Wall Street: Your Climate War Has Arrived

An unlikely alliance hopes to transform investors into advocates in battles over global warming.

National Journal
Ben Geman
June 26, 2014, 8:20 a.m.

Neither Robert Ru­bin nor Henry Paulson has the look or re­sume of a cli­mate-change act­iv­ist.

But the bi­par­tis­an duo of former Treas­ury sec­ret­ar­ies, who share a Gold­man Sachs ped­i­gree, are part of an in­creas­ingly prom­in­ent ef­fort to fight glob­al warm­ing with fin­an­cial weapons and ar­gu­ments.

And both joined bil­lion­aire act­iv­ist Tom Stey­er and bil­lion­aire former New York City May­or Mi­chael Bloomberg on Tues­day to roll out a de­tailed re­port, called “Risky Busi­ness,” on the eco­nom­ic risks of cli­mate change.

It’s a piece of a loosely con­nec­ted, and some­times con­tra­dict­ory, set of act­iv­ist move­ments aimed at fo­cus­ing Wall Street and cor­por­ate board­rooms on glob­al warm­ing.

And now that set is hav­ing something of a mo­ment: At­ten­tion to the fin­an­cial world’s po­ten­tial to ad­dress cli­mate change is grow­ing—buoyed by the in­volve­ment of Wall Street and White House vet­er­ans, and boos­ted by a new push from the Obama ad­min­is­tra­tion it­self.

The ef­fort to use fin­an­cial levers and ar­gu­ments to move cli­mate ac­tion is not new, nor is it uni­fied. In­stead, it in­cludes a spec­trum of groups push­ing a spec­trum of fin­an­cial tools: from ad­voc­ates of pulling in­vestor hold­ings from fossil-fuel com­pan­ies to those aim­ing for a softer, slower ap­proach.

On Wed­nes­day, cur­rent Treas­ury Sec­ret­ary Jac­ob Lew, Com­merce Sec­ret­ary Penny Pritzker, and top White House ad­visers John Podesta and Valer­ie Jar­rett met with Stey­er and oth­ers be­hind the “Risky Busi­ness” re­port, a study that seeks to con­vince the busi­ness world of cli­mate risks.

In a speech to Uni­versity of Cali­for­nia gradu­ates this month, Obama gave an ap­par­ent (al­beit cryptic) shout-out to a far more ag­gress­ive set of act­iv­ists who urge di­vest­ment from fossil-fuel stocks, call­ing on stu­dents to “di­vest from what harms.”

To be sure, it’s not a co­hes­ive move­ment. (For in­stance, Paulson thinks the Key­stone pipeline should be built—he doesn’t like oil sands but thinks they’ll get to mar­ket any­way, he told PBS on Wed­nes­day.)

Some act­iv­ists or­gan­ize share­hold­ers to use their clout push­ing com­pan­ies to ad­voc­ate for strong cli­mate policies, and push­ing car­bon-heavy in­dus­tries to trans­form their busi­ness in­to something more cli­mate-friendly.

A re­lated ef­fort seeks to pres­sure se­cur­it­ies reg­u­lat­ors in­to re­quir­ing com­pan­ies to ac­count for what cli­mate change could mean for their bot­tom line.

Oth­ers, in­clud­ing the prom­in­ent act­iv­ist Bill McK­ib­ben and his group 350.org, take a very dif­fer­ent and far more hard­core ap­proach: pres­sur­ing uni­versit­ies, city gov­ern­ments, and oth­er share­hold­ers to dump their fossil-fuel hold­ings al­to­geth­er, rather than en­gage with the com­pan­ies. Act­iv­ists have won com­mit­ments—or at least re­com­mend­a­tions to in­vest­ment man­agers—from about two dozen cit­ies, roughly a dozen high­er-edu­ca­tion in­sti­tu­tions, and oth­ers.

Jam­ie Henn, the strategy dir­ect­or for 350.org, said share­hold­er ad­vocacy has “failed to de­liv­er the type of fun­da­ment­al changes that are needed in these com­pan­ies,” and that out­right di­vest­ment is a more power­ful tool.

