The Truth about Big Oil and Climate Change (Economist)

https://www.economist.com/leaders/2019/02/09/the-truth-about-big-oil-and-climate-change

In America, the world’s largest economy and its second biggest polluter, climate change is becoming hard to ignore. Extreme weather has grown more frequent. In November wildfires scorched California; last week Chicago was colder than parts of Mars. Scientists are sounding the alarm more urgently and people have noticed—73% of Americans polled by Yale University late last year said that climate change is real. The left of the Democratic Party wants to put a “Green New Deal” at the heart of the election in 2020. As expectations shift, the private sector is showing signs of adapting. Last year around 20 coal mines shut. Fund managers are prodding firms to become greener. Warren Buffett, no sucker for fads, is staking $30bn on clean energy and Elon Musk plans to fill America’s highways with electric cars.

Yet amid the clamour is a single, jarring truth. Demand for oil is rising and the energy industry, in America and globally, is planning multi-trillion-dollar investments to satisfy it. No firm embodies this strategy better than ExxonMobil, the giant that rivals admire and green activists love to hate. As our briefing explains, it plans to pump 25% more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous.

IOSCO Statement on Disclosure of ESG Matters by Issuers

https://www.iosco.org/library/pubdocs/pdf/IOSCOPD619.pdf

The International Organization of Securities Commissions (IOSCO) is this month publishing a statement setting out the importance for issuers of considering the inclusion of environmental, social and governance (ESG) matters when disclosing information material to investors’ decisions.

The statement does not supersede existing laws, regulations, guidance or standards or relevant regulatory or supervisory frameworks in specific jurisdictions, or any IOSCO Principles.

I. Introduction

As underlined by IOSCO in its Objectives and Principles of Securities Regulation, securities regulation has three key objectives: protecting investors, ensuring that markets are fair, efficient, and transparent, and reducing systemic risk. IOSCO Principle 16 states that issuers should provide “full, accurate, and timely disclosure of financial results, risk, and other information which is material to investors’ decisions.” With regard to this Principle, IOSCO emphasizes that ESG matters, though sometimes characterized as non-financial, may have a material short-term and long-term impact on the business operations of the issuers as well as on risks and returns for investors and their investment and voting decisions.

II. Developments in the disclosure of ESG information

Disclosure of ESG information in the market has increased in recent years. Examples of ESG matters that issuers are disclosing include environmental factors related to sustainability and climate change, social factors including labor practices and diversity, and general governance- related factors that have a material impact on the issuer’s business.

PGE: The First Climate-Change Bankruptcy, Probably Not the Last (WSJ)

http://PG&E: The First Climate-Change Bankruptcy, Probably Not the Last

PG&E Corp.’s PCG 13.68% bankruptcy could mark a business milestone: the first major corporate casualty of climate change. Few people expect it will be the last.

California’s largest utility was overwhelmed by rapid climatic changes as a prolonged drought dried out much of the state and decimated forests, dramatically increasing the risk of fire. On Monday, PG&E said it planned to file for Chapter 11 protection by month’s end, citing an estimated $30 billion in liabilities and 750 lawsuits from wildfires potentially caused by its power lines.

The PG&E bankruptcy could be a wake-up call for corporations, forcing them to expand how they think about climate-related risks, management consultants and other experts said.

Previously, companies mainly worried over risks from new governmental regulations related to climate change, said Christophe Brognaux, a managing director at Boston Consulting Group. The PG&E case makes clear that companies also have to worry about sudden, and potentially unexpected, impacts to their core assets and liabilities, he added. 

“Physical risks have only recently manifested themselves. This is a fairly new development,” said Bruce Usher, a professor at Columbia University’s business school who teaches a course on climate and finance. “If you are not already considering extreme weather and other climatic events as one of many risk factors affecting business today, you are not doing your job.”

Impact investing: A multitrillion-dollar market in the making (Pitchbook)

https://pitchbook.com/news/articles/impact-investing-a-trillion-dollar-market-in-the-making

This, Cohen believes, will ultimately lead to an impact ecosystem that has the potential to cover all major assets classes and create the emergence of a multitrillion-dollar market within the next 10 to 12 years.So, if you add it all up, we are talking about tens of trillions, perhaps $30 trillion by 2030.”

Impact investing has been gaining traction over the last decade, as investors, consumers, and—to an extent—policymakers come to recognise that new ideas are needed in order to address some of the largest societal and environmental challenges facing humankind.

However, as is often the case with new ideas, impact investing continues to face big challenges and misconceptions. How to actually define this type of investing is one of those challenges, while the biggest obstacle perhaps remains the general belief that doing good with investments will almost always result in lower-than-market-rate returns.

But according to Cohen, at least, the scepticism is due to a somewhat dogmatic approach by traditional practitioners. “Many people have the notion that optimising risk and return is sacrosanct, and therefore refuse to even contemplate any alteration to the system which might affect their two dimensions of the decision-making process.

“The reason I am putting weight behind this is that if we can apply the usual tools of financial analysis—such as price-earning ratios and return on equity—on an impact-weighted basis, then we will have the most versatile set of tools to be able to make comparisons between companies. This is a huge, but totally achievable goal.”

