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.