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How Fossil Fuel Divestment Will Hurt Fossil Fuel Stock Prices

[fa icon="calendar'] Jan 21, 2015 9:33:25 AM / by Carol Pierson Holding

By: Carol Pierson Holding

If anyone needed more proof that economics trumps sustainability: low gas prices are causing a plunge in electric vehicle and hybrid sales.

Ban Fracking Tax Carbon

The same phenomenon is happening in the divestment movement. Moral outrage pushed 83 churches, universities and non-profits to divest $50 billion before the September climate march. This is a blip for an industry valued at $5 trillion, whose top investor Blackrock owns $146 billion in fossil fuel investments and where a single company Exxon Mobil is valued at $425 billion, and Shell and Chevron at $268 billion and $248 billion respectively.

These numbers are staggering, and the pace of the divestment movement in relative monetary terms is glacial, despite its many moral and symbolic victories. Even if as Bloomberg’s New Energy Finance says this divestment movement has more rapid growth and quicker scaling than any of its predecessors, does it have a chance of affecting fossil fuel company behavior?

Only when it starts to affect the stock price.

Tim Dickinson argues eloquently in this issue of Rolling Stone that divesting has become the smart move for the financially savvy, and not because of divestment pressure. Prompted by the recent 50% drop in the price of oil, now hovering below $45 per barrel —

“From late June to early January, across the world, the 10 oil firms with the largest proven reserves collectively lost roughly 20 percent of their market value.  …Goldman Sachs warned that nearly $1 trillion in planned oil-field investments would be unprofitable – even if oil were to stabilize at $70 per barrel. The industry is already scaling back the hunt for high-cost sources of new oil. Chevron has shelved drilling in the Canadian Arctic, and Hercules Offshore, a significant driller in the Gulf of Mexico, has idled four rigs and laid off more than 300 workers. Plunging profits are also putting the brakes on fracking.”

And that’s only the beginning. Countries around the world are putting limits on carbon emissions, so much so that Governor of the Bank of England Mark Carney warned that "the vast majority of reserves are unburnable." The argument that fossil fuel companies’ reserves will become “stranded assets” has long been a hopeful prediction from activists, but the message has a different tone when it comes from a powerful central banker whose main concern is not sustainability but stability.

Another concerned guardian of the status quo has similar fears. Bevis Longstreth, who served as commissioner of the SEC under Ronald Reagan and later chaired the Finance Committee of the Rockefeller Brothers Foundation, blasts the oil companies: "There is no good reason for this vast expenditure of stockholder wealth. It is wasted capital, an offense against stockholders in terms financial alone."

But my favorite argument for divesting comes from a report generated by Oxford University’s Stranded Assets Programme. The authors bring up the very real reputational risk that a divestment movement creates, which they label “Organisational Stigma,” or “disapproval, even ‘disgust’ at an organisation’s activities, values or behaviour” and tie it directly to stock price: “Even when divestment outflows are small or short term and do not directly affect future cash flows (as is true with fossil fuel divestment), if they trigger a change in market norms that close off channels of previously available money (i.e., the ability to sell stock), then a downward pressure on the stock price of a targeted firm may be large and permanent.”

Add to that the growing perception that the fossil fuel companies’ decisions about where to invest are considered irrational, and you've created a very serious threat to fossil fuel companies' stock price and the managers whose pay and bonuses depends on that price. And that’s the most likely route to real change.

Photo courtesy of Carol Pierson Holding 


Carol Pierson HoldingCarol Pierson Holding writes on environmental issues and social responsibility for policy and news publications, including the Carnegie Council’s Policy Innovations, Harvard Business Review, San Francisco Chronicle, India Time, The Huffington Post and many other web sites. Her articles on corporate social responsibility can be found on CSRHub.com, a website that provides sustainability ratings data on 13,000+ companies worldwide. Carol holds degrees from Smith College and Harvard University.

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 13,000+ companies from 135 industries in 127 countries. By aggregating and normalizing the information from 370 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

 

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[fa icon="comment"] 0 Comments posted in Bevis Longstreth, BlackRock, Bloomberg New Energy Finance, Exxon Mobil, Fossil Fuel Divestment, Shell, Uncategorized, Mark Carney, oil reserves, organisational stigma, Rolling Stone, Tim Dickinson, oil prices, Oxford University Stranded Assets Programme, stranded assets, Carol Pierson Holding, Chevron, Hercules Offshore

Shift Happens

[fa icon="calendar'] Jan 7, 2014 9:54:06 AM / by Carol Pierson Holding

By Carol Pierson Holding

When I heard in late December that Bill McKibben had written another article for Rollingsolar Stone, I was thrilled. His July 2012 piece for that publication — “Global Warming’s Terrifying Math” — started a firestorm. McKibben had determined that the public was losing interest in battling climate change because there was no clear enemy. With no titanic force to battle, consumers had no one to blame but themselves, and that notion was driving away supporters. Then McKibben’s article identified the fossil fuel companies as the once and future evil, and because of horrors such as the Exxon Valdez and BP’s Gulf Oil Spill, they were bad guys we already loved to hate.

