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January 07, 2014
Top Sustainable Investment Stories for 2013 Part 2
    by Robert Kropp

Sustainable shareowners request that fossil fuel companies report on financial impacts of having to leave in ground a majority of reserves on their books if climate change is to be addressed.


Public advocacy for meaningful climate change legislation has been a key strategy of sustainable investors for decades. US SIF – The Forum for Sustainable and Responsible Investment lists climate change among its policy priorities, stating that its members advocate for “Climate change legislation and regulation, including rules to curb toxic emissions from coal- and oil-fired electric generating units.” Ceres states that it “has organized businesses and investors nationwide and globally to call for strong climate and energy policies that will reduce carbon emissions, promote energy efficiency and renewable energy and increase investment in a clean energy economy.”

And as early as 2000, members of the Interfaith Center on Corporate Responsibility (ICCR) persuaded “major corporations to withdraw from the Global Climate Coalition, an industry association that questions the existence of global warming.”

In 2013, ICCR published a paper which stated, “The primary responsibility for controlling greenhouse gas emissions clearly lies with global policymakers.”

The efforts of these and other sustainable investment organizations may not have led to meaningful climate change legislation, but climate change remained a central component of the engagement strategies of investors in 2013. A 2011 paper by Carbon Tracker, entitled Unburnable Carbon, received a Farsight Award from the UK-based Long Finance in March, 2013. The paper reported that to limit global temperature increases to two degree Celsius, no more than 565 GtCO2 of fossil fuels can be burned by 2050. The amount represents just 20% of all fossil fuel reserves accounted for at present; therefore, "governments and global markets are currently treating as assets, reserves equivalent to nearly 5 times the carbon budget for the next 40 years," the report states.

"There are more fossil fuels listed on the world's capital markets than we can afford to burn if we are to prevent dangerous climate change," the report continues.

The 2013 proxy season featured shareowner resolutions requesting that two of the nation's largest coal companies report on the implications of stranded assets, or the fossil fuel reserves that will have to stay in the ground if global temperature increases are to be limited to two degree Celsius. As You Sow, in its resolution at CONSOL Energy, stated, “If laws and regulations are adjusted to recognize this limitation, the vast majority of fossil fuel companies will be left with stranded assets in the form of unburnable reserves and underused infrastructure.”

A second resolution addressing stranded assets was filed at Alpha Natural Resources by the Unitarian Universalist Association (UUA).

Also, a coalition of institutional investors organized by Ceres and Carbon Tracker wr ote 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 2014 proxy season.

To help both institutional and retail investors incorporate climate change considerations into their investment decision-making, US SIF published a pair of brief guides on the topic. “Many fossil fuel companies and other companies continue to lobby against measures such as a carbon tax or regulations to cut carbon emissions from electrical power plants,” the guides state. “Numerous prominent companies pay dues, make contributions to or sit on the boards of organizations that oppose legislation and regulation to curb greenhouse gas emissions.”

Both guides emphasize the importance of reviewing the performance of portfolio companies and voting on shareowner resolutions, and describes the process for filing resolutions.

A report entitled Cleantech Redefined, co-authored by Danielle Fugere of As You Sow, argues that the basic drivers of cleantech products and services “are intact and fundamentally reshaping the future.”

“Investors need to understand and incorporate what has traditionally been so-called 'extra-financial' information into their risk analysis and investment valuation,” the report states, addressing the importance of risk mitigation in the investor's portfolio. “In order to achieve both our economic and environmental objectives, capital will need to be allocated toward products and services that can do and provide more with less.”

“Clean technologies can play an important role in portfolio risk diversification,” the report continues.

Next: Divest or engage? Sustainable investors have wrestled with arguments of divestment versus engagement, and many have concluded that engagement provides them with the better opportunity to pressure fossil fuel companies to change their behaviors. Meanwhile, sustainable investment firms such as Green Century Capital Management and Trillium Asset Management have been offering fossil free investment opportunities for years.

 

 
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