ESG stands for Environment, Social, Governance. And it’s an increasingly big thing in the asset management world. The basic premise is that if you can get the biggest investment managers to collectively commit to ESG-focused principles in their strategies — whether that be through active engagement as shareholders or divestment strategies — capital will eventually be pulled from the type of corporations that routinely undermine or undercut the standards society judges to be important — from pollution and environment, to labour rights and fraud — forcing them to adapt their behaviour. The idea is to send bad corporates to capital-unavailable Coventry.
Climate campaigners have popularised the notion that fossil fuel assets might one day become “stranded” because, if global warming is to stay within the internationally agreed two degree Celsius limit, they can’t realistically be burned. It’s a view that has gained a lot of traction with investment managers leading to growing debates about strategies to de-risk portfolios by way of active engagement at the shareholder level or outright divestment.
At last week’s FT125 forum Bill Gates called for more investment in breakthrough clean technology research like high-altitude wind, which attempts to capture energy from the the fast flowing narrow air currents found in the earth’s atmosphere. Gates also said he is planning to double his personal investment in transformational green tech to $2bn over the next five years in an attempt to “bend the curve” in combating climate change. But another less expected message from Gates was that billionaire entrepreneurs like him operating in the private sector can’t be depended upon to change the energy paradigm alone — what some might describe as a slap in the face of those American tech entrepreneurs who favour fiercely laissez faire approaches to such challenges.
At the FT’s 125 forum on Wednesday night, Bill Gates, Microsoft co-founder and Bill & Melinda Gates Foundation co-chair spoke with the FT’s editor Lionel Barber about topics as far ranging as philanthropy, AI, climate change and management. But if there was one core takeaway from the evening’s discussion it was Bill Gates’ adamant stance on the pace of innovation, which he described as currently taking place at its fastest rate ever. All this, he suggested was leading to a “supply-side miracle” with hugely deflationary consequences for the global economy as a whole. (A truncated version of the interview is now available here.)
You can sign up to receive the email here. An eleventh-hour deal between Greece and its bailout creditors has slipped away – it seems the difference between Greek ministers and their bailout creditors is too wide to breach. Talks collapsed on Sunday evening after a new economic reform proposal submitted by Athens was deemed inadequate for negotiations to continue.
Institutions like Carbon Tracker have proved that reframing collective action arguments in dollar cost terms can be highly effective at mobilising the world’s top asset holders to take action. In the case of climate change, asset holders took note when the associated risks were presented as a carbon bubble threat on the basis that fossil fuel assets aren’t really wealth if they can never be burned (at least not if we’re to spare the planet from life-threatening climate change) . But, it turns out, there may be another equally effective way of framing the argument.
UK Oil & Gas, the company at the heart of a collection of companies associated with David Lenigas and the Horse Hill project to explore oil under Gatwick, has announced discussions about raising at least £4.5m from shareholders. The move follows the release of the executive summary of a report by reputable oil services group Schlumberger about what resources may lie under the patch of South East England. It says confidential down the side, but we checked with Schlumberger and they gave permission to publish. One other thing the spokesperson mentioned: the report is about the resources down there, it says nothing about their extractability, or the economic viability of any future attempts to do so.
You can sign up to receive the email here. G7 vows to clean up, HSBC to cut up to 25,000 jobs, tracking your career The Group of Seven industrial powers took a historic step in the fight against climate change by throwing their weight behind a cut in greenhouse gas emissions by 40 to 70 per cent by 2050 from 2010 levels. That’s the first time they have backed such a precise long-term target.
In 2008, it was fairly common practice to blame any of the following (evil passive index investors — hedge funds—oil traders—Opec) for driving oil prices up to $145 per barrel. The standard narrative was either that irresponsible and greedy institutions were synthetically pumping the price higher — and in so doing imposing a needless energy tax on the global economy — or, alternatively, that the smart-money was taking advantage of oil scarcity for their own future profitability. But with prices back at $60-65 per barrel levels, and the world facing something of a fossil fuel oil glut, is it time to frame the reality of 2008 in a different perspective? Perhaps, by providing the world with the incentive it desperately needed to get its collective butt into action on alternative fuel investment and development, speculators/passive investors/Opec cartels/banks actually did everyone a massive favour, albeit costly favour, in 2008.
It was Climate Finance Day in Paris last week, a conference convened under the auspices of UNEP and the UNPRI to address the specific challenges and issues of redirecting capital towards a resilient low-carbon global economy ahead of the United Nations Climate Change Conference also to be held in Paris, in December. The big takeaway was consensus is shifting, especially among asset managers and real money investors who no longer view environmental sustainability as a fringe theme. Climate is a bona fide risk for beneficiaries which professional investors must guard against to fulfil their fiduciary duties. To do nothing, essentially, is to encourage a disorderly capital transition and, potentially, a financial panic. As example, Axa’s chief executive pledged the insurer would divest €500m of coal assets between now and the end of the year.
