FINANCE IS WAKING UP TO CLIMATE RISK

 

Institutional Investors controlling $82 trillion are shareholders in the world’s largest oil & gas and mining companies, and they are becoming increasingly uncomfortable with high-carbon business models and believe energy companies and big polluters should be held accountable for aspects of global warming. All are signatories to the UN Principles for Responsible Investment which commits them to incorporate environmental, social and governance (ESG) issues, to seek disclosure from the entities in which they invest, and to disclose their own ESG activities. This to achieve an improved risk profile and fiduciary responsibility.

 

BIG OIL CAVES IN TO CLIMATE ACTIVISM

Institutional investors have criticized Shell for lacking binding carbon emissions targets and after intense pressure from activist shareholders, the oil and gas giant said that it will set targets in 2019 every year and link such targets to the pay of senior executives. BP, Total, and Norway’s state oil company have already set short-term targets. “We will be systematically driving down our carbon footprint over time, we all know the benefits of energy but there are associated effects that we have to manage.” CEO Ben van Beurden

Shell has declared an ambition to double the amount it spends on green energy to $4bn (£3.2bn) a year, in a sign of how the Anglo-Dutch company is looking to speed up its move to a future beyond oil and gas.

Shell investor Legal and General, said: “It is a very strong message from the world’s second-largest oil company. As investors, we will go to other companies about what they can do…”

The latest move has been backed by Climate Action 100+, a group of international investors with more than $32 trillion in assets under management, which has pushed for the biggest corporate polluters to cut emissions and improve disclosures and governance on climate issues. The group includes Calpers, Legal & General Investment, and UBS Asset Management.

 

BIG MINERS CALL FOR A CARBON PRICE

Woodside Petroleum has joined mining giants BHP and Rio Tinto in calling for a price on carbon to help with emissions reduction targets and the transition to renewable energy. Its CEO said: “Investors are increasingly concerned about the company’s sustainability measures, and the issue should be dealt with through an appropriate global approach… We need to ensure the most effective energy gets into the system…We don’t want to have perversive outcomes where lowest-cost energy suppliers are competing against renewables, and we end up in a situation where we’ve invested a lot in renewables see no benefit from a carbon point of view.”

 

TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD)

TCFD was set up in 2017 at the request of Mark Carney, Governor of the Bank of England and chair of the Financial Stability Board, and with Michael Bloomberg, founder and majority owner of Bloomberg LP as chairman, and 31 members in total. By September, 2018 institutions with over $100 trillion of assets under management had indicated support for its recommendations.

Elion House and 513 companies, banks, insurers, and investors have expressed their support for the TCFD as of the One Planet Summit held in New York on September 26, 2018. (Learn more)

The TCFD … “establishes recommendations for disclosing clear, comparable and consistent information about the risks and opportunities presented by climate change. Their widespread adoption will ensure that the effects of climate change become routinely considered in business and investment decisions. Adoption of these recommendations will also help companies better demonstrate responsibility and foresight in their consideration of climate issues. That will lead to smarter, more efficient allocation of capital, and help smooth the transition to a more sustainable, low-carbon economy. Since the Task Force began its work, we have also seen a significant increase in demand from investors for improved climate-related financial disclosures. This comes amid unprecedented support among companies for action to tackle climate change. The risk climate change poses to businesses and financial markets is real and already present. It is more important than ever that businesses lead in understanding and responding to these risks—and seizing the opportunities—to build a stronger, more resilient, and sustainable global economy.”

 

CARBON TAX 

51 countries have implemented carbon pricing schemes, and 88 countries have stated their intent to implement as part of their national climate policies. It is estimated that achieving the goals of the Paris Agreement requires a carbon price of US$40-$80/tCO2 by 2020, rising to US$50-$100/tCO2 by 2030. Sweden which has the highest carbon price at US$139/tCO2 is a success story.

“Carbon prices vary widely across existing schemes. Success stories such as that of Sweden – which currently has the highest carbon price in the world at US$139/tCO2 – demonstrate that it is indeed possible to make carbon pricing work: While the Swedish economy grew by 60% since the introduction of the Swedish carbon tax in 1991, carbon emissions decreased by 25%.”

 

 

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