True engagement needs the pressure created by divestment.
The financial risks linked to climate change are becoming clearer and investors need to act, as they can make a prudent financial case for reducing risk – which may indeed include some degree of selling particular stocks (otherwise known as divestment).
Carbon Tracker has seen a range of responses around the world which reflect the different investor cultures – its horses for courses. A number of institutional investors have conducted their own internal assessments of exposure but have not made them public. The horses currently in the race include:
Carbon Asset risk engagement programme co-ordinated by Global Investor Coalition (IGCC, INCR, IGCC, AIGCC)
AP4 announcing it will decarbonise its portfolio & AP2 excluding 20 companies
US shareholder resolutions
Storebrand selling companies with the highest exposure to coal and oil sands
MSCI and FTSE launching fossil free indices
Aviva reviewing exposure to stranded assets
DivestInvest movement announcing divestment from particular types of fossil fuel activity
Hesta superfund restricting new investments in thermal coal companies
The big diversified coal, oil and gas companies are not going to disappear overnight, but they do need to continue to create value for shareholders.
Good housekeeping and incremental improvements in operations are not enough to deliver the energy future we need. The engagement and resolutions that this issue needs have to deal with the capital allocation of the fossil fuel industry and how they need to adapt it to a low carbon future.
For these reasons, we believe that a dual approach must be taken. In addition to the divestment movement raising the issue, we must grow and sharpen our efforts to engage shareholders and stakeholders backed by both a strong divestment movement and detailed financial analysis.
Read the entire article on Divestment and Engagement here.
Focus on future Canadian oil sands projects capex and production
On 4th November, Carbon Tracker released a new piece of research which reveals that nine out of ten barrels in undeveloped Canadian oil sands projects is at risk from eroding oil prices.
Following CTI’s Oil and Gas Majors Fact Sheets, released in August, this study is now focusing exclusively on the Canadian oil sands industry, whose investors are at a heightened risk of companies wasting $271 billion of capital on projects in the next decade that need high oil prices of more than $95 a barrel to be give a decent return.
“The economics of oil sands are getting more challenging. We expect to see more stranded assets, as expensive projects get shelved with no viable route to market,” says James Leaton, research director at Carbon Tracker.
In the occasion of the IPCC AR5 Synthesis Report release last Sunday, UN Secretary General Ban Ki-moon sent a strong message to investors and asset managers: “Please reduce your investments in the coal- and fossil fuel-based economy and [move] to renewable energy.”
The IPCC report confirms that climate change is causing alarming impacts and calls for an immediate response. Carbon Tracker welcomes the study’s substantial contribution to strengthening the evidence of climate science and the implementation of carbon budgets as a key way to assess the financial implications of carbon emissions scenarios.
The infographic above shows the link between IPCC and Carbon Tracker’s research. The visual pathway starts off from the analysis of CO2 emission increase and translates it into the assessment of financial risk for fossil fuel investors, passing through the key concept of carbon budget.
IPCC reference carbon budget, consistently with our research, accounts for 1,000 GtCO2 emissions left between 2011 to 2100 to have a good level of likelihood (66%) of remaining below 2?C global worming threshold. Such carbon budget corresponds to a scenario leading to CO2eq concentrations in 2100 of about 450 ppm. According to IPCC, however, the estimated total fossil carbon reserves already exceed this remaining carbon budget 4 to 7 times.
Mitigation actions form the industry, investor, consumers and policy-makers are indispensable to reduce CO2 emissions. But at the same time such process will exacerbate the financial “stranded asset risk” associated to fossil fuel ‘unburnable resources’.
Carbon Tracker’s research stream “Carbon Supply Cost Curves” aims to identify what future fossil fuel production projects risk to become unprofitable, and hence unable to reward investors. Next year Carbon Tracker will complete the series with a global report on gas.
During COP20 climate negotiations in Lima, Carbon Tracker will present at the Latin American and Caribbean (LAC) Climate Finance Day, in partnership with WRI, E3G, GFALC, AIDA, Climate Interactive and with the support of Zennström Philantropies and Fundación Aviva. Registrations are now open.
