What if the financial sector moved away from fossil fuel investments?

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:

  1. 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?
  2. 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.
  3. European investment bank-logo-enThe 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.”
  4. financing the low carbon futureThe 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.
  5. 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 HabitWhy 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.”

 

Canadian banks still investing in yesterday’s economy – fossil fuels

offshore oil rigBanking on Climate Change – Fossil Fuel Finance Report Card 2019 , the 10th annual report by BankTrack and a coalition of advocacy groups, has been expanded to include coal and gas investors, as well as oil, as it ranks and exposes the  investment practices of 33 of the world’s largest banks. The newly-released report for this year reveals that $1.9 trillion has been invested in these fossil fuels since the Paris Agreement, with the four biggest investors  all U.S. banks – JPMorgan Chase, Wells Fargo, Citi and Bank of America. But Canadian banks rank high: RBC ranks fifth, TD ranks 8th, Scotiabank ranks 9th, and Bank of Montreal ranks 15th.  Among those investing in tar sands oil : “five of the top six tar sands bankers between 2016 and 2018 are Canadian, with RBC and TD by far the two worst.”

In addition to the investment tallies, the report  analyzes the banks’ performance on human rights, particularly Indigenous rights, as it relates to the impacts of specific fossil fuel projects, and climate change in general.  The report also describes key themes, such as tar sands investment, Arctic oil, and fracking.

In response to the Banking on Climate Change report, SumofUs has mounted an online petition It’s time for TD, RBC and Scotiabank stop funding climate chaos.    An Opinion piece in The Tyee,  “How Citizens can stop the big five ” calls for a citizens strike on Canadian banks – particularly by young people and future mortgage investors, and points out the alternatives: credit unions, non-bank mortgage brokers, and ethical investment funds, (such as Genus Capital of Vancouver ).  But while individual Canadians can make ethical choices, that doesn’t seem to be the path of our public pension plan, the Canada Pension Plan Investment Board, which manages $356.1 billion of our savings.  On March 19, Reuters reported that the CPPIB  will invest $1.34 billion to obtain a 35% share in  a $3.8 billion joint venture with U.S. energy firm Williams to finance gas pipeline assets in the Marcellus and Utica shale basins.

Investment attitudes are shifting away from fossils:  The Norwegian Sovereign Wealth Fund continues to lead the way: In March, it announced it would divest almost $8 billion in investments in 134 companies that explore for oil and gas; in April, it  announced it will  invest in renewable energy projects that are not listed on stock markets – a huge marekt and a significant signal to the investment community, as described in   “Historic breakthrough’: Norway’s giant oil fund dives into renewables” in The Guardian (April 5) .

In Canada, with the Expert Panel on Sustainable Finance   scheduled to report shortly, the Bank of Canada announced on March 27 that it has joined the  Central Banks’ and Supervisors’ Network for Greening the Financial System (NGFS), an international body established in December 2017 to promote best practices in climate risk management for the financial sector.  (This is despite the fact that Bank of Canada Governor Stephen Poloz discussed the vulnerabilities and risks in Canada’s financial system in his year-end progress report in December  2018   – without ever mentioning climate change. )  In the U.S., on March 25, the head of the  Federal Reserve Bank of San Francisco released Climate Change and the Federal Reserve  , which states: “In this century, three key forces are transforming the economy: a demographic shift toward an older population, rapid advances in technology, and climate change.”  A discussion of both these developments appears in “Bank of Canada commits to probing climate liabilities” in The National Observer (March 27) .

And if we needed more proof that coal is a dying industry:  The Institute for Energy Economics and Financial Analysis released Over 100 Global Financial Institutions Are Exiting Coal, With More to Come  in February, drawing on the ongoing and growing  list of banks which have stopped investing in new coal development, as maintained by BankTrack.   The detailed IEEFA report states that “34 coal divestment/restriction policy announcements have been made by globally significant financial institutions since the start of 2018. In the first nine weeks of 2019, there have been five new announcements of banks and insurers divesting from coal. Global capital is fleeing the thermal coal sector.”  Proof: global mining giant Glencore announced on February 20 that it would cap its coal production at current levels in  “Furthering Our Commitment to the Transition to a Low-Carbon Economy. “

Scrap the Infrastructure Bank, says CUPE

GO transit stationThe federal government first announced its plans for an Infrastructure Bank in the Fall 2016 Economic Statement, and fleshed out an implementation schedule and funding in the Budget released in March 2017   .  The  Infrastructure Bank website here  describes: “If approved by Parliament, the Bank would invest $35 billion from the federal government into transformative infrastructure projects.  $15 billion would be sourced from the over $180 billion Investing in Canada infrastructure plan, including: $5 billion for public transit systems; $5 billion for trade and transportation corridors; and, $5 billion for green infrastructure projects, including those that reduce greenhouse gas emissions, deliver clean air and safe water systems, and promote renewable power.”  It will function as an arms-length Crown corporation “and would work with provincial, territorial, municipal, Indigenous, and private sector investment partners to attract pension funds and other institutional investors to new revenue-generating infrastructure projects that are in the public interest.”  A May 13 press release from the responsible Minister of Infrastructure and Communities announces that the selection process for senior management positions has begun, and the goal is to launch the Bank in 2017. The enabling legislation is buried deep in the enormous Bill C-44, the Budget Implementation Act  (as Division 18 of Part 4) . Bill C-44 is now in 2nd reading in the House of Commons, and the Finance Committee began a clause-by-clause review of the legislation in the week of May 29.

