Squaring fossil fuel holdings with climate pledges

Howdy from FT HQ in London, the place I and some colleagues had an attention-grabbing dialog on Wednesday with Jo Taylor, chief government of the $190bn Ontario Lecturers’ Pension Plan.

OTPP’s embarrassing $95mn funding in crypto catastrophe FTX, in fact, got here up. I additionally took the possibility to get Taylor’s ideas on essentially the most thrilling funding areas that he sees in clear power, at a time of feverish exercise in that area.

Joe Biden’s Inflation Discount Act had “set the cat among the many pigeons”, Taylor stated, with new funding alternatives opening up as different main economies rushed to roll out inexperienced incentive packages of their very own. OTPP was searching for alternatives to revenue from metals utilized in batteries, he stated. It was additionally searching for methods to wager on rising types of clear power, together with hydrogen and fusion. And it was chasing investments in high-polluting utilities the place it could possibly drive a shift to wash energy and earn excessive returns within the course of.

Nonetheless, Taylor made clear that his inexperienced ambitions had boundaries. I requested for his tackle the argument, made by some inexperienced finance campaigners, that pension funds ought to pursue local weather goals above and past the traditional method to monetary returns, since this might be within the final curiosity of their members.

“I can’t do this. That’s the easy reply,” Taylor replied. “I’ve a fiduciary obligation to maximise returns.”

For the funding business as an entire, the seek for maximal returns has led to trillions of {dollars} of publicity to the fossil gasoline sector, as our first merchandise at present particulars. And our new group member Kaori explains the controversy surrounding Japan’s hopes of refitting its coal-fired energy stations. Have a superb weekend. (Simon Mundy)

New examine sheds gentle on fossil gasoline holdings

Practically all of the world’s greatest cash managers have now declared their help for severe motion on local weather change — usually with stirring phrases that sit awkwardly with their nonetheless big publicity to the fossil gasoline sector.

Yesterday introduced a brand new indication of simply how big these investments are. In a examine of about 6,500 main institutional buyers (you’ll be able to discover the total knowledge set right here) the German non-profit group Urgewald discovered that their complete holdings in oil, gasoline and coal corporations exceeded $3tn.

That determine might be a giant underestimate, Katrin Ganswindt, a campaigner at Urgewald, advised me. Restricted transparency across the buyers’ bond holdings imply it’s not possible to seize the total fossil gasoline publicity of their fixed-income portfolios. However the knowledge nonetheless offers a helpful image of the possession sample.

US establishments accounted for two-thirds of the entire fossil gasoline publicity — reflecting the businesses’ financial clout, and the US’s standing because the world’s largest oil and gasoline producer. It additionally showcases their slower tempo of local weather motion in contrast with European monetary teams.

It’s hanging how concentrated the fossil gasoline publicity was amongst just a few handfuls of buyers. Half of it sat with simply 23 establishments (18 of them from the US).

Seventeen per cent was with BlackRock and Vanguard, the world’s two largest asset managers. However whereas BlackRock simply outranks its rival by way of property below administration, with $8.6tn to Vanguard’s $7.2tn, its portfolio is considerably much less fossil-intensive. Urgewald estimates Vanguard’s fossil gasoline publicity at $269bn, barely forward of BlackRock’s $263bn.

Vanguard — which has $34bn of publicity to US oil main ExxonMobil alone — has outraged environmental teams with its method to local weather points, together with quitting the Web Zero Asset Managers initiative in December. BlackRock stays a member of the group, which is a part of the Glasgow Monetary Alliance for Web Zero launched forward of the COP26 summit.

Altogether, greater than 40 per cent of the fossil gasoline publicity within the Urgewald report was attributed to Gfanz members. Relying in your perspective, that’s both a promising signal of the clout they will wield as they pursue their local weather pledges — or a miserable signal of how little they’ve finished thus far. (Simon Mundy)

Contained in the G7 ammonia debate

Final weekend’s assembly of the G7 local weather and power ministers in Hokkaido, Japan, produced a hefty 36-page communiqué, proclaiming a united entrance on their “steadfast dedication” to local weather motion. Behind the scenes, nevertheless, there was disagreement over the hydrogen-rich gasoline ammonia — for which Japan’s authorities has an enthusiasm that’s removed from universally shared.

Stories of a leaked draft communiqué advised it could embody language selling ammonia as a low-carbon gasoline, a method actively supported by Japan. However the point out of ammonia confronted a swift backlash by environmental teams that questioned its utility.

Within the remaining doc the bullish language round ammonia had been watered down, with the caveat that this and different hydrogen-derived fuels ought to be used “the place they’re impactful as efficient emission discount instruments”.

Seb Kennedy, head of information insights at TransitionZero, a UK think-tank, stated that it was “excellent news” that the unique wording didn’t make it into the ultimate doc, saying that “ammonia is a useless finish”. 

Japan is aiming to transform coal crops to allow them to run partially on ammonia — a compound of nitrogen and hydrogen. Whereas exams to attain a 50 per cent co-firing fee are ongoing, at present solely 20 per cent is technologically potential.

“The concept of burning 100 per cent ammonia is actually fairly remote, which is what you’d should do to make any significant affect on emissions,” stated Kennedy.

Information printed by TransitionZero confirmed that ammonia co-firing was discovered to be much more emissions-intensive than pure gasoline. The truth is, the think-tank discovered that even with a co-firing fee of fifty per cent, emissions from a gas-powered plant would nonetheless be barely decrease.

The pushback from the broader G7 might spell bother for Japanese policymakers, utilities like JERA, in addition to corporations equivalent to IHI Corp and Mitsubishi Corp, that are working in direction of growing co-firing know-how in international locations just like the Philippines, Thailand, Malaysia and Indonesia. Efforts are additionally below means within the US state of Texas to discover the prospect of manufacturing ammonia, in a joint examine by Mitsubishi, South Korea’s Lotte Chemical Corp and German power agency RWE.

And on the sidelines of the G7, Japan Oil, Gasoline and Metals Nationwide Corp, and buying and selling home Mitsui & Co signed a memorandum of understanding with the Abu Dhabi Nationwide Oil Firm to launch a joint examine within the United Arab Emirates on ammonia’s emission discount potential.

Pouring massive sums of cash into ammonia co-firing applied sciences might find yourself turning into a dangerous funding, warned Kennedy. “If there’s severe quantities of cash being put into these initiatives, then you would need to ask the intense query across the creation of potential stranded property down the road,” he stated. (Kaori Yoshida, Nikkei)

Good learn

The FT’s John Plender delivers an excoriating assault on the “astonishing failure of company governance and investor stewardship over government pay”, which he blames for driving perverse behaviour by executives whereas undermining the morale of their extra modestly paid colleagues.