An early point of tension between his drive for profits and his liberal ideology came a decade ago, when Steyer and his wife were caught off guard by Yale students' push - which quickly spread to other college campuses - to protest their school's investments in Farallon funds.

Calling their group "Un-Farallon," the students pointed to allegations that companies in which Farallon invested had used unfair labor practices and fouled the environment. Public demonstrations included a giant papier-mache globe being smashed by a woman wearing a sign that said "My name is Farallon Capital Management."

The protests embarrassed Steyer and his wife, Kat Taylor, who were major donors to Democratic causes. They began to wonder if, and when, they might bring their business interests in line with their values.

"It was a little flare going off in our minds," Taylor told Men's Journal for a profile of Steyer that was published in February. At the time, she said, they both thought: "One day we want to be totally aligned. We haven't earned that moment just yet, but we're going to get there."

Steyer recently identified another moment of critical self-reflection - his 2007 appointment to the Stanford board of trustees.

"When I came on the board, I asked myself, what can a great university do to distinguish itself, to . . . make a difference in the world?" he said last month in a speech to the Vermont Law School. "So it really forced me to think, what are the things that are confronting us as a society, and how can we respond to them? . . . I decided it was climate."

With President Obama's 2009 inauguration, Steyer said, he began to believe that policies could be enacted to help avert a climate disaster.

Steyer entered the political fray in 2010, when he donated $5 million and raised more for a successful campaign in California to defeat a ballot initiative pushed by Koch Industries, owned by Charles and David Koch, and other fuel refiners that would have rolled back new limits on greenhouse-gas emissions.

Going for a hike

A final milestone came in the summer of 2012, when Steyer phoned McKibben after reading his call in Rolling Stone magazine for a movement to divest from fossil-fuel companies that he said were profiting from the demise of the planet.

It was McKibben's idea to go on a hike in the Adirondack range, not far from his home in Middlebury, Vt. "Didn't know a thing about him," McKibben said in an e-mail to The Post. "That's why I suggested a hike instead of a meeting - if nothing came of it then at least I'd get a good hike in."

McKibben said he was impressed by Steyer's views on opposing the Keystone pipeline, which was emerging as a difficult decision for the Obama administration.

"I think he understood the logic of the Keystone fight right away - that it was crucial in its own right and also a way to draw a line in the sand," McKibben said.

Steyer was criticized last year by pro-Keystone Republicans, who accused him of not disclosing his financial interests in the Canadian tar sands even as he talked about his moral opposition to the pipeline.

Farallon had invested in a large energy company, Kinder Morgan, that owned a pipeline connecting the Canadian tar sands to a Pacific port. Industry analysts say the Houston-based company, which is seeking to expand its pipeline, would provide one transportation alternative for tar sands oil to get to market if the Keystone project failed to get approval.

Responding to the complaints, Steyer last year said his Kinder Morgan investments would be sold by the end of 2013 and the profits donated to charity.

Last Friday, at the same time The Post was asking Steyer and Farallon about his investments, Steyer publicly announced that he was creating the charity he had promised - devoting $2 million to help those hurt by wildfires and other extreme weather events.

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Aims of Donor Are Shadowed by Past in Coal

By Michael Barbaro and Coral Davenport

The New York Times

4 July 2014

To environmentalists across Australia, it is a baffling anachronism in an era of climate change: the construction of a 4,000-acre mine in New South Wales that will churn out carbon-laden coal for the next 30 years.

The mine's groundbreaking, in a state forest this year, inspired a veteran to stand in front of a bulldozer and a music teacher to chain himself to a piece of excavation equipment.

But the project had an unlikely financial backer in the United States, whose infusion of cash helped set it in motion: Tom Steyer, the most influential environmentalist in American politics, who has vowed to spend $100 millionthis year to defeat candidates who oppose policies to combat climate change.

Mr. Steyer, a billionaire former hedge fund manager, emerged this election season as the green-minded answer to Charles G. and David H. Koch, the patrons of conservative Republican politics, after vowing that he would sell off his investments in companies that generate fossil fuels like coal.

But an examination of those investments shows that even after his highly public divestment, the coal-related projects his firm bankrolled will generate tens of millions of tons of carbon pollution for years, if not decades, to come.