There is no shortage of criticism and critics of the Infrastructure Bank, from across the political spectrum.  In “Where Were They Going Without Ever Knowing the Way? Assessing the Risks and Opportunities of the Canada Infrastructure Bank”,  (May 4) economists at the University of Ottawa Institute of Fiscal Studies and Democracy argue that the case for the infrastructure bank is weak since Canada doesn’t yet have a comprehensive inventory of the status of existing infrastructure. (The May 18 report  submitted to Canada’s Climate Change Adaptation platform may answer some of those objections) .

The Canadian Union of Public Employees (CUPE) is leading the union charge of criticism , mostly on the grounds that the infrastructure bank encourages and enables privatization of public projects. Even before the March budget was delivered, CUPE Economist Toby Sanger wrote  Creating a Canadian infrastructure bank in the public interest  , published by the Canadian Centre for Policy Alternatives.  After the budget was delivered,  CUPE’s initial response  was published in April .  In May, CUPE compiled expert criticisms here   , and on May 29, the union issued the call to  “Scrap bank of privatization, build infrastructure for Canadians” . CUPE also presented a detailed brief  to government committees in May, with ten points of criticism and recommendations for change so that public bridges, roads and waterways remain under public control.

Renewable energy news: Alberta, Ontario, U.S. and International statistics show a “broad shift to clean energy” investment

As part of its Climate Leadership Plan, Alberta launched  the Alberta Indigenous Solar Program (AISP)  and the Alberta Indigenous Community Energy Program (AICEP)  on October 5.  With a total budget of  $2.5 million, the two programs are directed at First Nations and Metis communities,  to undertake pilot projects for renewable energy and energy efficiency audits.  Alberta next issued a Request for Information (RFI)   on October 6,  for procuring solar power for half of government operations , anticipating that it will  lead to Western Canada’s first solar farm.  See “Here comes the sun: Alberta Plans to establish first solar farms”   from the Edmonton Journal (Oct. 6)  and an item that appeared before the government announcement,  “Growing list of solar projects in wings as Alberta moves to replace coal”  at CBC  (Sept. 15).

In a surprising change of direction at the end of September, the Ontario government announced the cancellation of a second round of renewable energy procurement that would have added 1,000 megawatts of wind and solar power to the province’s grid. Existing FIT and MicroFIT projects will be unaffected, but the government hopes to put a lid on electricity cost increases for consumers by avoiding the costs of building infrastructure. See  the government press release ;  “ Spooked Ontario Liberals Retreat From Green Goals” from  the Energy Mix    ;  “Why did the Liberals backtrack on their renewable energy plan?” from TVO,  or  “Wind Industry shocked as Ontario halts LRP Mechanism”   in North American WindPower.

In the U.S. , the federal Department of Energy  released its National Offshore Wind Strategy  on September 9,  with a goal of generating enough electricity from offshore wind to power 23 million homes.

And from the International Energy Agency in  mid-September, the first in a new annual report series, World Energy Investment 2016,  with the stated premise that investment is “ the lifeblood of the global energy system”. Statistics show the state of investment in energy across technologies, sectors and regions around the world; they reveal a “broad shift towards cleaner energy”, with $313 billion invested in renewables in 2015. Though this is flat in dollar terms, it produced 33% more energy due to improved wind and solar technology.  A further $221 billion was invested in energy efficiency.  While oil and gas investment was still tops in 2015, it declined by 25% from 2014 and is projected to decline a further 24% in 2016.

Energy Efficiency Investment Bring Jobs in US Scenario

A new report by lead authors Robert Pollin and Heidi Garrett-Peltier proposes a new energy investment program for the U.S., requiring public and private investment of $200 billion per year over the next 20 years, and focussing on energy efficiency and renewable energy.

“Green Growth: A U.S. Program for Controlling Climate Change and Expanding Job Opportunities” argues that the U.S. can cut its carbon pollution by 40% from 2005 levels and create a net increase of 2.7 million clean energy jobs, if policies and investment undergo “a transformational shift in how we construct, finance, and deploy our energy infrastructure”. The report provides estimates of fiscal impacts and job impacts. The authors cite four essential conditions for their scenarios, one of which is “Regional equity and transitional support for communities and workers”, described as “allocating federal government clean energy investment spending equitably among all regions of the country, targeted community-adjustment assistance, extensive worker-training programs, and adjustment-assistance programs for fossil fuel workers. The national clean energy investment program can itself provide a critical base for generating new opportunities among workers and communities that are presently dependent on the fossil fuel industries”.