How movement of money affects our climatic future

27th Feb 2015

Whether it’s divestment or diversification, companies are seeing the value in looking to the future of energy investment, meaning less reliance on fossil fuels and more on renewable resources.

Oil giants Shell and BP are being urged by shareholders to consider climate change in future decisions, and to start investing in renewable technologies. The resolution, entitled, ‘Strategic Resilience for 2035 and Beyond is backed, in large part, by the Church of England, the UK’s Environment Agency, Local Authority Pension Fund Forum, and Rathbone Greenbank, as well as other major stakeholders, totaling $300 billion in assets. The resolution entails five main points: ongoing operational emission management, asset portfolio resilience to post-2035 scenarios, low carbon energy R&D investments, strategic KPIs (key performance indicators) and executive incentives, and public policy interventions.

Royal Dutch Shell and British Petroleum were specifically targeted because they are known to have the heaviest carbon footprint of all companies on the London Stock Exchange. Shareholders are encouraging the oil giants to “Aim for A,” in regard to the rating given by CDP (formerly the Carbon Disclosure Project), a not for profit company that collects data on and rates global companies on their climate impact. According to CDP’s website, “We use the power of measurement and information disclosure to improve the management of environmental risk. By leveraging market forces including shareholders, customers and governments, CDP has incentivized thousands of companies and cities across the world’s largest economies to measure and disclose their environmental information.”

The Board of BP has already recommended that shareholders support the resolution. A vote will take place at their Annual General Meeting; BP’s in April, Shell’s in May; each requires 75% shareholder support to pass. Shareholder resolutions are usually nonbinding even after being voted upon, but the discussion, media presence, and fluctuating cost per share encourages compliance.

Corporate investment controls a major portion of the world’s funds, and a demand by shareholders that money be spent elsewhere can be an effective tool in combating climate change. Businesses are realising that climate change could greatly affect their profits and are therefore, looking to the future for diversified energy investments.

During the People’s Climate March in September of last year, there was a call for large-scale divestment from the fossil fuel industry. Many prominent investors, including billionaire Tom Steyer and the Rockefellers, pledged to divest from fossil fuels. According to President of the philanthropic Rockefeller Brothers Fund, Stephen Heintz, “The fund has already eliminated investments involved in coal and tar sands entirely while increasing its investment in alternate energy sources.”

There is debate about divestment’s effectiveness; with some claiming that energy investments are the best bet for the most diversified portfolio. Universities are especially wary of divestment from fossil fuels; according to the President of Harvard, Drew Faust, “Significantly constraining investment options risks significantly constraining investment returns,” and the fear is that this decrease in returns will be put on the backs of students in the form of higher tuition.

Faith groups are also turning towards divestment, articulating how it aligns with their religious values, especially since climate change disproportionately affects the poor. Monotheistic faiths see humans as stewards of the earth, and have begun to question whether their investments support these values.

The risks associated with divestment are high, indeed, as renewables do not currently make up nearly as much of the energy sector as fossil fuels. Return on investments may be lower at the outset, but by expanding investments in those sectors and creating more inexpensive options so that consumers may rely upon cleaner energy sources, returns are expected to pick back up.

As the world’s population and subsequent energy needs, continues to grow, businesses see that the future of energy will inevitably be made up, in large part, by renewable technologies such as solar and wind. The shareholder vote to take place in the coming months will likely set a precedent for other transnational corporations with significant carbon footprints. As the Conference of Parties approaches, where a legally binding global agreement to reduce carbon emissions is expected to be agreed upon, businesses would do well to start diversifying their energy investment portfolios sooner rather than later.

Sarah Sakeena Marshall, B.S. Environmental Policy

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