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November 06, 2013
Investors Call on Fossil Fuel Companies to Account for Stranded Assets
    by Robert Kropp

Seventy institutional investors with more than $3 trillion in assets under management request that 45 companies report on unburnable fossil fuel assets in advance of 2014 proxy season. Third of a three-part series.


The fossil fuel divestment campaign gained significant traction in 2012, when Bill McKibben of 350.org authored an article entitled Global Warming's Terrifying New Math that was published by Rolling Stone. The divestment campaign has spread to at least 250 US colleges and universities, and more than 40 endowments of colleges and universities have divested their holdings in fossil fuel companies thus far.

Arguments favoring divestment are compelling, even from a financial perspective when a long-term investment horizon is employed. After all—as Carbon Tracker pointed out in its report Unburnable Carbon—up to 80% of the reserves now treated as assets by fossil fuel companies will have to stay in the ground if global temperature increases are to be limited to no more than 2°C.

Furthermore, as Northstar Asset Management recently observed of the alternative investment strategy of shareowner engagement, “Shareholder efforts to convince fossil fuel firms to expand into alternative energy businesses have proven ineffectual and, as a result some fossil fuel firms have even stopped trying.”

Yet many if not most sustainable institutional investors continue to prefer engagement, arguing that a seat at the boardroom table offers better options for changing corporate behavior. Advocates of engagement also argue that divested stocks will be quickly snapped up by short-term investors who demonstrate little concern for environmental, social, and corporate governance (ESG) factors.

During the 2013 proxy season, first time resolutions filed by As You Sow and the Unitarian Universalist Association (UUA) requested that two of the nation's largest coal companies report to shareowners on the risks associated with stranded assets. The resolutions, filed with CONSOL Energy and Alpha Natural Resources, gained significant shareowner support.

Indicating that the issue will be more central a concern during the 2014 proxy season, a coalition of institutional investors organized by Ceres and Carbon Tracker have wr itten to 45 of the largest fossil fuel companies, requesting that the companies report on the exposure to and management of risks associated with stranded assets. The 70 global investors, which collectively manage more than $3 trillion in assets, specifically requested that the companies respond in advance of the next proxy season.

The investors are requesting information relating to capital expenditures for finding and developing new reserves; the greenhouse gas (GHG) emissions associated with the reserves now on the books of companies; and the risks to assets from regulatory action and the physical effects of 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 letter states. “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 Ceres, about 30 companies have made preliminary responses to the investors' letter.

"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.”

 

 
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