Big Investors Call for Action on Climate Change

The idea that reducing carbon emissions is bad for investors is in at least in part an urban legend. In an earlier post, we noted:

In 1997, British Petroleum decided to lower its carbon emissions below the 1990 level by 2010. It achieved the goal in 3 years rather than 13 at a cost of $20 million. Oh, and it happened to save $650 million. With that sort of calculus, you’d think that every big corporation would be on the emissions-reduction bandwagon.

While the savings for other companies may not be as dramatic, other analyses have found that investing in energy savings is attractive:

A study by the McKinsey Global Institute (MGI) found that an annual global investment of $170 billion in energy productivity through 2020 could half the global energy demand—an amount equivalent to 64 million barrels of oil per day. This investment would create energy savings with an average internal return rate of 17 percent, or $29 billion. MGI said the most cost-effective method for reducing global greenhouse gas (GHG) emissions is through energy productivity. Additionally, the report says the investment would cut CO2 emissions to about 550 parts per million—the amount needed to stabilize the gas at the safety limit set by the Intergovernmental Panel on Climate Change.

In order to achieve this, MGI said the global industry sectors need to invest about $83 billion per year, residential sectors would need to invest about $40 billion, and the transport and commercial sectors must invest $25 billion and $22 billion per year, respectively. Diana Farrell, director of MGI, said “the vast majority of global executives say fixing global warming problems can boost profits…. We’ve identified huge opportunities to reduce energy demand and carbon emissions through improved efficiency.”

This study was published in early February 2008 (see here for the full report).

Reuters today (hat tip reader Jorgen) reports that institutional investors are calling for faster, more aggressive action to reduce greenhouse gases:

Global institutional investors holding more than $6 trillion in assets pushed policymakers Tuesday to quickly hash out a binding agreement to cut greenhouse gas emissions and promote clean technology.

More than 130 big investors, including London Pensions Fund Authority, want countries to agree to reduce the climate- warming emissions by 50 percent to 80 percent by 2050.

Those numbers are in line with global warming policy favored by U.S. President-elect Barack Obama, who supports an 80 percent reduction in carbon emissions by mid-century.

The investors also want policymakers to set long and medium term emission reduction targets for developed countries and to provide for an expanded and more liquid global carbon market…

They have also called on the U.S. Securities and Exchange Commission to force publicly traded companies to disclose climate-related risks along with other factors that affect their business.

“As institutional investors, we are concerned with the risks presented by climate change to the global economy and to our diversified portfolios,” said Mike Taylor, chief executive of London Pensions Fund Authority….

The group of global investors want countries to sign on to a new binding agreement to succeed the Kyoto Protocol climate pact, which set binding targets for industrialized countries to cut greenhouse gas emissions.

The European Union is aiming to cut greenhouse gas emissions 20 percent by 2020 and increase the share of wind, solar, hydro, wave power and biofuels in their energy mix by the same date.

The United States is alone among major industrialized countries in rejecting the Kyoto Protocol, but is participating in discussions to craft a follow-up global agreement.

“It is time to put an agreement in place where the United States is involved,” said Mindy Lubber, the president of Ceres, a coalition of investors and environmental groups working on climate change issues.

The global group of investors is hoping its voice is heard ahead of a December climate change convention in Poland.

Print Friendly, PDF & Email


  1. Anonymous

    Could you get a more obvious case of talking your book?!! They are starting to see their Climate shakedown and “green stocks” become less important as economies fall.

    I’m am as big of proponent of energy eficiency as the anyone… but using the tools proposed (cap trade, taxes, etc.) do more to act as an impediment to progress / business than it helps.

    You have to make a rational economic case for the change (such as the BP example)… or else you get the China Syndrome when it comes to pollution(Europe cracked down on pollution so all polluting manufacturing moved to China… and now pollute twice as much where you can’t see it).

    We should focus on efficiency in every aspect of business and life and emissions take care of themselves. If you come up with efficient technologies, companies will use them.

  2. Anonymous

    “It achieved the goal in 3 years rather than 13 at a cost of $20 million. Oh, and it happened to save $650 million.”

    So saith Lord John Browne without any supporting evidence.

    They made the decision in 1997 and Browne’s talk was in 2002. That doesn’t seem like three years to me.

    He goes on to say that using better lubricants would reduce CO2 by 30 million tons a year. What is the deluded fob thinking?

