Will we be asked to pay the cost of stranded oil assets in the climate change process?
It has been an interesting six weeks on the issue of climate
finance.
The most recent prophetic announcement was around the UN
Secretary General’s Climate Summit. It is becoming clearer daily that climate
change WILL pose a risk to the value of present investments. There were 350global institutional investors representing around $24 trillion in assets calling
for government leaders across the globe to put a price on carbon, to help
redirect investment on the scale required to combat climate change.
Rockefeller Brothers
Fund (RBF) disinvestment from fossil fuels
For those who did not read the finance pages, The
Rockefeller Brothers Fund, a charitable foundation set up in 1940, has been
working from 2010 to align its endowment investments to be consistent with the
foundations Sustainable Development program goals.
RBF announced in September:
“Given
the RBF’s deep commitment to combating climate change, the Fund is now
committing to a two-step process to address its desire to divest from
investments in fossil fuels. Our immediate focus will be on coal and tar sands,
two of the most intensive sources of carbon emissions. We are working to
eliminate the Fund’s exposure to these energy sources as quickly as possible.
Given the structure of some commingled investment funds and investments in
highly diversified energy companies, we recognize there may continue to be
minimal investments in our portfolio in those energy sectors, but we are
committed to reducing our exposure to coal and tar sands to less than one
percent of the total portfolio by the end of 2014. As we take the steps to
divest from coal and tar sands investments, we are also undertaking a
comprehensive analysis of our exposure to any remaining fossil fuel investments
and will work with the RBF Investment Committee and board of trustees to
determine an appropriate strategy for further divestment over the next few
years.”
This is amazing considering that Rockefeller's made their
fortune from oil (Standard Oil), their heirs are now at the forefront of the
disinvestment movement in fossil fuels. As Stephan Heintz, president of RBF, said:
“John D Rockefeller, the founder of
Standard Oil, moved America out of whale oil and into petroleum. We are quite
convinced that if he were alive today, as an astute businessman looking out to
the future, he would be moving out of fossil fuels and investing in clean,
renewable energy.
Universities
Glasgow has become the first university in Europe to
announce they are going to dis-invest their $24 million from fossil fuels. Stanford has started the process of cutting their ties with fossil fuel
investments announcing they would be dropping their coal holdings which are
around $18 billion. Yale [LINK] has said they will look at if renewable energy
investment might offer a better long term return.
Lord Robert May, former chief scientific adviser to the
government has joined 67 academics asking Oxford University to
join the disinvestment campaign
Churches
The World Council of Churches , which represents some
590 million people in 150 countries has also announced that it is pulling its
investments from fossil fuels. The Church of Sweden has already removed
its investment from fossil fuels the last being its investment in natural gas
companies which happened in September.
Local Government
There are over 30 cities have also chosen to divest from
fossil fuels these include Santa Monica, San Francisco and Seattle. "Divestment
is just one of the steps we can take to address the climate crisis," the
Seattle mayor, Mike McGinn,
In the UK the first city council to join the fossil fuel
disinvestment was Oxford.
The Avengers
Motherboard’s Brian Merchant, interviewed Mark Ruffalo
(Hulk) where he outlined his plans to personally divest from fossil fuels. “I’m
in the process of divesting. I took the pledge,” he said, “between 3-5 years,
to completely divest in any fossil fuels or anything climate change-related and
put it into renewable or clean tech.”
He went on to say he was going to ask THE AVENGERS to join
the disinvestment campaign:
“And that’s a pledge that I’m making here today to you. I’m asking all of my friends to do it. I’m going to ask Leo [DiCaprio], I’m going to ask all the Avengers, I’m going to ask Robert, I’m going to do the ‘put your money where your mouth is’ challenge. And it’s going to be: divest and invest.”
How much
The Carbon Tracker Initiative’s (CTI) latest study estimated
that the world’s biggest 20 oil projects are putting $91 billion of investors’
money at risk.Andrew Grant, CTI analyst, commented:
"This analysis demonstrates the worsening cost environment in the oil industry, and the extent to which producers are chasing volume at the expense of returns.
Investors will ask whether it is prudent for oil companies to bet on ever higher oil prices when they could be returning cash to shareholders.”
Bank of England
This then brings me to the recent announcement by Mark Carney
the Governor of the Bank of England (the equivalent to Janet_Yellen the Chair
of the Governors of the Federal Reserve System). At a World Bank seminar
recently he is reported as saying Carney told a World Bank seminar that the “vast
majority of reserves are unburnable” that is if the world wants the global
temperature rises are to be limited to below 2C.
The seminar was one on the idea that companies should be
reporting not only statutory financial information but also have integrated
reporting on their environment social and governance. He went on to say:
With the right information [for example, on how a company’s
business interacts with environmental needs], all groups can express their
view, and influence the allocation of capital and credit today,”
The issue of integrated reporting was one raise by AVIVA and
supported by a coalition of NGOS including Stakeholder Forum for Rio+20 and now
for the SDG Summit. The value of integrated reporting, Carney argued, was to
help investors think about “not just things that can be managed in the short
term” but also “costs companies are likely to be exposed to as policy responds
to challenges” like climate change.
Credit Rating
Agencies, Sovereign Wealth Funds and Stranded Assets
One of the top Credit Rating Agencies Standard & Poor’s
has now started publishing reports which assess the investment relevance of
climate change for government and corporate bonds (S&P 2014).
The Norwegian Parliament in April it was agreed that Norway would have a review of whether it should divest the funds from its Sovereign Wealth Fund out of fossil fuel. Its SWF is enormous $840 billion and it owns 1% of all publicly listed companies investing in over 8000 companies worldwide. Norway’s Prime Minister Erna Solberg said:
"This government takes environmental problems very seriously but we need to have a good look at how to address through positive investments in renewable energy in sustainable companies overseas through the fund.’
The question then is if the
movement to dis-invest from fossil fuel companies continues will share price
drop for companies that have stranded assets on their balance sheets? If they
don’t start to shift into other areas and show leadership could they fold? If
so who picks up the cost? Is it us like we did with the Banks? These are key
questions we need urgent new discussion on as we transition away from fossil
fuels.
A final thought
For Republicans from HENRY M. PAULSON Jr.( Secretary of the Treasury
under President Bush)
"The nature of a crisis is its unpredictability. And as we all witnessed during the financial crisis, a chain reaction of cascading failures ensued from one intertwined part of the system to the next. It’s easy to see a single part in motion. It’s not so easy to calculate the resulting domino effect. That sort of contagion nearly took down the global financial system.
We need to act now, even though there is much disagreement, including from members of my own Republican Party, on how to address this issue (climate change) while remaining economically competitive. They’re right to consider the economic implications. But we must not lose sight of the profound economic risks of doing nothing. Republicans must not shrink from this issue. Risk management is a conservative principle, as is preserving our natural environment for future generations. We are, after all, the party of Teddy Roosevelt.”
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