Group of institutional investors urges top oil, power companies to tap clean energy

A group of 71 institutional investors worldwide launched a coordinated effort targeting 45 of the world's top fossil fuel and power companies, calling on them to shift to greener energy sources or return capital to shareholders.

Leaders of the initiative, in a teleconference Thursday, warned oil and gas, and coal and electric power companies' exposure to climate risk could leave their reserve assets “stranded.”

The investors sent letters to the companies — including Exxon Mobil, BP, Royal Dutch Shell, Gazprom, Sinopec, CONSOL Energy, American Electric Power — asking for a detailed assessment of climate-change-related risks and how they are managing those risks and for the companies to report the results before their annual shareholder meetings next year

“Climate change is not only the world's environmental, national security, public health threat, it is equally a great financial threat to our economy” and investors, said Mindy Lubber, president of Ceres, which is coordinating the effort.

Jack Ehnes, CEO, the $171.9 billion California State Teacher's Retirement System, West Sacramento, and a director of Ceres, said at the teleconference, the group is promoting discussion with the companies, not divestment.

“We absolutely have money on the table with these investments, and we have to think carefully what is the best thing to (do to) protect our funds and enhance the value of our investments,” Mr. Ehnes said.

“In our view, if we are serious about creating change to the outcomes we want, it can only come from an active conversation and not just running to the exit row” and divesting, Mr. Ehnes said.

Julie Gorte, senior vice president for sustainable investing at Pax World Management, said at the teleconference studies show fossil-fuel-free investing, using portfolios constructed with alternative energy companies, “is quite capable of delivering competitive returns” outperforming the S&P 500 and other standard benchmarks.

“The risk of unburnable carbon and stranded assets” is approaching if fossil fuel companies fail to change, Craig Mackenzie, investment director and head of sustainability at Scottish Widows Investment Partnership, said at the teleconference. “At least for coal the door may already be closing.”

“These risks really do underlie how vital it is (that) companies position themselves for falling demand (for fossil fuel) and climate policy and ensure they have … strategies in place to protect our investments,” Mr. Mackenzie said.

“We're concerned that fossil fuel companies we own are pursuing long-term business plans that seem to depend on the world not taking climate change seriously,” Mr. Ehnes said. Companies “are betting billions of dollars of our shareholder capital on a future that looks like the present in terms of our fossil fuel use. Yet scientists tell us more of the same is recipe for disaster.”

A study contends that “over two-thirds of today's proven reserves of fossil fuel need to be in the ground by 2050 to (avoid) catastrophic levels of climate change,” Mr. Ehnes said.

“The fact that these reserves must be left in the ground creates liabilities that could take a major toll on shareholder value. If those reserves are burned, however, it could results in irreversible climate change that could disrupt the entire global economy,” Mr. Ehnes said.

“We don't expect fossil fuel companies to become clean-energy companies overnight.” But “they do need to examine in a rigorous way whether the current approach of investing in ever-more-expensive and carbon-intensive sources of energy is prudent use of our shareholder funds in a world already taking steps toward a low carbon future,” Mr. Ehnes said.

Some companies have responded, noting they are considering the issues raised in the letter internally. Officials at the teleconference declined to identify companies responding.

Aside from CalSTRS, Pax and Scottish Widows, institutional investors in the group whose representatives signed the letters include the $158.7 billion New York State Common Fund, Albany.