    He then talks about how he will save even more by using carbon credits earned by BP’s increasing use of methane. How does one reduce CO2 by using carbon credits? BP may reduce CO2 use by using methane and they may sell the resulting credits to other concerns but they certainly can’t claim the sale is decreasing CO2 emissions.

    You can always tell when Lord Browne is lying. His lips move.

  3. The Charters Of Dreams

    “The idea that reducing carbon emissions is bad for investors is in at least in part an urban legend.”

    Humm . . . well, the motivation to reduce emission as far as some governments are concerned seems less enthusiastic than the institutional investors reported in the post, e.g.,

    Germany ‘s Chancellor Angela Merkel, who is probably the woman most responsible for the Kyoto Protocol (when she was Germany’s Environment Minister), now calls drastic cuts in carbon dioxide emissions, “ill-advised climate policy”. Her foreign minister, Frank-Walter Steinmeier, who last year pronounced global warming as a grave threat to world peace, now says that “this crisis changes priorities” and that “interest in protecting the climate will change because of such a crisis”.

    The UK has some of the most progressive global warming taxation and regulation. This has pushed residential energy costs up to an average $600 per year OVER where they were a year ago. Britain’s National Housing Administration estimates that 5.7 million British households will spend more than 10% of their income on fuel and energy next year.

    I would think the last thing any politician wants to deal with is massively falling employment AND rising energy costs from taxation and regulation.

    Is it the case that BP’s initiative was purely/mostly private, i.e., they just did it themselves without regulation and taxes?

  4. Andy

    Yea lets encourage everyone to buy a prius at the average increased cost of $5000, or 20% higher than a regular car, especially when gas is $2.00/gal. Oh you lost your job? Do what’s right for the planet man! Sacrifice yourself to ‘reduce greenhouse gasses.’ You’re smart Yves but I think you fell for the ruse…

  5. Sion

    Arguably we have seem, with the spike and then collapse of oil, how sensitive oil price is to demand. Keeping the price of oil down should be a global imperative going forward.

    That means ensuring rapid development of alternative green energy systems now. This will have the duel benefits of using the remaining supplies of our foundation energy resourse to provide the basis of its replacement while its cost is still reasonable and, with luck, keep that supply reasonably priced for longer.

    Arguably the change over from fossil to renewable energy will need to be enforced if carbon is to stay locked in the ground. As the renewables become more widespread the price of fossil fuel will drop and people will still tend to use a lot of it.

  6. DD

    “It achieved the goal in 3 years rather than 13 at a cost of $20 million. Oh, and it happened to save $650 million. With that sort of calculus, you’d think that every big corporation would be on the emissions-reduction bandwagon.”

    Yves, not that you don’t have better things to do, but if you get a chance:

    if the above statement is correct, then why do you think they persist in resisting?

    Also, while on the subject of global warming:

    Since global warming adherents rely on computer modeling for a large part of their argument—why do you accept the computer modeling of global warming on this issue, but then post about the problems of computer modeling in the financial sphere? Do you believe that modeling the climate is less complex? If so, on what basis do you make this claim?

    Thank you.

  7. mdf

    Do you believe that modeling the climate is less complex? If so, on what basis do you make this claim?

    I can’t speak for our host, but the issue is one of computational tractability. To wit: climate is a matter of physical law, for which equations exist, while finance is one of human behavior, for which there are no equations at all.

  8. Anonymous

    mdf don’t forget that it may be physical law but you do need to include all the variables, I don’t think we’ve gotten there yet and the GW hoax goes on

  9. Yves Smith


    Um, do you think companies are smart? Or are really run to benefit shareholders? They are run for the convenience of incumbent management.

    Companies, like people, do not like being told what to do and do not like changing. I recall (forget the reason why) but McDonald’s was forced (in the UK?) to abandon its clamshell styrofoam packaging. Fought tooth and nail. Then when they switched, found an environmentally friendlier carrier that did as good on heat retention and saved them heaps. There are many other examples like this on the consumer packaging front.

    And companies are HUGELY resistant now to making any kind of investment, and that was before the downturn. Cutting ad budgets, even for programs that had an 11 month payback, to make the current quarter look better. So we also have a very very short sighted mentality at work.

    If you had read the McK piece, the savings come mainly from conservation type measures. The green tech is way overhyped. It will be important someday, but a lot of technologies are 5-10 years away from being cost effective on a mass basis. Mo

    Lowering energy usage is a battle of lots of small steps. The Japanese, which are hugely energy efficient, are culturally better at that sort of thing than we are.

Comments are closed.