8 ms·

Big Money Starts to Dump Stocks That Pose Climate Risks

194 points by asaegyn 7y ago

algaeontoast 7y ago
Ideally, in time without policy changes or major government intervention, fossil fuels or business practices that willingly pollute and damage the environment will become uncompetitive and too expensive to make money. If only we can find a way to bankrupt the palm oil farmers and loggers who are cutting down the Amazon Rain Forest...
floki999 7y ago
This is something which has been trending up for the past 5 to 10 years, and gaining more momentum. Large European fund managers (e.g. pension plans) have been at the forefront of responsible investing and it is developing quickly amongst their peers in North America. Simply put there are 3 dimensions which corporates have to consider: 1. Their contribution to greenhouse gas emissions and other environmental pollutants. 2. Their own exposure to physical climate risk (can they quantify it?) 3. Their compliance to reporting standards and regulations regarding climate change and other environmental issues. Large investors increasingly want to know (a) how they contribute to climate change via their investments and (b) their risk exposure to climate change risk, via the businesses they are invested in. Corporations have to realize that their large, institutional, investors are way beyond debating climate change and are taking action. Like it or not.
- ptah 7y ago
  they are a few decades late in taking action, but still welcome. let's hope it's not too late
- raverbashing 7y ago
  I believe the risk of governmental litigation (with a lot of zeroes in it) seems to have increased lately.
- navigatesol 7y ago
  >Corporations have to realize that their large, institutional, investors are way beyond debating climate change and are taking action. Like it or not. I'll preface this by stating that I'm no subscriber to "corporations only care about profits" school, but: Do you think this matters to the corporations all that much? You can't "dump" stocks without someone else buying the shares from you. Are these institutional investors going to take a huge hit in the name of climate change? Are the shareholders willing to sacrifice a chunk of their retirement for this cause? I'm skeptical. Where are the alternative investments? The world is awash in capital, with a huge chunk of bonds now paying negative interest rates. The big risk is government regulation, but we haven't seen a whole lot yet.
  - loganfrederick 7y ago
    > "You can't dump stocks without someone else buying the shares from you." At what price? That's the impact of moves like this: 1) lowering stock prices for existing companies and 2) allocating money/increasing prices for climate-friendlier companies. It could mean the difference between, say, a large oil company getting $1 billion from a European fund and a battery technology company getting that billion.
    - navigatesol 7y ago
      >At what price? My point exactly. I know that executive pay is most often tied to share price, but who do you think really suffers more: the CEO who gets a slightly smaller bonus, or the fund that has to dump shares for whatever it can get? Look at the example in the article. The fund dumped $300MM of Exxon shares in June, share price mostly unaffected. >It could mean the difference between, say, a large oil company getting $1 billion from a European fund and a battery technology company getting that billion. But unless the company is issuing new shares, it doesn't receive any of the money. It's a transaction between old/new shareholders. I can see the drive to be able to market your investment fund as climate friendly to attract more AUM, but it's unclear to me it makes financial sense as the investor (at least generally).
      - 7y ago
- floki999 7y ago
  And I’ll add that corporates can take action to tackle all three dimensions: 1. Reduce emissions by adopting new processes and technologies 2. Look at innovative ways to hedge their climate/weather risk exposure (yes, it is possible, just like you can hedge currency or jet-fuel volatility risk) 3. Voluntarily get engaged in reporting to investors and engaging them before they engage you. Even if a corporate is a significant greenhouse gas emitter, being pro-active and taking real action is way better than ignoring the issue. Investors are getting quite sophisticated in their understanding of climate issues and want to see material action.
ptah 7y ago
about time
williesleg 7y ago
Not gonna happen. But enjoy Bloomberg Spin.
mistrial9 7y ago
in 2007 USA there were a half-dozen "major" frameworks for reporting risk and establishing a profile of a company; many professional papers and presentations. This sort of business-press cheer leading is necessary but insufficient.
- floki999 7y ago
  Yes that’s true. And of course the banks have seen the ESG market as an opportunity to make a quick buck, and continue to generate report upon report. Also, many data vendors out there inventing all sorts of ESG metrics, many of which are of dubious significance. It’s a net positive though.
systemtest 7y ago
Last year I switched from MSCI World Index to MSCI World Custom ESG* Index. With passive investment you want as much companies as possible in your basket so excluding companies is not something to take lightly. But both these indices perform the same so for me it was an easy choice. * Environment Sustainable Governance. 58 out of 1660 companies are excluded, mainly in tobacco, guns and UN global impact.
- floki999 7y ago
  That’s great. Collectively, individual investors have tremendous power. Money talks volumes.
- conception 7y ago
  I'll just note that social/environmental funds like this generally only go for the REALLY REALLY bad folks out there that aren't supergiants. Some of the top holdings of that fund are - Nestle Exxon Johnson & Johnson Facebook etc etc It's a good step but you're not actually divesting yourself from fucks like Nestle.
  - benj111 7y ago
    I would say the bigger problem is that everyone has different ethics and what makes a company evil. When you get to the level of those companies, surely they're going to do something evil. I'm not even sure what you're referring to with Nestle (baby milk?). Id prefer to have it based on something more solid like carbon intensity or no oil or something actually measurable by us and the offending companies, rather than nebulous 'ethics'.
    - xkcd-sucks 7y ago
      Nestle kind of goes above and beyond in this regard... Messing with access to potable water is certainly relevant to climate change https://en.wikipedia.org/wiki/Nestl%C3%A9#Controversy_and_criticisms https://en.wikipedia.org/wiki/Nestl%C3%A9#Controversy_and_cr...
balozi 7y ago
