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Old School Meets New

As ESG investors, our attention would not normally be drawn to a company like Hyster-Yale. While the global lift truck manufacturer does have a venerable, 180-year history going back to its days as Yale Lock, Hyster-Yale more recently shared its ownership with a major coal mining operation, and today the industries it tends to supply make significant use of fossil fuels. Judging solely by the company it keeps—including the 8-year-old spinoff from North American Coal’s holding company, NACCO—a superficial round of research might disqualify Hyster-Yale from ESG investment consideration.

But something new also seems to be happening at Hyster-Yale. Just two years after the NACCO spinoff, and less than ten years after it had rolled out a completely new line of internal combustion-powered lift trucks, the company acquired Nuvera Fuel Cells. Massachusetts-based Nuvera makes zero-emission, hydrogen fuel cell engines, along with hydrogen supply options that specifically target industrial uses, including a focus on lift trucks and materials handling equipment. This focus is key to the success of the acquisition, since most agree that the adoption of hydrogen fuel cell technology in industrial applications will be paced, in part, by how well the technology can be optimized for specific uses. And while limitations on battery size and local, renewable power sources can be prohibitive in using solar or wind to power industrial equipment and heavy machinery, fuel cell engines hold the promise of a highly productive, fast-refueling, zero-emissions fuel source for much of Hyster-Yale’s customer base.

While the investment world is abuzz with the potential of hydrogen fuel cell technology to transform heavy industry and transportation, as of 2018 Nuvera still accounted for just one percent of Hyster-Yale’s revenue. But many of the company’s lift trucks now offer a hydrogen fuel cell engine as an OEM option at purchase, and with clear advantages over traditional lead-acid battery or fossil fuel options, we would hope that takeup will be a straightforward function of time and marketing, spurred on by regulation to help close price gaps. A recently announced partnership between Hyster-Yale and Capacity Trucks, as one example, is expected to result in the deployment of hydrogen-powered terminal tractors to shipping ports around the world.

But despite evident progress, Nuvera and Hyster-Yale can still seem like an odd fit. Scott Blanchet, Nuvera’s CTO and longest-tenured executive, holds more than 230 global patents related to hydrogen, fuel cell and exhaust emissions control technologies, along with engineering degrees from the University of Miami and Stanford. Blanchet, who has yet to reach 50, declares that his mission is “to make enduring contributions to society through exceptional solutions to major environmental and technology problems.” Meanwhile, Alfred M. Rankin, Jr., Hyster-Yale’s Chairman, President and CEO, joined NACCO in 1989 after 15 years with Eaton and an earlier role at McKinsey and Company. The Yale graduate holds or has held more than 15 trustee or directorships, including Non-Executive Chairman roles at NACCO and at Hamilton Beach, which was also spun off from NACCO (in 2017).

Looking beyond Rankin’s ongoing chairmanships at NACCO and Hamilton-Beach, other aspects of Hyster-Yale’s governance round out our greatest area of concern for the company—and its most retrograde. Fully five of Hyster-Yale’s twelve board members remain on the board of NACCO, and four (along with one spouse) sit on the Hamilton-Beach board as well. Five Rankin family members hold board roles among the three companies, which not only cuts against accepted best practices for corporate governance, but furthers the appearance of enmeshment with the coal interests that are now NACCO’s sole business.

Still, Hyster-Yale has other ESG attributes that key competitors lack, even beyond its acquisition of Nuvera. The company’s “2026 Vision Program” includes several meaningful, if not perfect, top-line environmental goals against 2015 baselines: reducing carbon emissions by 30%, water consumption by 20%, and hazardous waste by 30%, along with a target of zero waste to landfill at all sites. While the language of these targets is not as strong as we would like—the company’s sustainability report declares that it will “strive for” each goal—as of 2018 Hyster-Yale had already reported significant progress against several, including 21% carbon emissions reductions, 8% water use reductions, 11% hazardous waste reductions and a 17% decline in waste to landfills. By comparison, Crown Equipment Corporation, arguably Hyster-Yale’s closest competitor, has not set a single target in any of these areas.

From what we see of its social metrics, Hyster-Yale’s annual surveys of its workforce suggest employees are highly satisfied, and believe their company is a responsible corporate citizen. The company offers a “Charitable Pay Deduction Program,” and its recordable injury rate has declined in recent years. Rankin, Jr. claims several notable non-profit organizations among his numerous past trustee and board directorships, including the World Resources Institute, the Musical Arts Association, the Cleveland Museum of Art, and Oberlin College.

Still, it’s the acquisition of Nuvera that we inevitably come back to when following Hyster-Yale’s ESG story. If fuel cell engines can deliver business success for the company, its transition from the old school to the new will prove to have been Hyster-Yale’s shining bridge to the future.