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The Crystal Ball Series: Issue 1 – Investor Sentiments

October 31, 2019

You will soon be facing… insistent investors. These investors will ask you how you’re getting ahead of a general public increasingly alarmed about climate change. They will wonder why you aren’t more alarmed that they are blaming oil and gas for the climate crisis. 

In honor of the Halloween season, I’ve dusted off my crystal ball for this five-part series.

Both of these things are true:

  • My crystal ball doesn’t tell me precisely when investors will be questioning you on your climate strategy, but the ball is excellent in seeing a general and challenging trend through the fog.
  • Willful ignorance or inaction in the face of these forecasts is not replacement for a risk management strategy.

The problem crystal ball reveals

You will soon be facing these investor sentiments… 

  • Earlier this year, Alastair Bishop, Director & Portfolio Manager at BlackRock stated, “While we try to have patience with our companies on climate change, that patience isn’t infinite. We have voted in favor of proposals, and against management, where we felt insufficient progress was being made.” He made his comments at the Stanford Global Energy Forum. You don’t have to take my crystal ball’s word for it. You can see the video here at 4:33.
  • ARC Energy Research Institute hosted an informative podcast entitled Why You Can’t Ignore the ESG Movement. In a conversation between Peter Tertzakian of ARC and Patrick Bryden, Director, Equity Research at Scotiabank, Tertzakian started, “what you’re saying in this report is that companies that…don’t pay attention [to ESG], [they] are definitely going to be relegated to the bargain basement discount table.” Bryden responded, “I think that’s right. We are looking for companies that are representing new economy ideas as opposed to old economy ideas.” Doubt my crystal ball? Check out minute 6:30 in the podcast, which is worth listening to in its entirety.
  • Investors are now under their own pressure to push their portfolio companies in a decarbonizing direction through efforts such as Taskforce on Climate-related Financial Disclosures (TCFD) and  the Principles for Responsible Investing (PRI). Of interest to you will be PRI’s Inevitable Policy Response guidance, which explicitly kicks off, “Markets today have not adequately priced in the likely near term policy response to climate change.” You don’t have to agree with their assessment, which includes modeling and forecasting; you do need to know that your investors are undertaking this kind of analysis.
  • Last month investors representing over $5.5 trillion in assets under management pressured 35 oil and gas producers and midstream companies to reject the Trump Administration’s proposed rollback of methane rules. Their letter states, “The rollback of existing, strong, yet cost effective, regulatory standards will lead to policy uncertainty for industry for years to come… Finally, if the proposed rollback is enacted without opposition from those in industry, the deregulation of methane and the acquiescence of the industry will shape the public narrative on natural gas, overshadowing proactive measures of industry leaders.”

It matters because

For many companies, investor pressure moves climate and decarbonization to the front burner. Or the front of the crystal ball, as the case may be.

The critical mistakes companies are making: 

Missing the momentum underway. The investor community is mobilizing in a big way — busting out of the fog.

Seize the day.  It’s not all grim – knowing the risks allows us to plan and mitigate. Let’s break out the Magic 8 ball now and do just that. 

We are here to help if you need us, just reach out.

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