Fossil Fuel Investors Ask for Climate Change Risk Assessment

It’s music to the ears of climate activists: some 70 investors have signed letters to 45 companies that provide products from fossil fuel requesting that the companies do risk assessments due to the growing focus on climate change.

The stakeholders, who call themselves an ‘international group of institutional investors collectively representing nearly 3 trillion (dollars) in assets” say they are worried that their investments may suffer as the world decreases its dependence on fossil fuels and works to stem damage from climate change.

“(Investment) analysts have expressed concerns about the viability of the current capital expenditure plans of many oil and gas companies,” the investors write. The signers of the letters include pension boards, financial firms and nonprofit organizations in the U.S., Australia and the U.K.

The letters point out that in response to analysis furnished by the International Energy Agency (IEA) concerning the increased warming of the planet, world governments have “formally set a long-term goal to limit global warming below 2 C … Because the combustion of fossil fuels is the largest contributor to GHG (green house gasses), it is widely recognized that strong policy action will be necessary to transform how we produce and use energy to achieve this 2 goal.”

As a result, the stakeholders have asked the companies, which include  BP and Canadian Natural Resources (oil and gas); China Shenhua Energy Co. and Peabody Energy (coal); and American Electric Power and AES Corporation “to review both their exposure to these risks and their plans to manage them.”

The letters are part of a growing effort to put pressure on oil and gas companies to seek more sustainable methods for producing energy. In October, Harvard University President Drew Faust was forced to respond to calls by students, alumni and nonprofit organizations to divest from oil shale production. The investments, Faust argued, are important to the continuation of its various endowment funds.

However, analysts have pointed out that the market has changed, and fossil-free investments are now financially preferred.

The letters also come at a time of growing concern about projects like the Keystone XL Pipeline, which is based on long-term fossil fuel projections.

According to the nonprofit organization Ceres, which had a hand in organizing the investors’ efforts, public opinion has begun to change in regard to fossil fuel production. That change has helped to make this initiative possible.

“We have real optimism because we're operating in a context where there's actually a lot of dissatisfaction with how the fossil fuel industry is being run—and that's really different from four or five years ago, when the companies were seen as sort of bulletproof,” said Andrew Logan, director of Ceres’ Oil and Gas and Insurance Programs. Ceres and nonprofit organization The Carbon Tracker worked together to launch the project.

So far, at least 30 companies have responded to the request, and results seem positive. The writing seems to be on the wall for both investors and companies that provide energy from fossil fuels, says Carbon Tracker’s Research Director James Leaton. “Avoiding high cost, high carbon projects which are failing to deliver a return on capital will improve shareholder returns.”

Image of coal-fired Dominion Power Plant in Central Virginia courtesy of Edbrown05