The Net Zero Asset Owners’ Alliance
Day 2 of RI New York 2019, featured an onstage interview between Bertrand Millot, Head of the Stewardship Team at the CA$325bn Caisse de Dépôt et Placement du Québec’s (CDPQ) and Hugh Wheelan, Joint Co-founder and Managing Director at Responsible Investor on the recently launched Net Zero Asset Owners’ Alliance – an association of 16 asset owners, representing $4trn in assets, that have committed to zero CO2 emission portfolios by 2050.
Millot said the “fundamental realisation” underpinning the initiative, for which CDPQ is a founding member, is the need to decarbonise the entire economy “not just fossil fuels”.
Divestment, he said, was “not a solution” because climate risk will still be there for the entire portfolio if the world stays on its current emissions trajectory.
Members of the Alliance, which includes Alecta, CalPERS and AXA, will set the first of their five yearly targets by the end of 2020 and publicly report on them.
Millot also stressed the need for carbon capture technologies to meet the Paris climate agreement, especially to counter the impact of industries with limited scope to decarbonise, such as concrete production and airlines.
He also highlighted the “critical role” of regulators to “create incentives for companies to do the right thing”, noting that engagement with policy makers and governments is one of six work-streams of the Alliance.
Millot described the Inevitable Policy Response paper produced by the Principles for Responsible Investment (PRI), which acts as secretariat for the initiative, along with UNEPFI, as “spot on”. He said that regulators will “tighten the screws” on companies and those that are prepared will win out.
Other work-streams, he said, include ‘technical’, which will look at existing climate scenarios, and ‘engagement’, which will focus its efforts on trade associations and collaborate with Climate Action 100+.
“The idea here is not to try to re-invent the ‘wheels’ – there are many – but we are trying to round them”.
The future of global energy
The final plenary of RI New York 2019 on “The future of global energy: how is the energy transition and investor engagement on the challenge of climate changing the sector” was a riveting debate between Chevron, Carbon Tracker and BMO Asset Management.
The panel took place against the backdrop of the announcement by Repsol, the Spanish oil and gas company of a net-zero emissions target for 2050 and a €4.8 billion ($5.3 billion) asset write-down.
Mark Campanale, Founder and Executive Director of the Carbon Tracker Initiative, said the Repsol asset write-down was a game changer:
“The idea that everyone in the sector is going to be a winner from the energy transition is not true: there are going to be winners and losers. Repsol’s decision will reverberate through the industry and the capital markets.”
Lisa Epifani, ESG Engagement Manager at Chevron said she agreed, arguing that Chevron was well-placed to navigate the transition based on work to lower its operating carbon intensity based against current demand.
The two disagreed, however, on whether lower carbon intensity targets or ‘absolute’ CO2 reduction targets were needed.
Nalini Feuilloley, Director, Responsible Investment Team, at BMO Global Asset Management, North America, said that economic growth and decoupling of CO2 emissions would have to take place and that the fund manager was engaging with oil and gas majors to see plans in line with the Paris Agreement to this effect.
Campanale said: “The economics is now against the incumbents; what investors need to see now is the proportion of Capex going towards renewables.”
Campanale said Chevron and oil majors need to be testing their future growth scenarios against carbon prices from $100-$200 per tonne of CO2, including Scope 3 (user) emissions in their calculations, and at the same time looking at their business against a future oil price of $40 per barrel and related industry infrastructure decommissioning costs as a result of potentially huge demand shifts from combustion to electric vehicles.
Chevron’s Epifani said the company now had an 8-strong team working on ESG issues and that as a result of investor demand, notably from Climate Action 100+, had released reports in 2018 and 2019 testing against scenarios of $100 per tonne of CO2.