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Impact Investing

IPE special report May 2018

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ESG roundup: fracking, fossil fuel divestment, oekom, FNG

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  • ESG roundup: fracking, fossil fuel divestment, oekom, FNG

GLOBAL – The UK’s Institute of Directors (IOD) has come out in support of hydraulic fracturing, or ‘fracking’, the controversial practice of fracturing rock layers to release natural gas.

The IoD believes the UK has a major opportunity to develop a cheap and reliable domestic source of energy, creating jobs, reducing the need for gas imports and improving the environment by replacing coal in electricity generation.

Cheap gas-fired turbines powered by UK shale resources could also prove to be the perfect complement to renewable generation, providing power when the wind is not blowing and the sun is not shining.

Eric Gordon, energy analyst at investment management firm Brown Advisory, said: “It is likely eventual drilling and production of shale gas will take place in the UK, assuming the government and population determine that the economic benefits outweigh any potential environmental impact.

“However, it will undoubtedly be a very different environment and process in the UK to that of the US. The lessons to be learned are that of infrastructure.

“To sustain increased production, the infrastructure needs to be in place – from the producers that discover and develop prospects and sell the raw product to the refiners that take the commodity and convert it to marketable products.

“In the US, oil production ramped up so quickly the companies that transport the oil by pipeline, rail, truck or barge – the midstream companies – weren’t ready or equipped to handle the volumes.”

In other news, according to a Fossil Fuels Divestment Survey by investment adviser First Affirmative Financial Network, more than half of SRI industry professionals say the majority of retail investors (65%) and institutional investors (53%) are currently expressing interest in fossil fuel-free portfolios.

Other key survey findings include:

77% see growing risks for investors associated with fossil fuel company holdings in their investment portfolios 30% of those surveyed either already do – or are getting ready to – offer fossil-fuel free portfolios to investors 63% believe investors will in the next 10 years start divesting in meaningful numbers from fossil-fuel companies due to climate change implications of such energy sources 67% of respondents believe 2013 is the right time for investors to assess and perhaps alter their approach to investing in traditional energy companies 40% of those surveyed worry about increased diversification risk in fossil fuel-free portfolios in their role as a fiduciary to clients 24% of those surveyed said they would be able to adequately replace the most carbon-intensive fossil fuel companies in portfolios they managed/advised with holdings that exhibit similar risk/return characteristics

The online survey was completed by 466 investment professionals, asset managers, investors and representatives of SRI investment companies, community development financial institutions and social research/proxy voting organisations.

The full survey findings are available here.

Meanwhile, a study by Munich-based sustainability ratings agency oekom research, with the support of the Principles for Responsible Investment (PRI) and the German Global Compact network, found that sustainable investments and ratings positively encourage companies to move towards sustainability.

Almost two-thirds of surveyed companies said requirements from sustainability rating agencies spurred them to engage with sustainability.

The demands from such agencies influence the overall company strategy for every third surveyed company, while it affects the sustainability for half of them.

And another 30% of companies say the sustainability performance influences executive remuneration.

The most effective sustainable investment strategies are best-in-class and shareholder engagement.

The study is available in German here.

Lastly, sustainable investments amounted to €73.3bn at the end of 2012, a growth of 16% on the previous year, according to the German sustainable investment forum FNG.

Around 77% of sustainable investments came from institutional investors.

Another trend is exclusion criteria, which usually apply to cluster munitions and anti-personnel land landmine but also nuclear or tobacco, and cover €806.2bn of investments.

This is followed by best-in-class strategies and the integration of social and ecological factors in traditional financial analysis in the popularity of sustainability strategies.  

The study can be found here.

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