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What you may have missed: Key news on investors, companies & the low carbon transition

by Joel Kenrick

Chevron highlight risk of climate lawsuits: 'In the “risk factors” section of Chevron’s 2016 10-K financial performance report to the Securities and Exchange Commission (SEC) — amid a discussion of how those pesky climate rules governments are enacting might hurt demand for its product — is this sentence: “In addition, increasing attention to climate change risks has resulted in an increased possibility of governmental investigations and, potentially, private litigation against the company. Naomi Ages, Greenpeace USA’s climate liability project lead, said this is the first time a major oil company admitted that such investigations and private litigation were “a material risk to the company and its shareholders.” (Chevron is first oil major to warn investors of risks from climate change lawsuits, 2 Mar,ThinkProgress)

 

ShareAction launch investor guidance on engaging with banks on climate change: 'A new report from London-based investment advisory ShareAction has called on investors to use their voting rights to urge banks to play a more proactive role in the transition to a low-carbon economy, by “providing the major injections of capital required to finance technologies, infrastructure and the transition of traditional industries, as well as to cover the costs of adaptation.” (Investors Urged To Engage With Banks To Back Low-Carbon Transition, 21 Feb, CleanTechnica). ShareAction say the risks if banks fail to act on climate change include 'invoking financial risk (when high carbon companies that banks lend to suddenly lose a lot of their value or become less profitable), market risk (when the physical extremes of climate change send markets into disarray), [and] reputation risk (as the public becomes more aware of climate-negligent banking practices)' (Banking on Low Carbon, 22 Feb, ShareAction). The full 44 page report was published together with Boston Common Asset Management (Banking on a Low Carbon Future, 22 Feb, ShareAction (pdf)).

Chevron highlight risk of climate lawsuits: 'In the “risk factors” section of Chevron’s 2016 10-K financial performance report to the Securities and Exchange Commission (SEC) — amid a discussion of how those pesky climate rules governments are enacting might hurt demand for its product — is this sentence: “In addition, increasing attention to climate change risks has resulted in an increased possibility of governmental investigations and, potentially, private litigation against the company. Naomi Ages, Greenpeace USA’s climate liability project lead, said this is the first time a major oil company admitted that such investigations and private litigation were “a material risk to the company and its shareholders.” (Chevron is first oil major to warn investors of risks from climate change lawsuits, 2 Mar,ThinkProgress)

Insurers and reinsurers exposed to stranded assets: The insurance industry could face asset-stranding and liabilities on a global scale as a result of climate change, according to a new report published by Lloyd’s. The report, part of Lloyd’s emerging risk report series, looks at actual and potential examples of how stranded assets caused by societal and technological responses to climate change could affect assets and liabilities in the insurance and reinsurance sector. The study aims to increase the understanding and awareness of these issues in the industry. (Insurance industry urged: take action to avoid “stranded assets”, 23 Feb, Lloyds)

All swans are black in the dark: Forbes say a new report by 2 Degrees Investing Initiative andThe Generation Foundation shows that 'In most sectors of the S&P500 more than 70% of the net present value of a company is based on cash flows beyond five years, and for most S&P corporate bonds, the value derives from cash flows of 10 years or more. However, "equity analysts almost exclusively focus risk analysis on the next one to five years and extrapolate future cash flow trends: 74% of forecasts fall within three years and 94% within five years" (Black Or White? Better Financial Analysis Needed To Identify The Swans, 22 Feb, Forbes). The report is part of the Tragedy of the Horizon project - more details at www.tragedyofthehorizon.com.

Saudi Aramco valuation faces wake up call: 'Saudi Arabia has said oil giant Saudi Aramco is worth more than $2 trillion' but Bloomberg report that 'Industry executives, analysts and investors told Bloomberg their analysis -- based on oil reserves and cash flow projections under different tax scenarios -- suggests Aramco is worth no more than half, and maybe as little as a fifth, of that amount.' ... 'For example, Wood Mackenzie Ltd. came up with a rough valuation of Aramco’s core business of $400 billion' (Saudi Arabia's Oil Wealth Is About to Get a Reality Check, 23 Feb, Bloomberg). Whatever the value, the partial listing could substantially impact markets (These Are All the Ways a Saudi Aramco IPO Could Impact Markets, 26 Feb, Bloomberg)

Saudi Aramco green energy push could lure investors: Saudi Aramco 'is considering investments of as much as $5 billion in renewable energy, part of the kingdom’s effort to reduce the amount of oil feeding domestic energy needs' according to Bloomberg. A PwC partner told them by doing so “They immediately open themselves up to a larger pool of investors. If a company is looking at raising capital, they typically must have a strategy around sustainability. If they don’t have one, it can be perceived as a negative.” (Saudi Aramco's Green Energy Push Seen Widening Appeal of IPO, 6 Mar, Bloomberg).