According to Cohen, the impact revolution will be driven to a large extent by consumers, contributors to pension funds and asset owners. Living in times of systemic challenges such as extreme poverty, geopolitical tensions and environmental disruption on a global scale appears to be leading a growing part of the western population to question, if not outright challenge, the status quo.

This, Cohen believes, will ultimately lead to an impact ecosystem that has the potential to cover all major assets classes and create the emergence of a multitrillion-dollar market within the next 10 to 12 years.

“This is not a dream. If you look at the potential application of agreed impact principles across all asset classes, the numbers are absolutely huge. It is not a stretch to imagine that in a few years’ time a small percentage of the public markets, government and corporate debt, private equity and venture capital will all be investing under the agreed impact principals. So, if you add it all up, we are talking about tens of trillions, perhaps $30 trillion by 2030.”

Climate’s Big Unknown: What’s Happening Beneath Antarctica’s Ice (WSJ)

https://www.wsj.com/articles/climates-big-unknown-whats-happening-beneath-antarcticas-ice-11546102801?emailToken=b0390c75fa3b61094af47c0c7393540b0M5fXkKDi+Y4mtfxhSgwd64ucmI3H9rakPu05bQAUObu1jQfr2SzhF0actXvzjiGhOb3IJoulGYNQUl/5WF4GDH1iPJTTH8/vgYvUrPZcoZou/TPYu3697oX6G4XiSKl&reflink=article_email_share

At the Asian Development Bank, which lends to governments and companies in Asia’s developing markets, Jay Roop is part of a team that oversees the construction of wharves, ports and roads around the Pacific region. To predict how projects might fare in future climate conditions, he and his team use 24 different climate models. The data they incorporate include melting rates of glaciers, historical ocean temperatures and rainfall, and information on local geography and water dynamics, which can affect storm surges. Most models don’t have data on the stability of Antarctic ice.

Mr. Roop consulted climate models to assess a wharf the Papua New Guinea government wanted to build. Many models suggested that, without climate-proofing, the wharf would be underwater within a few decades. The design was reconfigured so the wharf could be easily raised. That increased the cost by roughly 17%. Construction will begin in late 2019.

Cities Look to Shed Ratings While Taking on More Debt (WSJ)

One-fourth of municipal borrowing is given a single grade, leaving smaller investors with less information

Municipal officials and advisers said fewer ratings help cities trim expenses and save time when they borrow money for everything from school construction to sewer repairs. Bond issuers typically pay rating firms to issue a report. But some analysts said opting for one grade from a single firm puts smaller investors at a disadvantage as less information circulates through the $3.8 trillion municipal market.

Cities and counties across the U.S. don’t have enough assets on hand to pay for all future obligations to their workers, but how deep this deficit looks depends on what those cities expect to earn on their investments. Moody’s and Fitch impose their own calculations of pension liabilities while S&P relies more on government-provided projections.

https://www.wsj.com/articles/u-s-cities-look-to-shed-ratings-while-taking-on-more-debt-11545220801?emailToken=1239745afe85907d0a0cd37d45fb394a9kCzCKQqZrETuxQ3brfqFQV+LcoNoysWeIP10rA475rt38ip5zzWZmqRcQDJhfb1Zr99boR3luKhM3l9h+cNprCtjnC6po6nMz2eJQH8IFFHz87SdBBYbtCnDY0xPi8X&reflink=article_email_share

ESG Challenges Mention (The Prudent Fiduciary)

For an overview of how ESG is being implemented, check out Callan’s 2018 ESG survey and/or research in the Financial Analysts Journal.  In a posting for Enterprising Investor, Christopher Merker lays out some challenges for ESG investing, including the need for better definition of standards and terminology, improving the quality of ESG information, and moving the focus beyond listed equities.

https://mailchi.mp/eafa54da1c13/the-prudent-fiduciary-digest-52

It isn’t easy being green for a bond ETF (WSJ)

https://www.wsj.com/articles/it-isnt-easy-being-green-for-a-bond-etf-1544410920

Consider green bonds, issued by governments, banks, municipalities and corporations. The bonds aim to negate the effects of climate change by financing “green” assets in energy, water, heavy industry and the like. Over the past 11 years, some $500 billion in green bonds have been issued, including $138 billion in 2018 through November, the Climate Bonds Initiative says.

On top of that, the money raised from green bonds isn’t linked directly to a specific project or property, so it is up to issuers to update investors on how the money is being used.

Mobilize the Private Sector to Avert a Climate Crash (WSJ)

https://www.wsj.com/articles/mobilize-the-private-sector-to-avert-a-climate-crash-1543786196

In the coming months, we call on governments, the global business community and financial executives to work with us to help build on these successes with three objectives in mind: First, mobilize public investments in combination with private capital flows to support vulnerable countries and communities. Second, ask companies how they manage climate risks while anticipating the opportunities of a low-carbon future. Third, promote standardized methods for climate-related disclosure and investment decision-making.