A coalition of over 70 international investors has sent letters to 45 of the world’s top oil & gas, coal and electric power companies requesting that the companies assess and disclose potential reduced demand for their products or services due to current and probable future greenhouse gas reduction policies and/or the physical impacts of climate change. This campaign, the Carbon Asset Risk Initiative (or CARI) led by Ceres and the Carbon Tracker Initiative, is yet another institutional investor and not-for-profit campaign seeking to highlight risks inherent in carbon-intensive industries with the ultimate goal of moving toward renewable energy. CARI’s main target appears to be oil & gas companies, particularly those with holdings in the carbon-intensive Canadian oil sands.
Under CARI, the companies are to conduct a risk assessment comparing a “business as usual” scenario against one in which GHG emissions are reduced by 80% by 2050. CARI is premised on the 2010 UN Cancun Agreements, which set forth a long-term international goal of limiting global warming to no more than 2 additional degrees Celsius and the International Energy Agency’s 2012 conclusion that “[no] more than one-third of proven reserves of fossil fuel can be consumed prior to 2050 if the world is to achieve the 2°C goal.” The investors suggest that, under this regime, proven fossil fuel reserves, and the companies that hold them, could be overvalued because unproduced reserves could, at least in part, become “unburnable” in a few decades if carbon policies effectively prohibit them from being tapped. Further, the investors note that in 2012 alone the 200 largest publicly traded fossil fuel companies collectively spent an estimated $674 billion on finding and developing new reserves that could become “unburnable.”
The investors are currently seeking “disclosure that demonstrates [company] commitment to managing [these] risks.” They also request information on the Board’s role in overseeing this assessment. CARI states that it has so far received preliminary responses from 30 of the 45 companies to which it sent letters, with detailed answers expected to follow. While the Carbon Tracker Initiative states that “[m]any of” the responses “acknowledge that there is a legitimate risk issue around carbon reserves,” it is unclear how much additional information could be expected from companies given the broadness of CARI’s requests and uncertainty about how such information will be used by CARI.
Fossil fuel companies should expect Ceres and its supporters to push hard on this campaign, with other oil & gas, coal and utility companies expected as additional targets. That said, it is difficult to predict what real impact CARI will have, as it is premised in part on the Cancun Agreements, which are not legally binding. Also, it is unclear what leverage the investors have over the letter recipients, other than potentially bad press, and, for U.S. company recipients, the threat that the investors will submit related proxy proposals for shareholder vote and/or appeal to the SEC to require this disclosure. Many of these U.S. companies, however, have already received shareholder proposals on greenhouse gas topics in the past, and none have gained real traction. In addition, remarks from SEC Chair Mary Jo White earlier this month about investor requests for disclosure of “social matters” suggest that the SEC is leaning away from granting such requests, unless material.