Spreadsheet-analysing money managers in control of trillion-dollar funds force polluters to change
Energy giant Shell announced, recently, a goal to halve its carbon footprint by 2050, including a reduction in pollution from cars that burn the company’s petrol and diesel. Additionally, Shell committed to setting specific short-term emissions targets from 2020, tied to executive pay.
According to Mark van Baal, founder of the activist group Follow This, big investors, including the Church of England Pensions Board, are responsible for this change in an industry that has, until now, been unwilling to take responsibility for its contribution to global warming.
After decades of campaigning by environmentalists and NGO, spreadsheet-analysing investors pushing the biggest corporate polluters to tackle climate change and leading campaigns to cut carbon emissions, are forming a new generation of climate activists – backed by trillions of dollars.
The economic costs of climate change
A key factor that motivated investors to hold companies to account is the financial risk brought about by climate change. Accordingly, oil and gas companies and the energy industry as a whole, whose activities could accelerate global warming, are under scrutiny.
In addition, there is a worry that a continuous push by governments to cut emissions in order to meet the goals of the Paris Agreement will make a huge number of oil and gas projects uneconomic, reducing the value of related assets and shareholdings. As regards the value of the global total stock of manageable assets at risk due to climate change, it is estimated that losses could range from $4.2tn to $43tn between now and the end of the century.
Increasing anxiety over these costs has resulted in a wave of climate activism at the highest levels of the financial world. Large energy companies are urged to cut emissions from fossil fuel extraction and processing, switch to producing low-carbon fuels, improve efficiency in transmission and distribution along with their presence in renewables, and invest in technologies such as carbon capture and storage.
Investors are urging companies to disclose climate-related information Tweet This!
Mark Carney, the governor of the Bank of England, has led an initiative to push energy companies and others to disclose climate risks. Although the debate is still mostly focused on making pledges instead of forcing action, the number of investor resolutions focusing on climate change across all sectors doubled to 42 between the 2013-14 and 2016-17 voting seasons. A number of fossil fuel producers are increasingly affected and, during Exxon’s 2017 annual meeting, over 60% of shareholders, including BlackRock, revolted and voted against the board, forcing Exxon to subsequently improve its disclosure of information on climate change.
Investors expected to file more resolutions to hold individual board members to account include Legal and General Investment Management, the £1tn asset manager. In addition, investors are turning their attention to polluting companies that publicly commit to cut their emissions while privately backing lobbying by trade bodies to undermine global climate efforts. Accordingly, in October 2018, a coalition of big investors wrote to 55 European companies, from BP to BMW, asking them to review the positions adopted by their trade associations. Another group of investors called Climate Action 100+, which has a combined $32tn under management, calls on companies to increase climate-related financial disclosures.
Divesting from fossil fuels
According to lobby group Go Fossil Free, approximately 1,000 investors, with $7.18tn in assets, have committed to divest from at least some type of fossil fuels. They include PKA, the Danish pension fund, which has pulled its investments in several oil producers and coal companies. Additionally, the Church of England Pensions Board voted to sell holdings in fossil fuel companies not taking action to fight global warming from 2023.
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