This is great! I applaud this effort. Let everyone back their beliefs and principles with their own money.
- dgudkov 7y ago
  I doubt it's about backing beliefs and principles with money. It's probably more about admitting increased risks of losing money as a result of public shaming campaigns (sometimes reasonable, sometimes not) by vocal minority. And of course, the corporate PR disguises such dumping stocks as a virtue.
  - floki999 7y ago
    I dont quite agree. While this is certainly a secondary factor, which a portfolio manager will worry about (i.e. a stock tanking due to bad press or negative ESG ranking), investment committees which develop responsible investing policies are guided by guenuine principles. It’s a multi-dimensional problem and the challenge is of course that these dimensions sometimes counter each-other and result in feedback loops. The is what makes a market, however, the sheer size of large institutional (and sovereign) investment funds will, in the long run, run over marginal players in terms of impact.
sremani 7y ago
Bloomberg used to me a good publication now its tied to hip to its founder's ideology. Him being a politician with Presidential aspirations, Bloomberg has taken a turn for worse. Divestment is not going to "clean-up" the environment. Its a tool of "do something" or virtue signaling crowd. Unfortunately, Mr. Bloomberg has a fortune to make investments in hard-science and safer power generation -- but it won't provide bang for the buck for his Political ambitions. All we are getting from this disinvestment crowd is corporate green-washing as if we do not have enough of it.
- _red 7y ago
  One of the hallmarks of a collapsing society is that "everything becomes a political statement". The newspaper you read is a political choice, as does the sneakers you wear, and where you eat for lunch.
  - JumpCrisscross 7y ago
    > One of the hallmarks of a collapsing society is that "everything becomes a political statement" What is this based on? Athenian democracy and Roman republicanism each thrived in hyper-political cultures. The early America was heavily political. Politicisation of culture doesn’t mean rise or decline. It means there big decisions need to be made. Big decisions need big buy-in.
- deleted 7y ago
  [deleted]
cheeky78 7y ago
It might be as an indirect result of climate risks, but the main reason is because they fear government regulation.
loxs 7y ago
Sorry guys, for me this is a solid advice to increase my positions in oil, coal and nuclear ETFs. Especially if their prices drop a little. Not that I don't care about the environment, I just don't believe that economy works "by design". We don't have better energy sources, and while this lasts, these will be profitable and expensive.
- floki999 7y ago
  That’s a totally legit position - the hope is that incumbents in these sectors will adapt and work to clean-up their operations. I don’t think any investor, no matter how large, is aiming to kill these types of companies - but institute positive change. Having said all this, positive returns should come first.
tehjoker 7y ago
If you read this carefully it isn't that these financiers have grown a conscience, it's that public protest and the possibility of government policy changes have made it risky to hold these securities. These analysts wouldn't have a rigorous analysis that made sense in financial terms without the force of public pressure. These companies are just machines that respond to stimuli and have no thought of consequences.
- dougmany 7y ago
  There may also be risk in future liability. Tobacco took a hit because they knew of risks but they continued to sell their products without warning customers. I have heard there is similar evidence for oil companies that knew of global warming long ago but have yet to warn their customers.
  - electricviolet 7y ago
    Indeed -- Exxon has known about climate change since at least 1977. https://www.scientificamerican.com/article/exxon-knew-about-climate-change-almost-40-years-ago/ https://www.scientificamerican.com/article/exxon-knew-about-...
- dymk 7y ago
  What’s really the difference between that and the action/response of an individual person to social pressure?
  - tehjoker 7y ago
    It's similar, it's just that groups (esp. those focused on resource accumulation) are less moral than individuals. Whereas individuals might have ethics, dreams, a different way of thinking about the world, companies are tightly constrained in how they act without a stick beating them. For example, all these CEOs I'm sure know about climate change and might even feel despair about it (or believe we'll invent some carbon capture tech, or believe they'll be fine in a bunker in New Zealand because they're rich). However, imagine being a big executive that would have to make decisions contra the interests of their investors. The institutional pressures would make it near impossible, and if they resign in protest, they'll simply be replaced with an ideologically correct replacement. So you can see, individual hopes and dreams are ground up by institutional mechanisms, making the comparison not very straight forward.
Proven 7y ago
Stocks and companies don't pose climate risks. The risk comes from the meddling governments assisted by corrupt business interests, redistributionist politicians and useful idiots that threaten all private property - it's only a matter of degree
_bxg1 7y ago
Unsustainability is unsustainability. At the scale of climate change it's no longer "we'll prosper at the cost of others", it's "we'll prosper in the short term at the cost of everyone - including ourselves - in the long-term". Finance people are apparently better than executives at thinking long-term (or maybe just have more incentives to care about the long-term, whereas CEOs can generate some quick growth and then peace-out).
sunstone 7y ago
This has been going on for a few years. The Rockefellers sold theirs in 2014. They tried to make it seem like it was environmentally motivated but really, it was all about the money. [1] [1]https://www.cbc.ca/news/business/rockefellers-to-sell-oil-assets-as-part-of-50b-global-warming-fight-1.2773771 https://www.cbc.ca/news/business/rockefellers-to-sell-oil-as...
Lavery 7y ago
Ethical considerations aside, one of the other drivers of this is the origin of some of the money involved here. Most of the largest sovereign wealth funds globally are the result of money generated by resource extraction: Norway, Abu Dhabi, Kuwait, Saudi Arabia (directly and via Aramco), Qatar, etc. For these names, holding stocks that pose a climate risk is buying oil with oil dollars. Without intentional divestment of oil, coal, and other climate names, they are essentially levered long. Excluding these from their holdings is just prudent investment.

