Investors ask fossil fuel companies to assess how business plans fare in low-carbon future

From Ceres.org / BOSTON, MA Oct 24, 2013


A group of 70 global investors managing more than $3 trillion of collective assets today launched the first-ever coordinated effort to spur 45 of the world’s top oil and gas, coal and electric power companies to assess the financial risks that climate change poses to their business plans.

Recent studies by the Intergovernmental Panel on Climate Change and the International Energy Agency have suggested that, in order to achieve the international goal of limiting global warming to 2˚C, the world will need to live within a set carbon budget, and a significant portion of proven global fossil fuel reserves will need to be left in the ground.

The world is currently, however, on a path toward global warming of 4˚C or more, which the World Bank warned must be avoided in order to prevent catastrophic climate change impacts.

The investors, most of them based in the United States and Europe, sent letters to the fossil fuel companies last month, requesting detailed responses before their annual shareholder meetings in early 2014. Investors 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.

“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 percent by 2050,” the investors wrote in their letter to oil and gas companies. “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, in 2012 alone, the 200 largest publicly traded fossil fuel companies collectively spent an estimated $674 billion on finding and developing new reserves – some of which may never be utilized. This initiative highlights the opportunity to redirect this capital, rather than it being wasted on high carbon assets that could become stranded.

“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), the nation’s second largest public pension fund with $172 billion 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.”

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