The term “2-degree stress test” has worked its way into investors’ lexicon.
After the Paris climate agreement in December, stockholders filed a record number of resolutions related to climate change, including requests at electric utilities to simulate—or stress test—how they would operate under the agreement.
More than 42 percent of shareholders at power company AES Corp. voted this month in support of a resolution for a 2-degree-Celsius test, and, in a guiding document published today, a group of 270 institutional investors said the financial risks of climate change directly threaten the electric utility business.
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“With so many countries now clearly committed to implementing the Paris agreement, institutional investors are concerned that some electric utility companies are not sufficiently prepared for the transition to a lower carbon economy necessary to limit global warming to well below 2°C,” Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change, said in a statement.
More than 170 nations signed the Paris Agreement, which urges signatories to peak carbon emissions “as soon as possible,” then slash them swiftly to cap global temperatures “well below 2°C above pre-industrial levels.”
The authors of the analysis manage more than $22 trillion in assets. Matthias Narr, a financial analyst at Dutch asset management firm Robeco and the document’s lead author, said how utilities spend their money and the short-term actions they take will “determine the future sustainability and profitability of electric utilities for decades ahead.”
In a statement, Narr said, “Investors need to understand whether utility companies are prepared for the changing market dynamics that are likely to arise from the policies and actions put in place to limit global warming.”
Dozens of climate shareholder resolutions
Resolutions at power companies have taken a number of forms this year.
Some call on the firms to examine how distributed generation or “low-carbon” energy sources might affect business, while others request that companies disclose their lobbying expenses and membership in trade associations.
Companies generally oppose resolutions from outside investors, and proposals rarely pass without management support. And while such proposals typically aren’t binding, they are a good barometer of investors’ strategies and sentiments.
“There really has been a long trajectory of engagement,” said Dan Bakal, director of the electric power program at Ceres, the sustainable investment advocacy organization. “But I feel like it has been culminating lately.”
Power companies have long known that climate change and regulations to slash planet-warming gases threaten their business model, Bakal said in an interview.
“The issue has certainly been on their agenda for more than a decade now,” Bakal said.
Xcel Energy Inc., for example, disagrees with elements of U.S. EPA’s Clean Power Plan yet acknowledges a long-term necessity to diversify its fleet from fossil fuels, he said.
While “only a handful” of a power companies face 2-degree stress test resolutions, 43 companies in the sector face some type of climate-themed resolution this year, according to Bakal.
Yesterday at the annual meeting for Suncor Energy Inc., 40 percent of shareholders voted for a lobbying disclosure resolution. In a rare move, the company said earlier this month that it supported the measure, which asked the oil sands company to explain how it plans to “succeed in a low-carbon future.”
And last month, the Securities and Exchange Commission denied petitions from Exxon Mobil Corp. and Chevron Corp. to block climate change resolutions (ClimateWire, March 24).
Investors will vote on those measures late next month.
“Investors need to know if Exxon Mobil is taking necessary steps to prepare for a lower-carbon future, particularly now, in the wake of the Paris Agreement,” New York State Comptroller Thomas DiNapoli said at the time.
Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500