Chinese coal consumption dropped for the third year in a row in 2016: 'Preliminary calculations from China’s National Bureau of Statistics show that the country’s coal consumption fell by 4.7 percent last year. The bureau said the share of coal in China’s total energy consumption mix fell to 62 percent in 2016 from 64 percent the year before.' (China's coal consumption drops again, boosting its leadership on climate change, 3 Mar, Christian Science Monitor). See also Mining.com, ABC News, and for an in depth analysis Guest post: A closer look at China’s stalled carbon emissions, 1 Mar, Carbon Brief. In related news, analysis from Lauri Myllyvirta suggests 'The number of new coal power projects approved by the Chinese government fell by an astonishing 85% last year, a new analysis shows. ... In total, 22GW of new coal capacity was authorised for construction last year, and only 6GW in second half — down from 142GW in 2015.' (China coal power plant approvals fall by 85%, 2 Mar, Greenpeace Energy Desk)

Chinese solar capacity up 82% in one year: The statistics also show 'In 2016, China’s solar capacity grew a staggering 81.6% to 77GW, double the total installed in the US. Wind power grew 13.2% to 149GW – roughly a third of all wind energy is located in China' (China coal use fell again in 2016, solar capacity rose 82%, 28 Feb, Climate Home). Despite the rapid growth in renewables 'the country’s grid is still struggling to bring clean electricity to consumers' as local grid operators often curtailment wind and solar. Energy storage technologies could be part of solution. (China turns to energy storage to push renewables, 27 Feb, China Dialogue).

China coal could face $500bn+ stranded asset risk: New research from the Sustainable Finance Programme at the University of Oxford Smith School of Enterprise and the Environment, examines the exposure of current and planned coal-fired generation in China to the risk of asset stranding that finds that stranded coal assets could be as much as CN¥3,086–7,201bn (US$449-1,047bn), equivalent to 4.1-9.5% of China’s 2015 GDP. The full report Stranded Assets and Thermal Coal in China (pdf) was published alongside a working paper on Managing the political economy frictions of closing coal in China (pdf) on 1 March.

Fossil fuel incumbents should expect revolution: A fascinating new paper for the Smith School from Kingsmill Bond, the new energy strategist for TS Lombard, argues that incumbents should expect revolution from small marginal change 'what matters for companies and financial markets is marginal change, which is two orders of magnitude smaller than systemic change.' This challenges 'the orthodox view on energy transitions argues that systemic change will take generations... Once fossil fuel demand starts to fall, incumbent producers will face disruptive change as competition intensifies between fuels, prices fall, and assets become stranded.' The paper argues that the process has already started, with solar and wind supplying only 2% of total energy but 33% of marginal energy supply. 'The coal industry saw widespread bankruptcies when demand was just 2% off its alltime peak, and the European electricity sector is undergoing radical restructuring when demand is 5% below its 2007 peak.' (Revolution not evolution: marginal change and the transformation of the fossil fuel industry, Feb 2017, Kingsmill Bond).

Big Australian banks signed no new coal deals in 2016: 'Australia’s big four banks invested three times as much in global fossil fuels as they did in clean energy in 2016' but '2016 saw less fossil fuel investment than 2015, and no loans to new coal projects' according to analysis by Market Forces (Big Australian banks invest $7bn more in fossil fuels than renewables, says report, 5 Mar, Guardian).

Chinese, European companies leading on green revenues: 'European companies are outperforming China and the US in green energy and cleantech revenues, according to the latest report ranking 200 of the publicly listed companies' according to updated analysis of BNEF data from AsYouSow (European Companies Leading on Cleantech Revenues, 1 Mar, Daily Planet). Siemens are top ranked company by revenue, but when looked at by number of companies on the list China leads as 'while the highest-ranked Chinese firm in the list, Xinjiang Goldwind Science & Technology Co Ltd, sits only at No. 15, as many as 71 companies from China are in the latest quarterly rankings. That's almost double the 41 companies featured from the USA.' (Chinese firms dominate top 200 clean energy moneymakers, 21 Feb, Business Green, via GreenBiz)

Confederation of British Industry has published 'Stepping up to the Challenge: creating a globally competitive low-carbon economy in 2030' report (pdf), setting out how the UK should meet its ambitious goal of slashing emissions 57 per cent by 2030 against 1990 levels. James Murray calls it 'arguably the boldest commitment yet from many of the UK's largest businesses to the kind of deep emissions cuts required if the country is to remain competitive during a century of global decarbonisation.' (Environmentalists unite, it is time to give the CBI what it wants, 2 Mar, Business Green). See also China Dialogue.

Natural disasters cost $520 billion a year: '60 percent larger than asset losses that are commonly reported. ... The estimate is based on the impact of disasters such as floods, windstorms, earthquakes, and tsunamis on people’s well-being.' (Natural disasters cost $520 billion a year, World Bank says, 2 Mar, Bloomberg)

Norway oil fund urged to invest in renewables: 'Norway needs to overcome its risk aversion and allow the country’s $900 billion sovereign wealth fund to invest in unlisted infrastructure, including renewable energy projects' according to a new report 'Making the Case for Norwegian Sovereign Wealth Fund Investment in Renewable Energy Infrastructure' from the Institute for Energy Economics and Financial Analysis (IEEFA). 'The fund, the world’s biggest of its kind, has been lobbying to expand its mandate beyond stocks, bonds and real estate and proposed in December 2015 to invest as much as 5 percent in infrastructure' reported Bloomberg (Biggest Wealth Fund Urged to Embrace Infrastructure Risks, 22 Feb, Bloomberg). The Norwegian parliament will consider granting a mandate for the Norwegian Government Pension Fund Global (GPFG) to invest accordingly this June. See also Shell and Exxon Knew, Norway Knows Too (Huffington Post, 3 Mar) and From oil to wind (Corporate Knights, 27 Feb).

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