In recent days a group of 70 investment managers from around the world – controlling funds worth a total of more than US$3 trillion – have launched the first ever coordinated campaign aimed at making the large energy and power companies disclose how they assess the risks of climate change.
Under what is called the Carbon Asset Risk (CAR) initiative, the investors have sent letters to 40 of the world’s major oil and gas, coal and electric power companies requesting detailed responses to questions about the financial risks posed to corporate accounts by climate change. The companies have been asked to provide answers before the next annual round of shareholder meetings begins early next year.
The CAR campaign follows on from a number of other initiatives, with increasing numbers of shareholders around the world demanding more corporate disclosure on the impact on company revenues posed by climate change.
The CAR investors, mainly based in the US and Europe, include California’s two largest public pension funds and the UK-based Scottish Widows Investment Partnership, one of Europe’s largest asset management companies.
“We would like to understand (the company’s) reserve exposure to the risks associated with current and probably future policies for reducing greenhouse gas emissions by 80% by 2050”, says the investors’ letter.
“We would also like to understand what options there are for (the company) to manage these risks by, for example, reducing carbon intensity of its assets, divesting its more carbon-intensive assets, diversifying its business by investing in lower carbon energy sources or returning capital to shareholders.”
Radical cutbacks required
The UN’s Intergovernmental Panel on Climate Change (IPCC) and other international bodies say that in order to limit the rise in global average temperatures to 2C above pre-industrial levels by 2050 there must be a radical cut-back in the use of fossil fuels. This means that a large portion of fossil fuels already discovered – and which are listed as assets on the books of the corporate energy giants – must stay in the ground.
“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”, says Jack Ehnes, the head of the California State Teachers’ Retirement System, the second largest public pension fund in the US, managing assets of $172 bn.
According to a recent report produced by the Carbon Tracker group and the Grantham Research Institute on Climate Change and the Environment the world’s 200 largest publicly quoted fossil fuel companies spent an estimated total of $674 bn in 2012 on finding and developing new reserves of fossil fuels – some of which may never be used, becoming what are termed “stranded assets”.
“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”, says Craig Mackenzie, head of sustainability at Scottish Widows Investment Partnership.
The CAR campaign is being coordinated by the Carbon Tracker group and Ceres, a US-based organisation which lobbies for more sustainable business practices.
“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”, says Mindy Lubber, the Ceres president.
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