194 points by asaegyn 7y ago

Ideally, in time without policy changes or major government intervention, fossil fuels or business practices that willingly pollute and damage the environment will become uncompetitive and too expensive to make money. If only we can find a way to bankrupt the palm oil farmers and loggers who are cutting down the Amazon Rain Forest...

floki999 7y ago

This is something which has been trending up for the past 5 to 10 years, and gaining more momentum. Large European fund managers (e.g. pension plans) have been at the forefront of responsible investing and it is developing quickly amongst their peers in North America. Simply put there are 3 dimensions which corporates have to consider: 1. Their contribution to greenhouse gas emissions and other environmental pollutants. 2. Their own exposure to physical climate risk (can they quantify it?) 3. Their compliance to reporting standards and regulations regarding climate change and other environmental issues. Large investors increasingly want to know (a) how they contribute to climate change via their investments and (b) their risk exposure to climate change risk, via the businesses they are invested in. Corporations have to realize that their large, institutional, investors are way beyond debating climate change and are taking action. Like it or not.

ptah 7y ago
they are a few decades late in taking action, but still welcome. let's hope it's not too late
raverbashing 7y ago
I believe the risk of governmental litigation (with a lot of zeroes in it) seems to have increased lately.
navigatesol 7y ago
>Corporations have to realize that their large, institutional, investors are way beyond debating climate change and are taking action. Like it or not. I'll preface this by stating that I'm no subscriber to "corporations only care about profits" school, but: Do you think this matters to the corporations all that much? You can't "dump" stocks without someone else buying the shares from you. Are these institutional investors going to take a huge hit in the name of climate change? Are the shareholders willing to sacrifice a chunk of their retirement for this cause? I'm skeptical. Where are the alternative investments? The world is awash in capital, with a huge chunk of bonds now paying negative interest rates. The big risk is government regulation, but we haven't seen a whole lot yet.
- loganfrederick 7y ago
  > "You can't dump stocks without someone else buying the shares from you." At what price? That's the impact of moves like this: 1) lowering stock prices for existing companies and 2) allocating money/increasing prices for climate-friendlier companies. It could mean the difference between, say, a large oil company getting $1 billion from a European fund and a battery technology company getting that billion.
  - navigatesol 7y ago
    >At what price? My point exactly. I know that executive pay is most often tied to share price, but who do you think really suffers more: the CEO who gets a slightly smaller bonus, or the fund that has to dump shares for whatever it can get? Look at the example in the article. The fund dumped $300MM of Exxon shares in June, share price mostly unaffected. >It could mean the difference between, say, a large oil company getting $1 billion from a European fund and a battery technology company getting that billion. But unless the company is issuing new shares, it doesn't receive any of the money. It's a transaction between old/new shareholders. I can see the drive to be able to market your investment fund as climate friendly to attract more AUM, but it's unclear to me it makes financial sense as the investor (at least generally).
    - 7y ago
floki999 7y ago
And I’ll add that corporates can take action to tackle all three dimensions: 1. Reduce emissions by adopting new processes and technologies 2. Look at innovative ways to hedge their climate/weather risk exposure (yes, it is possible, just like you can hedge currency or jet-fuel volatility risk) 3. Voluntarily get engaged in reporting to investors and engaging them before they engage you. Even if a corporate is a significant greenhouse gas emitter, being pro-active and taking real action is way better than ignoring the issue. Investors are getting quite sophisticated in their understanding of climate issues and want to see material action.

