Climate change poses growing risk to the individual companies in which shareholders invest and, significantly, to shareholders’ broader portfolios. As climate related harm accelerates, economy-wide losses are increasing and hurting portfolios. A 2018 analysis in Nature suggests that keeping global temperature rise below 1.5 degrees instead of 2 degrees can prevent over $30 trillion in economic damage.
Oil and gas companies and banks are two industries that cause outsized impacts to our climate. Every dollar invested in new fossil fuel resource development and infrastructure, especially high carbon projects, slows the necessary low carbon transition and increases risk to the global economy and investor portfolios. The decisions made by companies in these sectors can play a major role in the timely transition to a clean energy economy—or in preventing it.
The “Paris Compliant Transition Plan” resolutions pending at Anadarko Petroleum, Chevron, Exxon Mobil, Goldman Sachs, Hess, JPMorgan Chase and Wells Fargo this year begin where company-specific climate risk proposals leave off. Instead of focusing on climate risk to companies, these proposals ask companies to report if, and how, they plan to reduce their total carbon footprints in line with Paris goals. The proposal addresses not only operational emissions, but also indirect emissions associated with products and investments.
The Paris Agreement forms the backbone for action on climate change. The necessary transition cannot occur if governments, companies, and financial institutions fail to quickly align their actions with these goals. The proposals ask companies to disclose their Paris-Aligned plans now because planning and implementation takes time. Companies that fail to plan for the transition not only will keep contributing to climate change, they will lag competitors and lose opportunities.
Some oil and gas companies and global banks have already announced paths to meaningfully reduce their operational and product or investment emissions, in alignment with Paris goals. For example, in the oil and gas arena, Royal Dutch Shell recently announced greenhouse gas intensity reduction goals for its products. BP announced plans to align emissions with Paris goals. Total has invested in solar energy and is reducing the carbon intensity of its energy products. Equinor (formerly Statoil) is investing in wind energy development. Similarly, a number of banks have adopted policies to begin measuring and reducing carbon emissions associated with their loan and investment portfolios; this includes reducing or avoiding investments in extreme fossil fuels such as coal, tar sands, and Arctic development. From BNP Paribas to the World Bank, at least eleven banks have adopted policies to end or substantially reduce such financing.
This proposal seeks to align company actions with global needs by increasing the scale, pace and rigor of company response to climate imperatives. Shareholders increasingly can differentiate between companies’ climate-related actions. When shareholders connect their investment choices to climate action they encourage reductions in globally destructive greenhouse gas emissions and reduce their own portfolio risk.