BY GEORGE HAY AND ANTONY CURRIE

Climate-change slowcoaches are heading for a smash. Fossil-fuel producers, steel companies, carmakers and other big greenhouse-gas emitters have so far faced only limited pressure from their owners for action on climate risk. That’ll change in 2020.

Despite increasingly frantic calls from scientists to limit global warming to 1.5 degrees Celsius, companies and investors have had grounds to hang back. An International Energy Agency business-as-usual scenario has oil demand still growing during the 2030s. Even engaged governments have only set very long-term carbon emissions goals.

That narrative is shifting. Shareholders have until now mostly needled companies like BP, Glencore and Royal Dutch Shell for extra detail on global-warming risks. They’re getting pushier. Climate Action 100+, a group of 370 investors with $35 trillion in assets, will soon place more stringent demands on individual companies, including going after directors and supply chains. Activist hedge fund TCI, run by Christopher Hohn, is already doing it.

Meanwhile, the pension and insurance funds that hand out mandates to asset managers are slowly mobilising the trillions of dollars they have in passive investments with BlackRock and Vanguard, which have been chastised by think tank InfluenceMap for underwhelming shareholder engagement. The United Nations’ new Net-Zero Asset Owner Alliance includes big hitters like Allianz and CalPERS. Hiro Mizuno, chief investment officer of Japan’s $1.5 trillion Government Pension Investment Fund, is already awarding work based on environmental, social and governance concerns. Last year BlackRock’s passive foreign equities mandate for GPIF nearly halved.

Crucially, climate risk will increasingly feature in shorter-term analyses of company valuations. A U.N.-supported research project backed by Principles for Responsible Investment estimated that the world’s 10 biggest oil companies, including Exxon Mobil and Total, would lose a third of their value if markets repriced their shares now to anticipate tough policy pushbacks, such as carbon pricing by 2025.

That’s starting to create the kind of noise that wakes up more traditional shareholder activists and short sellers. The prospect of some governments using the fifth anniversary of the 2015 Paris climate accord to add some teeth to their green commitments will push more than a few laggards towards the ditch.

First published Dec. 18, 2019

IMAGE: REUTERS/Daniel Munoz