As climate change related risks are becoming more pronounced, major investment firms have been increasingly pushing companies to address these risks and their role in exacerbating them.
This year, almost every major public oil company faced at least one shareholder resolution involving climate change, with proposals winning record support.
While most asset managers prefer engagement to divestment, frustration over fruitless discussion and resolutions has also led to a growing divestment campaign.
Earlier this year, Legal & General Investment Management (LGIM) reduced its stake in oil giant Exxon by US$300m, using its remaining stake to vote against the reappointment Chairman and Chief Executive Officer Darren Woods.
Analysis and Comments
The whole debate around divestment vs engagement is a potentially divisive one – not so much among asset managers but in discussions with asset owners and particularly retail investors.
Over the last few years, it has been interesting to watch the shift in focus, as the engagers have increasingly honed in on the stranded asset risk across a whole range of industries, which has real and tangible implications for value.
Google announced beginning of the week that it would neutralize carbon emissions from delivering consumer hardware by 2020, and include recycled plastics in each of its products by 2022.
According to Anna Meegan, the company’s head of sustainability for its devices and services unit, the company’s transport-related carbon emissions per unit fell 40% in 2018 as it increased the use of ships rather than planes in transport.
Currently three out of nine products for which the company discloses details online contain recycled plastic (ranging from 20-42%) – which trails behind hardware rival Apple’s sustainability efforts.
Analysis and Comments
The trend may be slow, but for those companies that sell high profile products such as Apple & Google, the pressure to show their green credentials appears to be growing.
It is not clear how Google will fully “neutralise carbon emissions from delivery” – initially it looks as if at least part of the solution will be via carbon credits (which will gradually become more & more expensive to buy).
Hence longer term, this increase in carbon crédits price could be providing an incentive for the transport sector to accelerate its own shift to low carbon.
British spirits maker Diageo is investing £180m into green energy and water recoverysolutions such as biomass boilers, solar installations and water recycling systems at 11 of its breweries across Africa.
The investment is the company’s largest environmental investment in a decade, and will include £50m in upfront capitalfor solar, water treatment and biomass equipment, as well as£130m in long-term supply and maintenance contracts.
The company’s ultimate goal is to become 100% green and it plans to half its water usage and GHG emissions by 2020 as part of a group-wide commitment. It is also increasing its focus on sourcing locally in, with 78% of agricultural materials used in its 12 breweries across Africa currently sourced from local farmers.
Analysis and Comments
Africa contributes c. 13% of Diageo’s global turnover and about half of the company’s beer sales, and a minimum of 20 of the company’s African production facilities are in so-called “water-stressed locations”.
Unsurprisingly, water is an essential ingredient in all of Diageo’s brands (90%+ of beer and 60% of spirits) and the company has thus far been able to achieve a c.44% improvement in water efficiency between 2009 and 2018.
According to new data from WRI’s Aqueduct tools, 17 countries (including Africa) – home to one quarter of the world’s population –face extremely high levels of baseline water stress, as water withdrawals globally have more than doubled since the 1960s.
Of the 17 most water-stressed countries,12 are in the Middle East and North Africa (MENA), where growing demand and climate change are pushing already constrained countries even further into extreme stress.
According to the World Bank, this region has the greatest expected economic losses from climate-related water scarcity (c. 6-14% of GDP by 2050), stressing the importance of pursuing SDG 6 – ensuring the availability and sustainable management of water and sanitation for all.
According to a report by Bloomberg NEF, the global investment in clean-energy projects has dropped to its lowest level in six years, at $117.6bn for H1 2019, representing a 14% decline yoy.
China has reduced its investment by 39%, following reductions in solar subsidiaries. The US and Europe also reduced their investments by 6% and 4%, respectively. Spending in Japan, India, Spain, and Sweden rose.
The drop follows a slowdown in renewable-energy construction last year, and coincides with a reduction of private investments into clean energy companies (down by 2% to $4.7bn).
Despite the drop in China’s investments, the country remains the world’s biggest clean-energy spender. Spending may pick up again in H2 as some big offshore wind deals come through and China holds an auction for solar power.
Analytics and Comments
Renewables were becoming unsustainable as the grid was already starting to fail to cope with them. In 2016, solar curtailment rates in China rose to 16% as a result.
This is the reason why solar plus energy storage is the only option, with massive growth already happening in places such as the US and Australia.
With growth in high power DC charging infrastructure, utilities and transmission companies will be forced in to invest in stationary storage, microgrids, virtual power plants, and electricity trading between households and commercial clients.
This is already happening and, in my view, represents a growth opportunity for the likes of big industrials such as Siemens, Schneider, ABB, and also smaller players such as Alfen, PSI and EPS.
The news comes at a time when a new study by PLoS One, a peer-reviewed scientific journal, reports that more than 75% of the world’s major cities will experience drastic changes in climate by 2050.
UK generates more electricity from zero carbon than fossil fuels (BBC)
For the first time since the Industrial revolution, the UK has generated more of its electricity from zero carbon sources than from coal & gas.48% of generation ytd (to end May) came from zero carbon, while 47% was from fossil fuels ( the rest was bio mass)Among the fossil fuels, coal fell to 3% of generation, while nuclear made up 18% of the zero carbon.
Analysis and Comments
I want to highlight that the shift to variable renewables creates a number of investment opportunities in terms of grid balancingIn the UK, this