ptah 7y ago

about time

williesleg 7y ago

Not gonna happen. But enjoy Bloomberg Spin.

mistrial9 7y ago

in 2007 USA there were a half-dozen "major" frameworks for reporting risk and establishing a profile of a company; many professional papers and presentations. This sort of business-press cheer leading is necessary but insufficient.

floki999 7y ago
Yes that’s true. And of course the banks have seen the ESG market as an opportunity to make a quick buck, and continue to generate report upon report. Also, many data vendors out there inventing all sorts of ESG metrics, many of which are of dubious significance. It’s a net positive though.

systemtest 7y ago

Last year I switched from MSCI World Index to MSCI World Custom ESG* Index. With passive investment you want as much companies as possible in your basket so excluding companies is not something to take lightly. But both these indices perform the same so for me it was an easy choice. * Environment Sustainable Governance. 58 out of 1660 companies are excluded, mainly in tobacco, guns and UN global impact.

floki999 7y ago
That’s great. Collectively, individual investors have tremendous power. Money talks volumes.
conception 7y ago
I'll just note that social/environmental funds like this generally only go for the REALLY REALLY bad folks out there that aren't supergiants. Some of the top holdings of that fund are - Nestle Exxon Johnson & Johnson Facebook etc etc It's a good step but you're not actually divesting yourself from fucks like Nestle.
- benj111 7y ago
  I would say the bigger problem is that everyone has different ethics and what makes a company evil. When you get to the level of those companies, surely they're going to do something evil. I'm not even sure what you're referring to with Nestle (baby milk?). Id prefer to have it based on something more solid like carbon intensity or no oil or something actually measurable by us and the offending companies, rather than nebulous 'ethics'.
  - xkcd-sucks 7y ago
    Nestle kind of goes above and beyond in this regard... Messing with access to potable water is certainly relevant to climate change https://en.wikipedia.org/wiki/Nestl%C3%A9#Controversy_and_criticisms https://en.wikipedia.org/wiki/Nestl%C3%A9#Controversy_and_cr...

balozi 7y ago

This is great! I applaud this effort. Let everyone back their beliefs and principles with their own money.

dgudkov 7y ago
I doubt it's about backing beliefs and principles with money. It's probably more about admitting increased risks of losing money as a result of public shaming campaigns (sometimes reasonable, sometimes not) by vocal minority. And of course, the corporate PR disguises such dumping stocks as a virtue.
- floki999 7y ago
  I dont quite agree. While this is certainly a secondary factor, which a portfolio manager will worry about (i.e. a stock tanking due to bad press or negative ESG ranking), investment committees which develop responsible investing policies are guided by guenuine principles. It’s a multi-dimensional problem and the challenge is of course that these dimensions sometimes counter each-other and result in feedback loops. The is what makes a market, however, the sheer size of large institutional (and sovereign) investment funds will, in the long run, run over marginal players in terms of impact.

sremani 7y ago

Bloomberg used to me a good publication now its tied to hip to its founder's ideology. Him being a politician with Presidential aspirations, Bloomberg has taken a turn for worse. Divestment is not going to "clean-up" the environment. Its a tool of "do something" or virtue signaling crowd. Unfortunately, Mr. Bloomberg has a fortune to make investments in hard-science and safer power generation -- but it won't provide bang for the buck for his Political ambitions. All we are getting from this disinvestment crowd is corporate green-washing as if we do not have enough of it.

