Investors Prod Climate Polluters as Trump Unpicks Paris Deal
(Bloomberg) -- Donald Trump may think climate change is a hoax, but investors managing some $30 trillion of assets are increasingly prodding the world’s biggest polluters to come up with stronger green strategies.
HSBC Global Asset Management and Legal & General Group Plc are among the 250 wealth managers in a group known as the Climate Action 100+ that are asking the companies they own to bring their investment programs in step with the Paris Agreement on limiting global warming.
“Companies with business models that are robust within the Paris framework are going to find it easier to access capital than those who aren’t,” said Stephanie Maier, a director of responsible investment at HSBC Global Asset Management, which helped develop Climate Action 100+. The STOXX Global Climate Change Leaders Index outperformed during the past two years.
Action by investors contrasts with Trump’s vow to remove the U.S. from the Paris deal, which was agreed with more than 190 nations in the French capital in 2015. Envoys from those nations including the U.S. are in Bonn, Germany, this week to discuss ways to take the deal forward, with the fund managers playing a supporting role.
Investors will favor companies that recognize the world needs to shift toward cleaner forms of energy, according to Nick Stansbury, a fund manager and energy specialist at Legal & General’s investment unit, which manages about 983 billion pounds ($1.3 trillion).
The fossil-fuel industry could “completely screw itself up” by fighting for market share with each other once oil demand starts to fall, said Stansbury. Investors may favor fossil fuel companies prepared to buy back shares instead of competing fiercely against renewables, he said. He expects oil demand to peak within two decades, “upending oil markets in a dramatic way.”
The Climate Action 100+ group formed in September is asking companies to outline in greater detail how they will cope with tightening environmental rules suggested by the Paris deal. It’s using a range of tools to apply pressure, including:
- Meetings with directors and management to prod companies to align their business plan with the emission-reduction targets
- Resolutions at annual shareholder meetings to encourage cleaner business
- Votes against directors unwilling to embrace the energy transition, cleaner operation
Some of the investors are divesting from fossil-fuel related stocks and voting against directors who resist change.
Read: HSBC Pledges to Stop Financing New Coal and Dirtiest Oil and Gas
Read: More Shell shareholders sign on to support climate resolution
The talks in Bonn may set out additional signals that governments are making an effort to clean up the environment.
Stansbury said he’d like to see wider adoption of carbon markets and a price of about $60 a ton by 2030 -- four times the current cost of emissions certificates in Europe. Higher carbon prices would help renewables at the expense of coal, oil and natural gas.
The envoys in Bonn will work on specific rules to apply the Paris deal, which would help give investors certainty which industries will prosper as governments tighten environmental protections.
Here’s how Paris will help investors make choices:
- It requires nations to set emissions targets and gradually tighten them
- It asks countries to justify why their targets are adequate
- It makes countries measure their emissions
- It’s seeking to install rigorous standards to prove compliance with targets, including rules for countries wanting to collaborate or trade emission credits
Maier said the priority for companies and governments is to back the UN’s overreaching goal of limiting temperature increases “to ensure that we stay within the 2 degrees, because that’s what ultimately what we want to see,” she said. Investors are pushing because they can’t diversify portfolios to deal with climate risks because those risks are attached to the whole economy.
While early-transitioning countries and companies may suffer some higher costs, the economic benefits from selling clean technology and related services will probably more than offset them, said Bruce Duguid, who leads engagements with environmentally exposed companies at Hermes Fund Managers Ltd. in London.
“If you move earlier on climate policy, you’ll be in the vanguard of technological development and capital deployment and you’ll see greater inward investment,” he said.
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