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December news round-up on Exxon, Saudi Aramco, and all things climate finance

Written by Sara Giordano

Exxon Mobil bows to shareholder pressure on climate change

(FT, 12 Dec): The world's largest listed oil and gas group will start publishing reports on the possible impact of climate policies on its business, after investors demanded for improved disclosure. In a regulatory filing on Monday, Exxon said it would introduce "enhancements" to its reporting, including analysis of the impact of policies designed to limit the increase in global temperatures to 2°C. “A win for shareholders and for the company’s ability to manage risk”, said Thomas P. DiNapoli, New York state’s comptroller, who filed the resolution last year calling for Exxon to issue a climate-impact report (Reuters, 12 Dec). However, Exxon’s statement “needs to be expanded to assure shareowners that they’re responsive to last year’s request”, said Tim Smith, who leads shareholder engagement efforts at Walden Asset Management, a co-filer of last spring’s resolution. “This is giving no detail”, he added (Fortune, 12 Dec). The announcement comes just after the company had taken climate-change probe fight to Massachusetts top court (Reuters, 5 Dec). Exxon had asked Massachusetts’ highest court to block the state’s order to seek records to investigate whether the company for decades has misled consumers and investors about the role of fossil fuels in driving climate change (FoxBusiness, 5 Dec). According to the order, Exxon would have a national and local obligation to warn its customers about the harm caused by climate change when they fill up their petrol tanks (Washington Examiner, 8 Dec). However, DiNapoli has now expressed the will to withdraw the shareholder proposal after Exxon has agreed to conduct the climate change impact analysis (Reuters, Dec 12).

London again lobbying for an LSE float as Saudi Aramco expands project spending

(Times, WSJ): On Tuesday, Saudi Aramco announced a plan to put more than $40 billion per year into projects over the next decade. This is up almost 25% over the 10 year-plan it announced last year, bringing total spend over the decade to $414 billion. The expansion is driven by the aim to keep production capacity at 12 million barrels of oil per day, the WSJ reports. Earlier in December it emerged that the London Stock Exchange sent a senior executive to Saudi Arabia. The unnamed executive joined representatives from PWC, the accountant, and Standard Life Aberdeen, the investment group. The delegation was led by Charles Bowman, the City of London’s lord mayor. The visit follows a previous visit by Theresa May in November after which she said that London was “extremely well placed” to secure the flotation (Times, 5 Dec) (Bloomberg 29 Nov). The trip was scheduled from 9-13 December thus coinciding with the One Planet Summit in Paris (OilPrice, 7 Dec).

Lloyds, Unicredit get low rankings on climate-change response

(FT, Dec 7): The two banks are the bystanders in the latest survey (full report in pdf here) from ShareAction that ranks Europe’s 15 largest banks according to their response to climate-related risk and the low-carbon transition. “We remain committed to reducing our own energy consumption and are considering what other action we can take to support the transition to a low carbon economy”, said Lloyds. On the other hand, French banks appear to have scored well compared to their European peers. BNP Paribas, indeed, ranks first, followed by a group of ‘challengers’ including UBS, Crédit Agricole, Société Générale, ING, and HSBC, which last month promised $100 billion of finance for low-carbon technology and sustainable development by 2025 (FT, 6 Nov). UK banks still have a long way to go to align their sector policies with these needs of a successful low-carbon transition. Currently, none of the UK banks are fully aligned with this goal, said Sonia Hierzig, Banking Project Manager at ShareAction. 13 out of the 15 banks surveyed have also confirmed their intention to implement the TCFD recommendations, but “there is still much work to be done until they will actually be able to implement them fully”, she added.

Moody's warns cities to address climate risks or face downgrades

(Bloomberg, 29 Nov): In the report “Environmental Risks – Evaluating the impact of climate change on US state and local issuers” (press releasehere), the credit rating agency says that the growing effects of climate change are forecast to have an increasing economic impact on US state and local issuers. "While we anticipate states and municipalities will adopt mitigation strategies for these events, costs to employ them could also become an ongoing credit challenge," said Michael Wertz, a Moody's Vice President. Moody's lists six indicators that the agency uses to "assess the exposure and overall susceptibility of US states to the physical effects of climate change". Three focus on coastal risks while the other three deal with the increase in the frequency of extreme weather events (Business Insider, 1 Dec).

