Dropping Oil Prices Highlight Growing Fossil Fuel Risks

BOSTON, January 29, 2015 /3BL Media/ – In advance of ExxonMobil, Shell and BP quarterly earnings calls, investors and industry analysts today voiced growing concerns about excessive industry spending on high-cost, high-carbon fossil fuel projects that may be bad financial bets as the world continues to reduce its reliance on fossil fuels, accelerate renewable energy and reduce overall carbon emissions to counter the threat of climate change.

On a call hosted today by Ceres, major U.S. and European investors described how plummeting oil prices and resulting ripples across global energy markets highlight the significant inherent risks of continuing to invest hundreds of billions of dollars each year in high cost reserves that will only break even if oil prices remain at $90 a barrel or higher. Investors also discussed shareholder resolutions they have filed on the topic with a dozen oil and gas firms, including producers, pipeline companies and exploration firms.

“Investors must question industry assumptions and challenge capital expenditure at the wrong end of the cost curve,” said Jeremy Leggett, chairman of Carbon Tracker. “It is not too late for the transition to a lower-carbon economy to be an orderly one, with fossil fuel companies steadily shrinking overall but delivering the best results for their shareholders by focusing on returns and per share metrics.”

While oil companies have cancelled or delayed numerous projects in recent months, investors are concerned that the industry is still fully intent on forging ahead with major capital spending based on ‘business as usual’ assumptions that today’s oil prices are simply a bump in the road and that oil demand growth and higher prices will be the norm for decades to come.

“Addressing carbon asset risk is at the heart of corporate governance, which is why we engage portfolio companies to bring environmental expertise into the boardroom and challenge business as usual,” said New York State Comptroller Thomas P. DiNapoli. “The industry should take meaningful steps to mitigate its financial exposure and protect shareholder value by ensuring that its capital investment strategy incorporates consideration and mitigation of climate change related risks.”

Through disclosure requests, in-person meetings and shareholder resolutions, investors are questioning the wisdom of these companies’ strategies as the world is moving to reduce its reliance on fossil fuels, accelerate renewable energy and reduce overall carbon emissions to counter the threat of climate change.

Resolutions have been filed with a dozen companies in the industry, including BP, Chesapeake, Chevron, ConocoPhillips, CONSOL, Energen, ExxonMobil, Hess, Kinder Morgan, Marathon Oil, Newfield Exploration, Noble Energy and Shell. The resolutions were filed by public pensions funds, socially responsible investors and faith-based investors.

“Climate change and associated public policy uncertainty create material risks for investors," said Helen Wildsmith, Head of Ethical & Responsible Investment at CCLA.

"We think our supportive but stretching shareholder resolutions at BP and Shell could help focus attention on this increasingly complex capital allocation challenge for companies, investors and policy makers." CCLA is coordinating a coalition of 50 church, charity and public sector investors that has filed resolutions with BP and Shell.

The International Energy Agency says the world must invest at least an additional $1 trillion per year – a Clean Trillion – into clean energy in order to limit the worst impacts of climate change and protect the global economy. According to data released this month by Bloomberg New Energy Finance, global clean energy investments grew 16 percent in 2014 to $310 billion. Yet fossil fuel companies are clinging to antiquated business strategies, and invested an estimated $674 billion into finding and developing new reserves in 2012 alone. And a new report released today by Carbon Tracker outlines why investors must challenge industry assumptions, and how recent reports by IHS Herold and IPIECA - the global oil and gas industry association - are complacent about the future of oil and gas. 

“The oil majors should view this as an opportunity to transform their industry,” said Andrew Logan, oil & gas program director at Ceres, a nonprofit sustainability organization. “The window is closing for Exxon, Shell and the other oil majors to position themselves for a future that is less dependent on fossil fuels.”

Through the Carbon Asset Risk (CAR) Initiative, 75 investors managing more than $3 trillion in assets have called on 45 of the world’s largest fossil fuel companies to assess and disclose how their business plans fare in a world turned upside down by unchecked climate change. The CAR initiative is coordinated by Ceres and Carbon Tracker, with support from IIGCC and IGCC. For more information, visit http://www.ceres.org/issues/carbon-asset-risk.

About Ceres
Ceres is an advocate for sustainability leadership. Ceres mobilizes a powerful coalition of investors, companies and public interest groups to accelerate and expand the adoption of sustainable business practices and solutions to build a healthy global economy. Ceres directs the Investor Network on Climate Risk (INCR), a network of over 100 institutional investors with collective assets totaling more than $13 trillion. Ceres also directs Business for Innovative Climate and Energy Policy (BICEP), an advocacy coalition of more than 30 businesses committed to working with policy makers to pass meaningful energy and climate legislation. For more information, visit www.ceres.org or follow on Twitter @CeresNews.