Investors worldwide have registered concerns over the sustainability of energy sector business strategies, according to a newly published report.
This week’s Investor Expectations: Oil and Gas Company Strategy report was published by the Global Investor Coalition on Climate Change (GIC), which includes Europe’s Institutional Investors Group on Climate Change (IIGCC), Ceres’ Investor Network on Climate Risk (INCR) in the US, Australia/New Zealand’s Investors Group on Climate Change (IGCC) and the Asia Investor Group on Climate Change (AIGCC). It said current trends are “shaping a new direction in favour of low-carbon energy systems” and called the present moment “a critical time” for investors and businesses in the global energy sector.
“Capital allocation decisions being made now will determine the future profitability of the sector. We would like to see resilient business strategies that have been sufficiently stress-tested to prepare for the next decade and beyond,” the report said.
Stephanie Maier, head of corporate responsibility at Aviva Investors and chair of the IIGCC’s corporate working group, added that “the appropriate response of policymakers to deal with climate change will impact the profitability of more carbon-intensive energy assets over time. We recognize the economic and financial case for such future policy changes, so we are in favour of lower carbon intensity CAPEX plans in the energy sector today. Active and engaged investors are key to supporting this transition.”
The report’s recommendations for energy companies included clearly defining board and management governance of climate change risks and the implications of energy transition dynamics; embedding stress-testing for climate risk in key business processes and investment decisions; communicating company responses to climate change risks and opportunities to the public; and ensuring broad oversight and transparency of companies’ political spending on energy regulatory issues.
Anne Simpson, director of global governance for the California Public Employees’ Retirement System (CalPERS), the US’s biggest public pension fund, said: “We need to know how fossil fuel companies - and particularly the boards which are accountable for overseeing these companies - see the future of demand, how that view aligns with the carbon reductions being agreed to by governments around the world, and to what extent there may be stranded assets due to either a commitment by governments or a shift in demand.”
“Investors want to ensure oil and gas companies are prepared for changing market dynamics and the risks they pose to profits. This document will help do this by supporting a constructive dialogue between investors and the companies they own,” said Stephanie Pfeifer, IIGCC chief executive.