_red 7y ago
One of the hallmarks of a collapsing society is that "everything becomes a political statement". The newspaper you read is a political choice, as does the sneakers you wear, and where you eat for lunch.
- JumpCrisscross 7y ago
  > One of the hallmarks of a collapsing society is that "everything becomes a political statement" What is this based on? Athenian democracy and Roman republicanism each thrived in hyper-political cultures. The early America was heavily political. Politicisation of culture doesn’t mean rise or decline. It means there big decisions need to be made. Big decisions need big buy-in.
deleted 7y ago
[deleted]

cheeky78 7y ago

It might be as an indirect result of climate risks, but the main reason is because they fear government regulation.

loxs 7y ago

Sorry guys, for me this is a solid advice to increase my positions in oil, coal and nuclear ETFs. Especially if their prices drop a little. Not that I don't care about the environment, I just don't believe that economy works "by design". We don't have better energy sources, and while this lasts, these will be profitable and expensive.

floki999 7y ago
That’s a totally legit position - the hope is that incumbents in these sectors will adapt and work to clean-up their operations. I don’t think any investor, no matter how large, is aiming to kill these types of companies - but institute positive change. Having said all this, positive returns should come first.

tehjoker 7y ago

If you read this carefully it isn't that these financiers have grown a conscience, it's that public protest and the possibility of government policy changes have made it risky to hold these securities. These analysts wouldn't have a rigorous analysis that made sense in financial terms without the force of public pressure. These companies are just machines that respond to stimuli and have no thought of consequences.

dougmany 7y ago
There may also be risk in future liability. Tobacco took a hit because they knew of risks but they continued to sell their products without warning customers. I have heard there is similar evidence for oil companies that knew of global warming long ago but have yet to warn their customers.
- electricviolet 7y ago
  Indeed -- Exxon has known about climate change since at least 1977. https://www.scientificamerican.com/article/exxon-knew-about-climate-change-almost-40-years-ago/ https://www.scientificamerican.com/article/exxon-knew-about-...
dymk 7y ago
What’s really the difference between that and the action/response of an individual person to social pressure?
- tehjoker 7y ago
  It's similar, it's just that groups (esp. those focused on resource accumulation) are less moral than individuals. Whereas individuals might have ethics, dreams, a different way of thinking about the world, companies are tightly constrained in how they act without a stick beating them. For example, all these CEOs I'm sure know about climate change and might even feel despair about it (or believe we'll invent some carbon capture tech, or believe they'll be fine in a bunker in New Zealand because they're rich). However, imagine being a big executive that would have to make decisions contra the interests of their investors. The institutional pressures would make it near impossible, and if they resign in protest, they'll simply be replaced with an ideologically correct replacement. So you can see, individual hopes and dreams are ground up by institutional mechanisms, making the comparison not very straight forward.

Proven 7y ago

Stocks and companies don't pose climate risks. The risk comes from the meddling governments assisted by corrupt business interests, redistributionist politicians and useful idiots that threaten all private property - it's only a matter of degree

_bxg1 7y ago

Unsustainability is unsustainability. At the scale of climate change it's no longer "we'll prosper at the cost of others", it's "we'll prosper in the short term at the cost of everyone - including ourselves - in the long-term". Finance people are apparently better than executives at thinking long-term (or maybe just have more incentives to care about the long-term, whereas CEOs can generate some quick growth and then peace-out).

sunstone 7y ago

This has been going on for a few years. The Rockefellers sold theirs in 2014. They tried to make it seem like it was environmentally motivated but really, it was all about the money. [1] [1]https://www.cbc.ca/news/business/rockefellers-to-sell-oil-assets-as-part-of-50b-global-warming-fight-1.2773771 https://www.cbc.ca/news/business/rockefellers-to-sell-oil-as...

Lavery 7y ago

Ethical considerations aside, one of the other drivers of this is the origin of some of the money involved here. Most of the largest sovereign wealth funds globally are the result of money generated by resource extraction: Norway, Abu Dhabi, Kuwait, Saudi Arabia (directly and via Aramco), Qatar, etc. For these names, holding stocks that pose a climate risk is buying oil with oil dollars. Without intentional divestment of oil, coal, and other climate names, they are essentially levered long. Excluding these from their holdings is just prudent investment.