Australian shareholders should be told of climate risk to profit

(The Guardian, 28 Nov): Australian companies need to start developing sophisticated scenario-based analyses of climate risks, and incorporating them into their business outlooks so shareholders know how climate change will affect profitability, according to the Centre for Policy Development (CPD). Their white paper “Climate horizons: next steps for scenario analysis in Australia” states that scenario analysis – which considers how risks and opportunities might evolve under different climate and policy trajectories – is emerging as a crucial part of global best practice for identifying climate risks, disclosing them to markets, and responding to them through strategy and risk management. The publication of the paper coincided with Geoff Summerhayes’ speech (PDF here) “The Weight Of Money: A Business Case For Climate Risk Resilience” (AFR, 28 Nov). On the occasion, the Executive Board Member of the Australian Prudential Regulation Authority (APRA) outlined that “shifts in market sentiment have increased the risk of asset value volatility, and the potential for stranded assets. Institutions that fail to adequately plan for this transition put their own futures in jeopardy, with subsequent consequences for their account holders, members or policyholders”. “The TCFD report sets out clear expectations that companies and investors conduct scenario exercises to analyse these risks. To date, APRA hasn’t conducted any stress tests specifically related to climate risk, but in the future we will consider doing so. In the meantime, we encourage entities to perform their own stress tests that consider such scenarios”, he added.

Investors fail to back votes on greater climate change disclosure at US biggest utility group

(FT, 5 Dec): Vanguard, BlackRock, BNY Mellon and Invesco all voted against resolutions aimed at forcing the companies to report on how efforts to keep a global temperature rise to below 2°C will affect them, according to Preventable Surprises’ latest report (pdf here). The analysis shows that some investment firms’ proxy voting lacks the sense of urgency required for transitioning to a 2°C economy. This contrasts with the landmark climate risk vote last year, when also Vanguard and BlackRock stepped up to address climate change and voted to support disclosure on climate risk. (For more info, see ShareAction’s analysis on resolutions for seven US quoted utilities and integrated oil businesses here). “We do vote for shareholder proposals on climate when we think our engagement has not led to the change we seek. [...] We don’t decide how to vote based solely on our views on the issue under consideration”, BlackRock said. “We are talking about systemic risk from climate change that will affect the whole economy worldwide. [Investors] have a fiduciary duty to understand this. “A case-by-case approach doesn’t get the sector-wide change that is really needed. It’s time for Vanguard and BlackRock to get with the project”, said Carolyn Hayman, who co-chairs Preventable Surprises. (FT, 14 Oct). This news comes when BlackRock ($6 trillion AUM) and Vanguard ($4.7 trillion AUM) — already the world’s largest money managers — are forecast to manage a total of $20 trillion in less than a decade, which will likely to upend the asset management industry, intensify their ownership of the largest US companies and test the twin pillars of market efficiency and corporate governance (Bloomberg, 4 Dec).

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Corbyn backs call for MPs’ pension fund to divest fossil fuels

(FT, 11 Dec): Jeremy Corbyn and John McDonnell joined the cross-party Divest Parliament’s campaign to force the £612 million Parliamentary Contributory Pension Fund to drop investments in fossil fuels, including a £5.6 million stake in BP and £5 million of shares in Royal Dutch Shell. “One contribution we can make as MPs is to end the investment from our pension fund in fossil fuel industries, which is why I have signed the pledge”, said Mr Corbyn (BusinessGreen,11 Dec). One year after the launch, the campaign has now the backing of 100 MPsand asks the Pension Fund to disclose investments in carbon-intensive industries and publicly commits to phasing out fossil fuel investments over an appropriate time-scale. They suggest that the fund freezes any new investment in the top 200 largest fossil fuel companies and divests from fossil fuel public equities and corporate bonds over 5 years.

The UK’s pension fund association has warned its members that climate change poses severe risks to their investments

(IPE, 6 Dec): In partnership with environmental law charity ClientEarth, the Pensions and Lifetime Savings Association (PLSA) (around £1 trillion in assets) has produced a guidance for pension funds to act on climate change. Funds should implement a programme of measures to mitigate risks and take advantage of opportunities relating to climate change, including incorporating climate change expertise into trustee boards and other governance bodies. “Climate change is not just an ethical issue for pension fund governance bodies, but a major threat to financial stability highlighted by numerous credible economic commentators and rigorous research” said Luke Hildyard, PLSA Policy Lead for stewardship and corporate governance. The PLSA suggests also that funds should tell their asset managers to engage with companies on climate change and report using the framework recommended by the TCFD. While climate change is commonly thought of as a long-term issue there is also a “serious risk” to pension funds’ investments in the short-term (RI, 6 Dec).

German court to hear Peruvian farmer's climate case against RWE

(The Guardian, 30 Nov): A German court ruled that it will hear evidence on a Peruvian farmer’s case against energy giant RWE over climate change damage in the Andes. Supported by activist group Germanwatch, Saul Luciano Lliuya, a farmer from Huaraz, Peru, has argued that RWE must share in the cost of protecting his hometown from a swollen glacier lake at risk of overflowing from melting snow and ice. RWE’s power plants emitted carbon dioxide that contributed to global warming, increasing local temperatures in the Andes and putting property at risk from flooding or landslides. He is demanding that RWE pay €17,000 to help shoulder the cost of flood defences, based on a study cited by Germanwatch that says RWE is responsible for around 0.5% of greenhouse gases caused by human actions since industrialisation. RWE says Lliuya’s complaint is unfounded, saying a single emitter cannot be held responsible for global warming (Reuters, 30 Nov).

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