But Mi­chael Lynch, pres­id­ent of the con­sult­ing firm Stra­tegic En­ergy & Eco­nom­ic Re­search, pre­dicted the di­vest­ment push will yield lim­ited re­turns. “There will al­ways be people who say this stock is un­der­val­ued and will buy the stock, and that will off­set the small por­tion of people who will not hold it in their port­fo­lio,” he said.

What all wings of this move­ment share an in­terest in de­ploy­ing, one way or an­oth­er, are fin­an­cial levers and pres­sure to force changes in cor­por­ate be­ha­vi­or.

Both Ru­bin and Paulson, in com­ments this week, said the Se­cur­it­ies and Ex­change Com­mis­sion should be re­quir­ing pub­lic com­pan­ies to re­veal the risks they face from cli­mate change in fil­ings with the reg­u­lat­ors. Ad­voc­ates say the SEC’s cli­mate-dis­clos­ure pro­gram has been tooth­less thus far.

“In­vestors, I think, need to de­mand that busi­nesses make dis­clos­ures … about the risks,” Paulson told Bloomberg News. Among those risks, he said, are “stran­ded as­sets.”

“Stran­ded as­sets” is in­creas­ingly part of the lex­icon of cli­mate act­iv­ism. The term refers to in­vest­ments in re­serves or oth­er as­sets that are costly to de­vel­op (think deep­wa­ter and the Arc­tic) or very car­bon-heavy (think oil sands or coal plants) and could turn in­to big losers in a world that fi­nally takes strong steps to lim­it emis­sions.

The ba­sic think­ing is that pre­vent­ing run­away glob­al warm­ing will mean leav­ing massive amounts of fossil-fuel re­serves un­burned.

The in­vestor ad­vocacy group Ceres has been pub­licly ur­ging oil and gas, coal, and power com­pan­ies to as­sess their ex­pos­ure to those risks and de­scribe plans for man­aging them.

The goal of glob­al cli­mate talks is lim­it­ing the glob­al rise to 2 de­grees Celsi­us above pre-in­dus­tri­al levels, which ap­pears in­creas­ingly un­likely but is the bench­mark for a late 2013 Ceres let­ter to dozens of com­pan­ies ask­ing about their risk of stran­ded as­sets.

“Des­pite the risk that a por­tion of cur­rent proven re­serves of fossil fuels can­not be con­sumed if gov­ern­ments act on the 2°C goal, re­cent ana­lys­is by the Car­bon Track­er Ini­ti­at­ive and the Grantham Re­search In­sti­tute found that the world’s 200 largest fossil-fuel com­pan­ies col­lect­ively still spent $674 bil­lion in 2012 on find­ing and de­vel­op­ing new re­serves. This raises con­cern about the pos­sib­il­ity that re­turns on this cap­it­al may nev­er be real­ized,” the ver­sion of the in­vestor let­ter sent to com­pan­ies like Ex­xon, Shell, BP, and oth­ers states.

In a first-time re­port three months ago, Ex­xon answered—and re­buffed—con­cerns about stran­ded as­sets. “Based on this ana­lys­is, we are con­fid­ent that none of our hy­dro­car­bon re­serves are now or will be­come ‘stran­ded,” the com­pany wrote, adding that the as­sets are “es­sen­tial” to meet­ing grow­ing glob­al en­ergy de­mand.

The re­port came in re­sponse to pres­sure from the wealth-man­age­ment com­pany Ar­juna Cap­it­al and the act­iv­ist group As You Sow, and also re­spon­ded to Ceres’s in­quiry.

The act­iv­ists are hardly try­ing to be just good Samar­it­ans on Wall Street. Ceres is part of the en­vir­on­ment­al move­ment, not a neut­ral act­or. But Ceres’s Ry­an Sal­mon said that the in­form­a­tion the group is seek­ing would help mar­kets “ap­ply great­er scru­tiny in de­ploy­ing cap­it­al” to fossil-fuel as­sets that could be­come stran­ded.

“You have to ID what are the pro­jects most at risk and make sure the mar­kets are pri­cing that risk ac­cord­ingly,” Sal­mon, who man­ages the oil and gas pro­gram at Ceres, said in an in­ter­view.

The goal? “Ul­ti­mately to have cap­it­al not go to­ward those types of pro­jects,” he said, adding that it should be “re­deployed in­to clean-en­ergy solu­tions.”

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