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ESG roundup: Fossil fuel divestment, UK Law Commission on fiduciary duties

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A coalition of 70 investors worth $3trn (€2.2trn) has called on the world’s 45 largest oil and gas, coal and electric power companies to assess the financial risks that climate change poses to their business plans.

The investors sent letters to the fossil fuel companies last month, requesting detailed responses before their annual shareholder meetings in early 2014. 

Investors signing the letters include the UK’s Local Authority Pension Fund Forum, Merseyside Pension Fund, Railpen Investments, USS Investment Management, Hermes Equity Ownership Services, Aviva Investors, F&C Asset Management, the Scottish Widows Investment Partnership and California’s two largest public pension funds.

The investors wrote the following in their letter to oil and gas companies: ”We would like to understand [the company’s] reserve exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by 80% by 2050. We would also like to understand what options there are for [the company] to manage these risks by, for example, reducing the carbon intensity of its assets, divesting its most carbon intensive assets, diversifying its business by investing in lower carbon energy sources or returning capital to shareholders.”

The investor effort, called the Carbon Asset Risk (CAR) initiative, is being coordinated by sustainability platform Ceres and the Carbon Tracker Initiative, with support from the Global Investor Coalition on Climate Change.

Recent studies by the Intergovernmental Panel on Climate Change and the International Energy Agency have suggested that, to achieve the international goal of limiting global warming to 2˚C, the world will need to live within a set carbon budget, and a significant portion of proven global fossil fuel reserves will need to be left in the ground.

However, the world is currently on a path toward global warming of 4˚C or more, which the World Bank warned must be avoided to prevent catastrophic climate change impacts.

According to the Unburnable Carbon Report, in 2012 alone, the 200 largest publicly traded fossil fuel companies collectively spent an estimated $674bn on finding and developing new reserves – some of which may never be utilised. 

As of 23 October, investors had received preliminary responses from 30 companies. Detailed answers to the investors’ questions will come in follow-up responses. Participating investors are asking their peers to support this effort.

The full list of signatories can be found here.

In related news, a report on divesting from fossil fuels has been published by campaign group 350.org, Green Century Capital Management (Green Century) and Trillium Asset Management.

The paper, entitled ‘Extracting Fossil Fuels from Your Portfolio: A Guide to Personal Divestment and Reinvestment’, aims to help individuals better understand fossil fuel divestment, provides clear steps to move their money out of coal, oil and gas companies, and gives tips on how to proactively invest in sustainable companies and investment vehicles.

Co-founder of 350.org Bill McKibben said: “If it’s wrong to wreck the climate, then it’s wrong to profit from that wreckage. Investors have an important and special role to play in the climate change movement.”

The guide can be found here.

Lastly, the UK Sustainable Investment and Finance Association (UKSIF) has welcomed the launch of the Law Commission’s Consultation Paper on Fiduciary Duties of Investment Intermediaries.

The paper sets out to examine issues including whether fund managers and pension fund trustees have a duty to consider environmental and social impacts.

UKSIF head of government relations Caroline Escott, said: “Long-term and sustainable investment approaches by fiduciaries across the investment chain – including pension fund trustees, asset managers and consultants – are key to realising good outcomes for savers.” 

The consultation opened on 22 October and will close on 22 January 2014. A report is planned for June 2014.

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