Investors in Fossil Fuel Companies Boost Focus on Carbon Asset Risk in Warming World

In the past year, carbon asset risks in the fossil fuel industry have escalated from a fringe topic to a front-and-center concern driving key decision-making across all global energy companies and investors owning them.  So concludes a new report issued today which cites climate change pressures, regulatory trends and market forces that have triggered a heightened focus by investors on how energy companies are grappling with the rapid transition to a low-carbon global economy.

The report, Carbon Asset Risk: From Rhetoric to Action, was authored by Ceres, the Carbon Tracker Initiative, Energy Transition Advisors and the 2° Investing Initiative.

According to Shanna Cleveland, director of the Carbon Asset Risk Initiative at Ceres, a nonprofit sustainability advocacy group, and a lead author of the report:

We have seen a transformation in how fossil fuel companies think about climate change.  While companies used to see climate change as a minor and strictly long-term regulatory concern, they are now beginning to see it as a more immediate risk to their business strategies.  As a result, fossil fuel companies are taking a much harder look at what a low-carbon future will mean for their businesses.

Key trends cited in the report include:

• After universally rejecting the idea of carbon asset risks two years ago, fossil fuel companies have canceled more than $200 billion of projects, primarily oil & gas projects, due to price pressures and weakening fossil fuel demand.
• Regulatory and technology forces are causing profound shifts in global coal markets, especially the US where coal demand has plummeted in recent months and China where coal demand is close to peaking.
  
• Though markets have been the primary force behind cuts to capital expenditures, investor action has also been key to changing how companies think about the need to address Carbon Asset Risk.
• CAR-related shareholder resolutions at BP, Shell and Statoil all received greater than 98 percent support from investors, which is particularly significant since these resolutions directly challenged the current business models of those companies.
• Companies including BP, Statoil and BHP have begun to stress test their portfolios against a variety of low carbon/2 degree scenarios, a step which investors believe is critical to ensure that the industry is resilient in a low-carbon world.
• Major Oil companies including BP, Shell, BG, Eni, Statoil, and Total have called for a global carbon price.
• A majority of global investors this year supported proxy access resolutions – seeking more direct ability to nominate independent board members – at 23 of 33 leading oil companies despite company opposition.  Nearly all of these resolutions were driven by investor concerns that company boards lack diverse perspectives in approaching low-carbon global trends and carbon asset risks.

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