Over the past 15 years, Mr. Steyer's fund, Farallon Capital Management, has pumped hundreds of millions of dollars into companies that operate coal mines and coal-fired power plants from Indonesia to China, records and interviews show.

The expected life span of those facilities, some of which may run through 2030, could cloud Mr. Steyer's image as an environmental savior and the credibility of his clean-energy message, which has won him access to the highest levels of American government. A few weeks ago, Mr. Steyer, 56, joined President Obama for an intimate group dinner at the White House that ran into the early morning hours, according to people told of the event.

The New York Times examined the operations of coal-mining companies in which Farallon invested or to which it lent money during Mr. Steyer's stewardship, which coincided with growing demand and prices for coal. Together, those mines have increased their annual production by about 70 million tons since they received money from the hedge fund, according to corporate records, government data and interviews with industry experts.

That is more than the amount of coal consumed annually by Britain.

"I am disappointed, I have to say," said Dale Jamieson, a professor of environmental studies at New York University, who said he admired Mr. Steyer's campaign to curb climate change. When it comes to large-scale investments in coal, Professor Jamieson said, "you can't undo what you've done in the past."

Mr. Steyer sold his ownership stake in Farallon in late 2012, but he has not cut ties with it entirely. He remains a passive investor, his aides said, though they declined to describe the size of his investment. Employees at Farallon screen out any fossil-fuel-related holdings from his portfolio, and he no longer earns a share of the profits from the fund, the aides said.

Farallon is still invested in carbon-generating industries, and the aides declined to say whether Mr. Steyer had asked it to sell those holdings, a request that would presumably hold significant sway given his role as a founder.

The Australian mine, known as Maules Creek, illustrates the complexities of Mr. Steyer's efforts to distance himself. Farallon was a major investor in a 2009 deal aimed at developing the mine, lending an Australian entrepreneur hundreds of millions of dollars to buy out the previous owner, according to people involved in the transaction. Eventually, the entrepreneur took the mine public, turning Farallon's investment into a large profit. An executive involved in the original deal estimated that Farallon earned tens of millions of dollars.

Farallon remains an investor in Maules Creek to this day. Mining at the site, expected to start in 2015, will last up to 30 years, yield as much as 13 million tons of coal a year and generate about 30 million tons of carbon dioxide a year, according to Ian Lowe, the former head of the School of Science at Griffith University in Queensland, Australia. (The company that owns the mine, Whitehaven Coal, disputes the carbon dioxide projection.)

Given Mr. Steyer's reputation as an active environmentalist, Australian opponents of the mine were startled to learn of his firm's role as an early investor.

"It's gobsmacking," Philip Spark, president of the Northern Inland Council for the Environment, a nonprofit trying to stop construction of the mine, said in a telephone interview. "It's amazing that such a person could have been involved in this project."

Mark Carnegie, an investment banker in Australia who was involved in the Maules Creek deal, said he could sense even then that Mr. Steyer was struggling to reconcile his motivations as a profit-seeking investor with his growing anxieties about the environment.

But the investment was financially irresistible. "It was a hard thing to turn down," Mr. Carnegie said. "It was a huge winning bet for Farallon."

Asked why Mr. Steyer had allowed Farallon to pursue such investments in recent years, Heather Wong, a spokeswoman for Mr. Steyer's political organization, NextGen Climate, said, "Given how major global funds are structured, they are by definition invested in every sector of the economy, which is why Tom stepped down in 2012."

When Mr. Steyer founded NextGen Climate in 2013, the environmental movement found what it had long lacked and sorely wanted: a determined political combatant with a willingness to raise and spend campaign money at a level never before seen by traditional environmental groups. An Upper East Side native educated at Yale and Stanford, Mr. Steyer glided through jobs at Morgan Stanley and Goldman Sachs in the 1980s before plunging into the relatively new world of hedge funds. Since he founded it in 1986, Farallon - named for a set of rocky islands off the California coast - has grown to manage as much as $37 billion, from about $15 million in the beginning.

Throughout the early 2000s, the fund offered large, typically high-interest loans to companies seeking to buy undervalued coal mines in Indonesia, which was still rebounding from the Asian financial crisis. The buyouts proved profitable for Farallon, but they also encouraged the new owners of the mines to increase coal production in order to generate revenue to repay the loans, according to executives who participated in the buyouts.