Solo Oil plc today announces that it has raised £2,000,000 gross proceeds through the issue of 363,636,364 new ordinary shares of 0.01 pence each in the Company (“Placing Shares”) at a price of 0.55 pence per share (the “Placing”). The Placing Shares which were issued at a discount of approximately 8% to yesterday’s closing bid market price represent approximately 6.59% of the Company’s enlarged issued share capital. Solo Oil will be using the money to fund working capital as it works with partners on such projects as Horse Hill in the Weald Basin. One partner is David Lenigas, director at Solo as well as UK Oil & Gas Investments PLC, the company which prompted some rather fevered press coverage about Gatwick’s potential as the new Saudi Arabia. Do note the clarification which followed a week later:
You can sign up to receive the email here. The EU will launch one of the defining antitrust cases of the internet era today, formally charging Google with abusing its dominance of the internet search market in Europe. (FT) The European competition commissioner will accuse the US group of breaching antitrust rules by diverting traffic from rivals to favour its own services. Brussels will also launch a formal investigation into Google’s Android platform, focused on its distribution terms and compatibility tests for apps.
You can sign up to receive the email here. Bond investors are betting that the Fed is making like Michael Jackson and doing a moonwalk – it looks like you’re going forward but you’re actually moving back. Thus undeterred by the Fed’s ditched pledge to be patient about lifting rates, plenty of the smart money is on US rates staying near historic lows.
The oil world’s been full of speculation about the shift of strategy last year by Saudi Arabia which saw it keep the pumps running even as the price fell, turning an initial drop into a plunge. There may be a simpler explanation for Saudi’s willingness to see prices slide than an attack on US shale or a “political plot” against regional rival Iran, though: a change in the Saudi view on peak oil. The Saudis have two choices with their oil: sell it now, or sell it later.
We know central banks have the power to support asset classes and to move markets, and do so frequently in the name of financial stability. But are there other social threats that could be stabilised or mitigated by central banks in a similar way? For example, should central bank monetary policy be charged with a green agenda? Should central banks take it upon themselves to encourage and support the formation of liquid environmentally-focused markets?
This guest post is from the co-authors of UBS’s white paper for the WEF meeting 2015 in Davos, which started on Wednesday. Note that one of the co-authors, UBS Investment Bank’s chief economist Larry Hatheway, will be fielding questions on the energy chapter on Friday at 11:30am during Markets Live.
For seasoned oil watchers the latest spew of “informed commentary” hitting the media waves is probably becoming nauseating. That’s because everyone from Robert Peston and Peter Hitchens to Vitol’s Ian Taylor seem to have a view on the oil price decline, some making claims that “the market may have hit bottom”, others hinting that the fall was too “mysterious” to be market led and the latter even admitting that even oil traders can’t predict what’s going to happen next. But it’s the words of Saudi Oil Minister Ali Naimi that matters most. And as he explained to Mees Energy on December 21 — echoing what FT Alphaville has been saying for a long time now — in a price war, everything turns into a market-share-based game of chicken, meaning there’s no incentive for the world’s most efficient and financially buffered producer to cut at all. (H/T Neil Hume for the Mees report.)
Most technology users remain blissfully unaware of the internet’s carbon footprint because most “users” never have to come up close and personal with a data centre. Yet, for all the energy efficiency that technology brings us, data centres remain the technology world’s dark little energy guzzling secret. Data centres, it could be said, represent the unglamorous side of the technology business. They’re the plumbing that holds the whole thing together. They’re the secret sauce that gives one player an advantage over another. As a consequence, there’s zero advantage — either from a security or cosmetic point of view — of bringing attention to where your data centre is located, how it is run or how much energy it consumes.
BoAML follow in the footsteps of UBS with a whopper report on the smartening up of the world’s energy markets. It’s a mighty 256 pager. We’re still going through it in detail, but couldn’t resist flagging up the following factoid about “avoided energy” before revisiting some of the larger themes (among them, the reduction of power consumed by data centres). What the analysts mean by “avoided energy” is how much energy we’ve avoided using thanks to improved efficiency and know-how.
This is a guest post by Luciano Coutinho, CEO, BNDES, Brazilian Development Bank for the FT Alphaville Mission Finance series, in which he argues that development banks act as system stabilisers for the real economy. The 2008-2009 crisis revealed to the world what was known at a national level: qualified public financial institutions are of extreme importance when private credit slows down. Delicate financial situations require immediate and efficient actions and the recent countercyclical success of development banks (DBs) shows to what extent these institutions behave as system stabilisers in times of credit contraction.
Camp Alphaville, a wonk in the park. July 2nd in London. Details here. Markets: Asia-Pacific markets rallied in response to a series of supportive data releases pointing to growth around the region. Japan’s Nikkei 225 led gains, rising 0.8 per cent to reclaim the 15,000 mark for the first time in two months. It is on pace for a third weekly gain, after climbing 2.1 per cent on Monday. Equities were aided by a 0.6 per cent weakening in the yen against the US dollar overnight, to about Y102.37, which supports Tokyo’s export stocks. The stock market was also lifted by domestic media reports speculating on the possibility of Prime Minister Shinzo Abe announcing an early cut to the corporate tax rate, which at nearly 36 per cent is among the highest in the world. (FT’s Global Market Overview)