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
Add to Briefcase
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.”

What We're Following See More »
Morning Consult Poll: Clinton Decisively Won Debate
1 days ago

"According to a new POLITICO/Morning Consult poll, the first national post-debate survey, 43 percent of registered voters said the Democratic candidate won, compared with 26 percent who opted for the Republican Party’s standard bearer. Her 6-point lead over Trump among likely voters is unchanged from our previous survey: Clinton still leads Trump 42 percent to 36 percent in the race for the White House, with Libertarian nominee Gary Johnson taking 9 percent of the vote."

Trump Draws Laughs, Boos at Al Smith Dinner
1 days ago

After a lighthearted beginning, Donald Trump's appearance at the Al Smith charity dinner in New York "took a tough turn as the crowd repeatedly booed the GOP nominee for his sharp-edged jokes about his rival Hillary Clinton."

McMullin Leads in New Utah Poll
2 days ago

Evan McMul­lin came out on top in a Emer­son Col­lege poll of Utah with 31% of the vote. Donald Trump came in second with 27%, while Hillary Clin­ton took third with 24%. Gary John­son re­ceived 5% of the vote in the sur­vey.

Quinnipiac Has Clinton Up by 7
2 days ago

A new Quin­nipi­ac Uni­versity poll finds Hillary Clin­ton lead­ing Donald Trump by seven percentage points, 47%-40%. Trump’s “lead among men and white voters all but” van­ished from the uni­versity’s early Oc­to­ber poll. A new PPRI/Brook­ings sur­vey shows a much bigger lead, with Clinton up 51%-36%. And an IBD/TIPP poll leans the other way, showing a vir­tu­al dead heat, with Trump tak­ing 41% of the vote to Clin­ton’s 40% in a four-way match­up.

Trump: I’ll Accept the Results “If I Win”
2 days ago

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.