Tuesday, September 23, 2014

Rockefeller fund divests from oil and coal as climate talks preparations start in New York

The FT is reporting [ft.com] on "the heirs to the Rockefeller oil fortune", who will divest immediately from its coal (they read Tony and Paul's well-argued plea apparently [pdf from oxcarre.ox.ac.uk]) and Canada's tar sands holdings, and review further fossil fuel holdings over the next couple of years. The fund will target renewable energy investments instead.
In addition, in an analysis piece, this action is explained as part of a bigger movement ahead of the New York climate meeting this Tuesday and Paris meeting in December next year. Apparently there exist a broad bases among businesses around the world that action is needed.

Both pieces make some interesting notes.
"The World Bank announced at Monday’s meeting that more than 1,000 companies and investors had expressed support for putting a price on the carbon dioxide emissions from burning fossil fuels that drive climate change. They include Shell, which has had an internal carbon price for some years, as well as Nokia, LG Electronics and Lego. A total of 73 national and 11 regional governments responsible for 54 per cent of global greenhouse gas emissions are now pricing carbon or plan to do so, the World Bank said, including China, the EU, and several US states."
This is currently on the front page of the World Bank website, further here [worldbank.org]
"the rise of a fossil fuel divestment movement that argues investors need to be mindful that most of the coal, oil and gas reserves in publicly listed companies need to stay in the ground if the world is to avoid a potentially dangerous 2 degrees Celsius of global warming from pre-industrial times."
something blogged on earlier, and appears to originate from the NGO Carbon Tracker [carbontracker.org].

The FT further writes that these divestments from the 'oil majors', such as now announced by the Rockefeller fund, remains relatively modest in respect to the size of the big oil companies and is therefore not likely to move their stock prices. And if they do, it will probably just increase the yield, since the companies themselves are pretty confident that demand for their product, and with that their profits, will remain robust for the near and medium term future.

However, if yield for investors mirrors the funding cost of the companies' projects, we can expect perhaps two responses: 1) more action in renewable energy from the oil companies to compensate for their image and thereby provide some reasons for investors to stay, or 2) more debt financing by banks or through bonds. A quick check shows that the oil majors are about 50/50 financed by equity and debt, of which long-term debt is really just a minor stake (less then 10% for shell and Exxon, a bit more for BP).

Anyways, first the share price will need to be affected by the divestment operations before any of this is going to happen.  Rockefeller representatives themselves called it for now "symbolic".

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