The crucial deadline
The clean-energy revolution has already started. The question is whether it is accelerating fast enough to turn the tide on climate change. The crucial deadline for change is less than three years away, according to a coalition of climate leaders and researchers, including Lord Nicholas Stern and former UN climate boss Christiana Figueres. Dubbed Mission 2020, the group says global emissions have to peak by 2020 and then fall. They say the following key milestones must be met by that date:
renewable energy outcompetes fossil fuels for new energy; zero-emission transport becomes the preferred form of all mobility in the world’s major cities; large-scale deforestation is replaced with large-scale land restoration; heavy industry – iron, steel, cement, chemicals, and oil and gas – commits to being compliant with the Paris climate goals; and US$1 trillion a year is invested in climate action, and all financial institutions have a disclosed strategy for making the transition to a zero-carbon future.
It’s a daunting challenge, but there’s cause for optimism. Global carbon dioxide emissions have not increased for three years. The cost of solar photovoltaic cells has fallen 85% in the past seven years. Bloomberg New Energy Finance (BNEF) says solar power is already as cheap as coal in Germany, Australia, the US, Spain and Italy and by 2021 will be cheaper in China, India, Mexico, the UK and Brazil.
More renewable power is already being installed globally than coal, natural gas and oil combined. China – the world’s biggest emitter – installed as much renewable power as fossil-fuel power in 2016. This year, China cancelled 100 coal-fired power plants that were planned or already under construction, and in the US, 249 coal plants have been mothballed since 2010.
The International Energy Agency says global coal demand has stalled, and the world’s biggest asset manager, BlackRock, recently declared “coal is dead”. Proposals for a massive new thermal coal mine in Queensland’s Galilee Basin run counter to the trend, however. Indian mining company Adani has announced the go-ahead for the project, which would be the biggest coal mine in Australia. But 17 global banks have so far refused to fund it, and it relies on winning a discounted A$1 billion infrastructure loan from the federal Government to build a rail line to transport the coal to the coast for export to India.
The cost of installing new onshore wind capacity has also plunged. BNEF says prices have fallen 30% in the past eight years, and both onshore and offshore wind will become significantly cheaper in coming years.
Electric vehicle sales are growing at 60% a year, the cost of batteries is falling fast and manufacturers are making deeper commitments to the technology. Volvo announced this month it will make only EVs and hybrid cars from 2019.
There are signs the world is moving in the right direction, the Mission 2020 campaign says, but “we will need an enormous amount of action and scaledup ambition to harness the current momentum in order to travel down the decarbonisation curve at the necessary pace; the window to do that is still open”.
“that incentivise company management to focus on getting the maximum volume of hydrocarbons onto global markets”. Only a “meagre number” of institutional investors made the connection between concern about climate change and the need to reward executives for charting a course to a low-carbon future.
So is agitation by the likes of Ceres merely greenwash – a fig leaf that their constituent members can use as cover for a lack of material action on carbon reduction? Or will shareholder activism help force genuine progress?
“We are getting quite a bit closer to it being for real, but we are not there yet,” says Howarth. “Our job at ShareAction is to really hold the investors’ feet to the fire and say, ‘Hang on a minute, guys – can we judge by the tangible results of what these companies actually do, as opposed to what they say?’” Part of that task is reminding investment funds that manage other people’s pension savings that “we will come after you if you neglect your fiduciary duty to be prudent around risk”.
And though Howarth believes it’s still too soon to see hard results from shareholder activism on climate risk, sharper tools are starting to be deployed against high-carbon companies. Last month, London non-profit law organisation ClientEarth – whose mission is to litigate against environmental abusers on behalf of the planet – wrote to BP reminding the company of its legal duties to provide accurate information to investors. The lawyers said BP’s published outlook for oil demand – which the company claims will increase over the next 18 years – is well out of step with mainstream projections, which see demand peaking between 2025 and 2035.
Such claims “may provide investors with a misleading impression of the future viability of the business”, ClientEarth founder and chief executive James Thornton warned BP. This might lead to compensation claims from investors who lose money on BP shares “as a result of any untrue or misleading statement”.
In a letter to BP’s institutional shareholders, ClientEarth reminded them of their rights to take the company’s projections at face value, and to sue for compensation for losses arising from false statements.
It was a shot across the bow of an oil giant from a group committed to using the law to defend the environment and whose growing army of litigants has achieved high-profile wins, including against the UK Government over air pollution in British cities.
The ClientEarth warning “is the kind of thing that will start making directors, I hope, get their legal advisers and teams to start thinking about this”, says Howarth.
ASSET-OWNER POWER
The Church Commissioners’ Matthews agrees it’s one thing to demand carbon disclosure from fossil-fuel companies and another to see them shift away from carbon-belching business models. To help fuel the momentum for change, he has been a key driver in the Transition Pathway Initiative (TPI), which published guidelines last month to help investors figure out whether a company is pulling the wool over their eyes or genuinely shifting to a low-carbon future. One of the targets the TPI proposes is that the salaries of company bosses are directly linked to environmental performance.
“We are the asset owners, we are at the top of the investment chain, and we are clearly saying: ‘We want to understand where does your company stand against its peers, within its sector, in the transition to 2°C, against the Paris commitments, against regulatory commitments. We want to understand where you sit in that transition over coming decades,’” says Matthews. “I think that will really be the lever we hope will become very significant in driving broad change.”
And though the strategy of such groups as Ceres, the Institutional Investors Group on Climate Change and the Sydney-based Investor Group on Climate Change is to work from inside the corporate tent to encourage companies to shift from a highcarbon to a low-carbon future – unlike the divestment movement, which argues it is a moral imperative to sell out of polluting companies – some institutional investors are starting to ditch their holdings in highemission companies that are failing to act on climate change. Sweden’s largest pension fund, AP7, recently sold out of six companies that it says violate the Paris climate agreement, including ExxonMobil, which has fought for years against climate legislation in the US and stands accused of decades of lying about the risk of climate change, and Gazprom, which has pursued high-risk Arctic oil.
Aviva’s Abigail Heron has spent the past 18 months intensively questioning 40 companies in her portfolio, including firms in coal-rich Australia and Poland. As a result of that investigation, Aviva will be making its first carbon divestments in coming months. She says the decision to quit or stick with a company will largely depend on whether it has plans to make further capital investment in fossil fuels. “It’s about whether we can take comfort from the company that it is taking this seriously enough, that it is positioning the company for the long term and that it is making an appropriate response with our customers’ money.
“Also, given the amount of money that we look after for our customers, we feel we have a responsibility to shape the future that they actually want to retire into.”
The New Zealand Superannuation Fund, too, is close to making its first decisions to divest from some fossil-fuel companies (see sidebar page 18).
Meanwhile, Carney has made clear he is far from finished with the task of mainstreaming climate risk as a core concern for the financial markets. In mid-June, he announced a probe into the carbon profile of the UK banking sector, which has loans and investments in oil and gas exploration. In an article backgrounding the move, the Bank of England noted that EU, German, Dutch, Swedish and German regulators are looking closely at the impact of carbon risk on the financial sector. In France, institutional investors are now required to disclose how their portfolios align with climate targets, and the Californian insurance regulator has asked insurance companies to reveal the size of their fossil-fuel investments.
As Howarth says, there is no time for complacency. She argues big global investors have “more than enough clout” to force companies onto a safer path. “In the year ahead, climate stewardship efforts must be stepped up considerably. Time is no longer on our side, but what needs to be done is becoming so much clearer.”
Sweden’s largest pension fund, AP7, recently sold out of six companies that it says violate the Paris climate agreement, including ExxonMobil.