McKibben gave us our powerful, venal villains. But a perfect story needs a hero too. McKibben’s article’s title, “Obama and Climate Change: The Real Story,” made it seem like that hero might be Obama.

But McKibbens’ article turned out to be an indictment, using Obama’s own words to brand him the President who has done more harm to the environment than even his predecessor, former oil man George W. Bush:

“Here's Obama speaking in Cushing, Oklahoma, last year…It is to energy what Mitt Romney's secretly taped talk about the 47 percent was to inequality. Except that Obama was out in public, boasting for all the world to hear:

‘Over the last three years, I've directed my administration to open up millions of acres for gas and oil exploration across 23 different states. We're opening up more than 75 percent of our potential oil resources offshore. We've quad­rupled the number of operating rigs to a record high. We've added enough new oil and gas pipeline to encircle the Earth, and then some. . . . In fact, the problem . . . is that we're actually producing so much oil and gas . . . that we don't have enough pipeline capacity to transport all of it where it needs to go.’”

With Obama so squarely reduced to a fossil fuel promoter, is there any good news anywhere about climate change as we enter 2014?

I had high hopes reading USA Today’s energy reporter Wendy Koch ‘s “Technology Can Halt Climate Change.” Koch starts by comparing global warming to the 1890s horse manure crisis. That crisis was solved when a “shift happened” — the automobile was adopted virtually overnight. Koch offers examples of possible solutions to climate change now in the works: high-altitude wind kites, "plug and play" nuclear reactors, giant synthetic trees to absorb carbon dioxide, sulfate aerosols to cool the planet, hydrogen fuel-cell car and mass market hybrids.

None of these potential solutions carries even the remotest possibility of quick, widespread adoption.

But amidst all the gloom, there is one old idea that just last week seemed to be everywhere again, Ms. Koch’s technology predictions aside: that much maligned force of nature, solar.

Everyone  prefers a transition strategy to one that disrupts our lives or limits our choices. The electric car that has a reasonable range has been one such strategy. Tesla, the first car to do that, runs on enormous batteries that have to be replaced every seven years at a cost of $20,000. Such a drawback for buyers seems to cry out for a solar solution, but it’s impossible to run a car on today’s solar panels. Toyota’s panels generate only enough to run a car’s ventilation system.

Tesla’s founder Elon Musk also founded SolarCity so naturally the companies collaborated on a solution. Rather than working on better solar panels for cars, SolarCity uses Tesla’s batteries first in refrigerator-sized units for commercial buildings, and eventually in smaller batteries for home solar applications, solving the problem of what happens when the sun isn’t shining.

Ironically, Ford has the hottest idea for a solar-powered car. As reported in MIT Technology Review, its self-driving C-Max Energi plug-in hybrid will recharge from solar panels atop a carport roof equipped with a special flat lens. The lens will concentrate enough solar energy to recharge the car in six hours and store it in batteries made by SunPower.

Mash it all together — driverless cars developed by Google (a version of which was recently built for $4,000 by one of Time Magazine’s Influential Teens), solar powered carports, battery technology developed for the electric car applied to buildings (could power plants be next?), distributed energy produced by better roof panels and batteries for local storage — and you start to get excited again. It’s not a single hero but a collaboration that comes closest to pushing the shift.

Finally, as reported on the front page of Saturday’s New York Times,  “Solar Power Craze on Wall St. Propels Start-Up,” referring to SolarCity.  So on top of the technology, the hot entrepreneurs, the brainiac kids and the eagerness to collaborate, the money is there too. Now that’s some shift happening!

Photo courtesy of DRAMOS19 via Flickr cc.


Carol Pierson HoldingCarol Pierson Holding writes on environmental issues and social responsibility for policy and news publications, including the Carnegie Council's Policy Innovations, Harvard Business Review, San Francisco Chronicle, India Time, The Huffington Post and many other web sites. Her articles on corporate social responsibility can be found on CSRHub.com, a website that provides sustainability ratings data on 8,900+ companies worldwide. Carol holds degrees from Smith College and Harvard University.

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 8,900+ companies from 135 industries in 104 countries. By aggregating and normalizing the information from 300+ data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

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[fa icon="comment"] 2 Comments posted in climate change, Exxon Valdez, Ford C-Max Energi, giant synthetic trees to absorb carbon dioxide, Wendy Koch, Uncategorized, "plug and play" nuclear reactors, Rolling Stone, solar energy, Tesla, SolarCity, Bill McKibben, BP Gulf Oil Spill, Carol Pierson Holding, carport solar, driverless cars, high-altitude wind kites, hydrogen fuel-cell car, oil and gas exploration, solar battery storage, sulfate aerosols to cool the planet

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