Stranded Assets, APPCCG & Green Bear

Posted on: November 10th, 2014

Stranded Assets, APPCCG & Green Bear

Stranded Assets, the All Party Parliamentary Group on Climate Change & Green Bear

Last Wednesday, 5 November, I was delighted to have been  invited to attend an APPCCG (All Party Parliamentary Climate Change Group)/  UKSIF meeting at the House of Commons – entitled ‘Stranded Assets – How can policymakers act to ensure economic stability while reducing emissions?’

After the event I found myself in the HoC shop (as you do!), which is where I came across my new friend, pictured here.

I have called him ‘Green Bear’, not least because the name on his label (‘Barry’) did not sound right to me.

I am not normally one for buying cuddlies.  My children are getting too old for them and soft toys regularly get destroyed in our house by visiting puppies (but that’s another story).  So Green Bear would not ordinarily have come home with me…

My reason however, was simple.

The humour (if not irony) of this small – and ok, rather cute – bear, dressed in green… with a House of Commons logo on his tummy was simply too much of a pull,  particularly as I had just attended an event aimed at encouraging policy makers to take climate change more seriously.

Indeed, this most informative (and indeed serious) of events, hosted by Tim Yeo MP, could pretty much be summed up by a single question – which if Green Bear could speak, he might well be asking:

‘Why on earth are policy makers so bearish about going green?’

The following are four collections of information and thoughts from the event which bring together arguments and suggestions posed by the many different speakers:

  • Government & leadership. ‘The role of government is to protect the long term wellbeing of the people they represent, NOT to ensure that everyone can always have all the cheap energy they want’.   This related to the various comments made about China.  Several speakers made it clear that contrary to common belief the Chinese are now taking climate change very seriously … So, whilst we understand that being a democracy can make implementing major change more difficult (thank goodness!) but should no longer be used as an excuse.  If the UK/Europe fails to make real progress soon we will all be paying the price for many years to come, quite possibly both in terms of business opportunity lost and impacts.
  • Only 17 years. A 2 degrees maximum temperature increase (‘Global Budget’) has been widely accepted as has the point that we can not exceed 350ppm of carbon in the atmosphere without putting our collective wellbeing at risk.  These figures are no longer open to serious debate.  But less well known is the view that a 2 degree increase is not only necessary and feasible, but it is also affordable  (and potentially great for investors) – as long as we ‘get a move on.’     … If things stay as they are however we are likely reach +2 degrees average temperature increases by around 2031 … and a catastrophic 3-4% increase would apparently be likely to follow only a few years later – which will make our future ‘prosperity’ a whole different ball game.  This all begs the question, given a 17 year time frame – What exactly are policy makers waiting for?
  • Stranded assets. Mark Carney’s recent comments about the majority of fossil fuel reserves being  ‘unburnable’ has been widely welcomed in SRI circles.  Yet it has been met with very little response from investment markets.  This has been a surprise even to those of us with many years of experience in this field.    His comments relate to the $5 trillion of  oil and gas company assets are at risk of being ‘stranded’ as we approach the level at which no more carbon can be safely absorbed by the atmosphere.  The ‘business as usual’ practice of investment in such companies is therefore a significant investment risk.  This is why ‘disinvestment’ is increasing  (notably recently by the Norwegian pension fund, Rockerfeller Foundation amongst others).  Which, if I am reading this correctly, begs the question ‘Why are all investors not worried?’
  • Unwelcome cost & risk. The cost of fossil fuel extraction rising  – as reserves become harder to exploit  (think tar sands, ever deeper water drilling, arctic exploration and ‘geopolitical risk’ )  –  and the cost of generating renewable energy  is falling  as technology improves (eg solar, wind).   Indeed some oil projects  (apparently) need oil prices to be $200+ a barrel in order to break even.  Oil is currently c$85 and prices have been increasingly volatile in recent years.    Irrespective of climate related issues the oil and gas sector is has massive challenges ahead.  Continuing investor support for oil companies (who are fighting to retain high dividends etc) is therefore bad for ALL business not just the renewables sector.  There are no doubt many factors  are at play here , however seeing oil companies as safe havens for investors certainly does not feel right.  Indeed some speakers heavily criticised the oil giants for publishing  ‘incomplete and misleading’ information for investors.  Sound familiar?

Being somewhat risk averse it feels hard to contemplate why we would want to confront the risk of leaving significant sums invested in oil companies – or, for that matter, want to ‘play chicken’ with climatic change.

There are no doubt reasons why some would disagree.  Vested interests, fear of change, timescales,  lack of information – and the might of oil giants marketing machines (and advertising budgets) all no doubt play a part.  Yet the time to push this up the investment agenda must now have arrived.  Turning the ‘investment tanker’ round may be a painfully slow process, but the manoeuvre has begun.

So without wishing to spoil Green Bear’s day it seems to me that advisers should now be far more bullish about ‘green’ issues.

Thinking these issues through, asking clients if they are interested – and taking action where necessary will all help to demonstrate the value of genuine, personalised financial advice.  And with friends like Mark Carney (and Green Bear) what more support could anyone need?  Either way – it is time to do more than wear green jumpers.