In 2004, for example, Farallon lent at least $60 million to a group of investors buying an Indonesian coal-mining company called Berau, giving the fund a right to a stake in the company, according to people involved in the deal. Within a few years, Berau's value had doubled, delivering a hefty return for Farallon. Berau quickly sped up its operations: Its coal production soared to 20 million tons in 2012 from about nine million tons in 2004.

Roger Suyama, a former Merrill Lynch banker who was involved in the Berau buyout, said Farallon was "like an anchor in the Indonesian coal industry."

"By drawing money to an overlooked sector," he said, "they helped expand the coal industry there."

As with those in coal mining, Mr. Steyer's investments in coal-fired power will reverberate far into the future.

Farallon invested in a subsidiary of Indiabulls, an Indian financial conglomerate, in 2008, just as the subsidiary began expanding into coal-fired power. Two years later, Indiabulls began construction on two massive coal-fired power plants: the 2,700-megawatt Amravati plant in central India and the 1,350-megawatt Nasik plant outside Mumbai. When completed, Amravati is expected to be one of the largest coal-fired power plants in India.

Indiabulls has signed a 20-year power purchase agreement with a government-owned electric utility, locking in two decades of carbon pollution. It took a similar approach in China.

In 2007, Farallon provided funds for the sale of Meiya Power, an electric utility that operates four large coal-fired power plants, which collectively produce about 7,000 megawatts of power. Combined, the completed Indiabulls and Meiya plants will produce about 60 million tons of carbon pollution a year, according to Dallas Burtraw, an analyst at Resources for the Future, a research organization in Washington.

The Republican candidates Mr. Steyer is targeting in this year's midterm elections said such investments deeply undermined his cause.

"It blows a hole in his credibility," said Representative Cory Gardner, a Senate candidate in Colorado, whose Democratic rival, Senator Mark Udall, has benefited from $100,000 from Mr. Steyer's political organization. "You can't claim you are a great environmentalist and invest in the very same technologies you are railing against."

Republican leaders and their allies are drawing up plans to cast Mr. Steyer as a hypocrite. In North Carolina, Thom Tillis, a Senate candidate, said he intended to portray his opponent, Senator Kay Hagan, and Mr. Steyer as "people who say one thing and do another."

At the same time, conservative groups and blogs are scouring Mr. Steyer's business record. One blog, Power Line, has written extensively about Farallon's work in the coal industry.

In interviews, several prominent environmentalists argued that Mr. Steyer's unrivaled spending to support climate-change policies outweighed the impact of the carbon pollution unleashed by his past investments.

"This is precisely what we want people to do: sell investments in fossil fuels and get to work solving the problem of climate change," said Bill McKibben, a founder of the group 350.org, which pushes financial institutions to divest from fossil fuels.

Supporters point to the $25 million campaign Mr. Steyer organized four years ago to defeat a California ballot initiative that would have gutted the state's landmark climate-change law. The law remained in place and is projected to cut about 30 million tons of carbon emissions by 2020. This year, Mr. Steyer plans to spend four times as much in support of Mr. Obama's plan to reduce emissions from about 600 coal-fired power plants - a plan expected to eliminate 220 million tons of carbon pollution a year.

But detractors see hypocrisy: As coal linked to Mr. Steyer's previous investments burns in Asian power plants, he is spending a fortune earned from those investments to pursue a green agenda that would shutter similar plants in the United States.

"If my side wins, it will create real costs for ordinary working people," said Professor Jamieson of N.Y.U. "Hits to their welfare will not be compensated by stacks of money."

Unlike Mr. Steyer, he said, "they won't have options."

Ms. Wong, the spokeswoman for Mr. Steyer's political organization, said Mr. Steyer had invested heavily both in creating jobs in the emerging clean-energy industry and in training workers for those positions.

Back in Australia, environmentalists wondered what Mr. Steyer had to say about the giant new coal mine financed by his hedge fund. Would he try to stop it?

Blair Palese, an environmental leader in Australia, urged Mr. Steyer to "get Farallon to step back and get out of this investment."

"It could be 30 years of coal production," she said. "How can we keep doing this?"