Ceres, a nonprofit organization mobilizing business and investor leadership on climate change and related issues, recently coordinated a coalition of 70 concerned investors, worth $3 trillion, to ask oil, gas, coal and electric power companies to assess risks under climate action and business-as-usual scenarios.
The investors, most based in the United States and Europe, sent letters to the energy companies in September, requesting detailed responses before their annual shareholder meetings in early 2014. Those signing the letters include California’s two largest public pension funds, the New York State and New York City Comptrollers, F&C Asset Management and the Scottish Widows Investment Partnership.
The investor effort, called the Carbon Asset Risk (CAR) initiative, is being coordinated by Ceres and the Carbon Tracker Initiative, with support from the Global Investor Coalition on Climate Change.
In a version of the letter that went to oil and gas companies, investors wrote, “We would like to understand [the company’s] reserve exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by 80% by 2050. We would also like to understand what options there are for [the company] to manage these risks by, for example, reducing the carbon intensity of its assets, divesting its most carbon intensive assets, diversifying its business by investing in lower carbon energy sources or returning capital to shareholders.”
According to the “Unburnable Carbon” report from the Carbon Tracker Initiative, in 2012 alone, the 200 largest publicly traded fossil fuel companies spent an estimated $674 billion on finding and developing new reserves, some of which may never be utilized. The initiative discusses redirecting this capital, rather than it being wasted.
“The world is taking climate change seriously and global pressures to reduce fossil fuel use will only grow stronger,” said Jack Ehnes, CEO of the California State Teachers’ Retirement System (CalSTRS), a public pension fund with $172 billion in assets under management. “As long-term investors, we see the world moving toward a low-carbon future in which fossil fuel reserves that companies continue to develop may actually become a liability, which could take a toll on shareholder value.”
“Demand for coal has been falling in key markets. Climate policy and economic changes in Asia mean this trend could soon become permanent. Analysts tell us that demand for oil could weaken too before long,” said Craig Mackenzie, head of Sustainability at Scottish Widows Investment Partnership, a European asset management firm. “Companies must plan properly for the risk of falling demand by stress-testing new investments to minimize the risk our clients’ capital is wasted on non-performing projects.”
“We have a fiduciary duty to ensure that companies we invest in are fully addressing the risks that climate change poses,” said Anne Stausboll, CEO of the California Public Employees Retirement System (CalPERS) and co-chair of the Ceres board of directors. “We need robust long-term strategies that reflect the reality we face. This is using science and evidence to underpin the economics. We cannot invest in a climate catastrophe.”
“Fossil fuel companies are the biggest sources of carbon pollution by far, which means they are also uniquely positioned to lead the world in responding to global climate risks,” added Ceres President Mindy Lubber.
As of October 23, investors had received preliminary responses from 30 companies, with detailed answers to come in follow-up responses. Participating investors are asking their peers to support this effort.
"Many of the responses investors have received from the companies thus far acknowledge that there is a legitimate risk issue around carbon reserves, and companies are open to continued engagement from the investor community to determine the scope,” said Mark Fulton, a member of the Carbon Tracker’s Advisory Board and a Ceres adviser. “Fossil fuel companies will prove to be more responsible stewards of capital in the future if they take action now to manage the risks posed by climate change.”
According to Julie Gorte, senior vice president for Sustainable Investing at Pax World Management Corporation, “Tackling climate change is both a business risk and opportunity, so it is in the interest of energy companies and utilities to assess, disclose and develop strategies to mitigate carbon asset risk.”
"Institutional investors must think over the long-term, which means that we must take environmental risks into consideration when we make investments," said New York State Comptroller Thomas P. DiNapoli, trustee of the $160.7 billion New York State Common Retirement Fund.
James Leaton, research director at Carbon Tracker, concluded, “Avoiding high cost, high carbon projects which are failing to deliver a return on capital will improve shareholder returns.”
More information about the “Unburnable Carbon” report can be found here.