On September 17, Bill McKibben, a leader of the divestment movement, wrote Money is the oxygen on which the fire of global warming burns , published in The New Yorker. The essay traces the progress of the divestment movement and asks, What if the banking, asset-management, and insurance industries moved away from fossil fuels?. On the same day came the announcement that “ University of California drops fossil fuels from its $80 billion portfolio”. An article in Rolling Stone quotes the UC representatives, stating “it wasn’t moral or political pressures that convinced them to phase UC’s hundreds of millions of dollars in fossil-fuel investments. Instead, they say, it was the growing realization that fossil fuel investments no longer made financial sense and weren’t a worthwhile investment.”
Investment performance of Fossil fuel companies
In what has been seen as an historical turning point, ExxonMobil lost its spot on the S&P Index list of “Top Ten Companies” in August 2019 – the first time it had not appeared since the Index launched in 1957. In 1980, the energy sector as a whole represented 28% of the S&P 500 Index; as of August 2019, it represents 4.4%. According to a summary by the Institute for Energy Economics and Financial Analysis (IEEFA), the energy sector claimed last place in the S&P rankings of sector performance in August 2019, following similar results in 2018 and 2017.“This is not some temporary aberration. The oil and gas sector is in decline, profits are shrinking and investment options problematic …. This is true even for companies like ExxonMobil that historically have deep pockets.”
The full Briefing Note, ExxonMobil’s Fall From the S&P 500 Top Ten: A Long Time Coming (August 2019) also includes discussion of the role Canada’s oil sands have played in the decline of the industry. Carbon Tracker Initiative provides further information in Exxon’s New Clothes – the tale of why Exxon lost its prized position in the S&P 500 .
Are the banking, asset-management, and insurance industries moving away from fossil fuels?
New initiatives launched at U.N. Climate Summit in New York in September point in that direction:
- 130 banks from 49 countries signed on to the Principles for Responsible Banking (PRBs), committing to align their business operations with the Paris Climate Agreement and the Sustainable Development Goals. Despite the fact that the Bank of Canada issued a report flagging the investment risks of climate change in May, the only signatories from Canada were the National Bank of Canada and the Desjardins Group . Hardly surprising, given the April 2019 Fossil Fuel Report Card from Banktrack , which showed that Canada’s big banks rank 5th, 8th, 9th and 15th in the world for fossil fuel invesment since the Paris Agreement in 2015. In response to the PRI pledge, civil society groups issued a statement, “No More Greenwashing: Principles must have Consequences ” which highlights the lack of concrete plans and the slow time frame: signatory banks are allowed up to four years to demonstrate their implementation of the principles. A thorough discussion published by Open Democracy asks “The UN banking principles are welcome – but do they go far enough to stop climate destruction?”
- A new Net Zero Asset Owner Alliance was launched, convened by the U.N. Environmental Program’s Finance Initiative and the Principles for Responsible Investment, and supported by WWF as part of its Mission 2020 campaign. The Net Zero Asset Owner Alliance signatories are insurance and pension fund management companies which hold approximately $2.3 U.S. Trillion. Their commitment document pledges to re-balance those investment portfolios to make them carbon neutral by 2050, with intermediate targets set for 2025, 2030 and 2040. Founding members include German insurer Allianz, the California Public Employees’ Retirement System (CalPERS), Swedish pension fund Alecta, PensionDanmark, Swedish pension manager AMF, Nordea Life & Pension, Norwegian insurer Storebrand, and Swiss RE.
- The European Investment Bank strengthened its climate commitments at the U.N. Climate Summit pledging to “ position the EIB as an incubator for climate finance and expertise to mobilise others, helping our societies and economies transform to a low carbon future.” Specifically, the bank pledged that 50% of new investments will be for climate action and environmental sustainability by 2025 (previously the target had been 30% by 2020). Also, “we aim to align all our financing activities with the principles and goals of the Paris agreement by the end of 2020. As an important first step, we will phase out energy projects that depend solely on fossil fuels.”
- The Climate Finance Leadership Initiative (CFLI) , chaired by Michael Bloomberg, released Financing the Low Carbon Future , a thorough but readable analysis of how clean energy investment works globally, with practical recommendations . The CFLI is composed of senior executives of seven major private-sector financial institutions– Allianz Global Investors, AXA, Enel, Goldman Sachs, HSBC, Japan’s Government Pension Investment Fund (GPIF) and Macquarie.
- Over 500 environmental and advocacy groups from 76 countires supported the Lofoten Declaration at the U.N. Climate Action Summit. The Lofoten Declaration , (named after the Lofoten Islands of Norway where it was first drafted in 2017) states in part: “It is the urgent responsibility and moral obligation of wealthy fossil fuel producers to lead in putting an end to fossil fuel development and to manage the decline of existing production.” Canada is one of those countries, and Catherine Abreu of Climate Action Network Canada was one of the supporters, stating: “True leadership in response to the climate emergency means having the courage to commit to ending the expansion of oil and gas production and make a plan to transition communities and workers to better opportunities.” A summary appears in “If a House Is on Fire, You Don’t Add Fuel’: 530 Groups Back Call to Rapidly Phase Out Fossil Fuels Worldwide” in Common Dreams (Sept. 23); Background to the Lofoten Declaration here .
Much remains to be done: Consider the September 2019 report by Carbon Tracker Initiative. Breaking the Habit – Why none of the large oil companies are “Paris-aligned”, and what they need to do to get there. The report examines oil company investment activities , and concludes:
- Last year, all of the major oil companies sanctioned projects that fall outside a “well below 2 degrees” budget on cost grounds. These will not deliver adequate returns in a low-carbon world. Examples include Shell’s $13bn LNG Canada project and BP, Total, ExxonMobil and Equinor’s Zinia 2 project in Angola.
- No new oil sands projects fit within a Paris-compliant world. Despite this, ExxonMobil sanctioned the $2.6bn Aspen project last year – the first new oil sands project in 5 years.
- The oil and gas in projects that have already been sanctioned will take the world past 1.5ºC, assuming carbon capture and storage remains sub-scale.
And Global Trends in Renewable Energy Investment 2019 , commissioned by the United Nations, was published in September, reporting the good news that global investment in new renewable energy capacity, led by solar power, “ is set to have roughly quadrupled renewable energy capacity (excluding large hydro) in the decade ending in 2019. Renewables accounted for 12.9 percent of global electricity in 2018—and if hydropower is also included, the renewable’s share of global electricity production is measured at 26.3%. Cost-competitiveness of renewables has “risen spectacularly over the decade, as the levelised cost of electricity has been steadily decreasing, down 81 percent for solar photovoltaics and 46 per cent for onshore wind since 2009.”
Yet despite this good news, the report states: “Overall, we note that these figures represent a small share of the overall economic transition required to address climate change…. global power-sector emissions are likely to have risen by at least 10 percent between the end of 2009 and 2019.”