Concerns misplaced: will compliance with the TCFD recommendations really expose companies and directors to liability risk?
25 September 2017 | Alexia Staker, Alice Garton, Sarah Barker | Briefing Paper
In this briefing from the Commonwealth Climate and Law Initiative (CCLI), experts refute misplaced fears in industry about the legal risks of climate disclosure. New analysis confirms that saying nothing at all about climate issues in corporate reporting puts directors at far greater risk of being sued than disclosure would. Complying with the new reporting recommendations from the Task Force on Climate-related Financial Disclosure (TCFD) will actually protect companies from the kind of liability claims they fear. It is highly likely that there will be additional regulation requiring disclosure of climate risk, or, at the very least, existing laws will be interpreted as requiring robust climate risk analysis. For all these reasons, astute directors should embrace the TCFD recommendations and recognise that climate-risk disclosure is a key component of financial reporting.
The fate of European coal-fired power stations planned in the mid-2000s: Insights for policymakers, companies, and investors considering new coal
Between 2005 and 2008 European utilities were determined to embark on a major coal-plant construction programme. They announced plans to build 49 GW of new coal-fired power capacity. To date 77% of this new capacity has been cancelled, with more likely to be cancelled soon. The economics of existing plants have deteriorated too. There are a number of important questions that stem from this: why did the majority of plant proposals not go ahead; what makes the projects that did proceed different; what challenges are these new plants likely to face now and in the future; and to what extent are the projects that did succeed likely to become stranded generation assets? The results are relevant not just to understanding the fate of the remaining coal-fired power stations in Europe, but also the future of those currently planned or being built in other countries. This working paper examines each of these questions in turn.
The entire global population of 212,615 Ultra High-Net-Worth Individuals (UHNWIs) was worth US$30 trillion in 2016, compared to OECD pension funds with assets of US$26 trillion. Despite their significance and growing importance, very little research has explored the financial and economic geography of UHNWIs. This working paper makes a significant contribution to understanding UHNWIs and also to how they may or may not support the growth and development of sustainable finance. It is based on extensive primary research with both UHNWIs and their private bankers/financial advisers, including 47 semi-structured interviews, a structured quantitative survey, and a multi-stakeholder research forum.
We analysed the exposure of current and planned coal-fired generation in China to the risk of asset stranding. We examined the environment-related risks facing every coal-fired power station owned by the top 50 coal-fired power utilities in China (which together comprise 89% of China's coal-fired capacity) and measured each power station's exposure to 19 different environment-related risks. To examine the scale of potential stranded coal assets in China, we also developed four illustrative scenarios reflecting the different speeds and scales at which risk factors could realistically materialise. This analysis can help to inform specific investor actions related to risk management, screening, voting, engagement, and disinvestment.
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Stranded coal assets are inevitable given concerns about pollution and competition from cleaner technologies. This will have associated economic, social, and political implications. Central and provincial-level government in China, as well as other stakeholders, have a significant interest in successfully managing the economic and political consequences of power station closures. This discussion paper undertakes an initial assessment of the political economy implications associated with the premature closure of coal assets in China. It discusses stranding facing the coal industry more broadly, before focusing on coal-fired generation specifically. The paper estimates the potential scale and geographical distribution of stranded coal-fired generation assets at a provincial-level before outlining avenues for future research in China and internationally.
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28 February 2017 | David Robinson, Xin Li | Working Paper
This working paper addresses two issues related to coal-fired generation in China. The first is how selected countries in the European Union and North America are making the transition away from unabated coal-fired power. The second is to identify power market reforms that could ease a similar transition in China. While China is very different from the OECD countries that are the focus of this study, there are many challenges and opportunities where international experience may be relevant for China.
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17 February 2017 | Author: Kingsmill Bond | Discussion Paper
Orthodox thinking on the nature of change in energy systems tends to focus on how long it will take for the current fossil fuel based system to shift to a renewable based system which will be equally dominant. This is important for many reasons, above all as a tool to calculate how long it will take for the world to reduce and eliminate carbon emissions. However, this is not the key issue for incumbent companies and financial markets. What matters for companies and for financial markets is marginal change. For a company, marginal change is simply sales growth; and for financial markets marginal change acts as a signal of coming success or failure. This discussion paper examines when renewables will make up all the marginal growth in global energy supply and the disruptive change incumbents are likely to face as competition intensifies between fuels, prices fall, and assets become stranded.
15 February 2017 | Author: Elizabeth Harnett | Working Paper
This discussion paper outlines the current understanding of climate change in the investment markets in the UK and Australia, providing novel insights from 58 semi-structured interviews with a range of investment professions and a survey of 154 investors. The UK and Australia both have substantial and growing institutional investment systems, as well as increasing activism surrounding Responsible Investment. Given this, more responsible management of these assets could, potentially, provide significant impetus in shifting capital towards lower carbon economies.
The University of Oxford's Smith School of Enterprise and the Environment and The Rothschild Foundation held the fifth Stranded Assets Forum at Waddesdon Manor, Buckinghamshire, on the 15th April 2016. The Forum examined ultra high-net-worth individuals (UHNWIs), the advice they receive on sustainable investment topics, and how they could shape demand for and the practice of sustainable investment. This report provides a summary of the proceedings and deliberations from the Forum. It outlines the key discussion points and issues that emerged during the sessions held.
We identify and assess the environment-related risks facing financial, human, natural, physical, and social assets along the Indonesia palm oil value chain. This working paper also assesses the extent to which these risks are currently being addressed and reviews current ESG initiatives related to the Indonesian palm oil value chain and whether these are a suitable response. Finally, we look at the companies involved in the Indonesian oil palm oil value chain and examine the extent to which they are addressing these issues.
Deploying a 'bottom up' asset-level methodology, we analysed the exposure of all of Japan's current and planned coal-fired power stations to environment-related risk. Planned coal capacity greatly exceeds that required for replacement - by 191%. This may result in overcapacity and combined with competition from other forms of generation capacity with lower marginal costs (e.g. nuclear and renewables), lead to significant asset stranding of coal generation assets. Stranded coal assets in Japan would affect utility returns for investors; impair the ability of utilities to service outstanding debt obligations; and create stranded assets that have to be absorbed by taxpayers and ratepayers.
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The University of Oxford's Smith School of Enterprise and the Environment and The Rothschild Foundation held the fourth Stranded Assets Forum at Waddesdon Manor, Buckinghamshire, on the 23rd October 2015. The Forum explored how environment-related risks, such as climate change, intersect with developments in prudential regulation and financial conduct. This report provides a summary of the proceedings and deliberations from the Forum. It outlines the key discussion points and issues that emerged during the sessions held.
The top 100 coal-fired utilities, top 20 thermal coal miners, and top 30 coal-to-liquids companies have been comprehensively assessed for their exposure to environment-related risks, including: water stress, air pollution concerns, climate change policy, carbon capture and storage retrofitability, future heat stress, remediation liabilities, and competition from renewables and gas. The research is designed to help investors, civil society, and company management to analyse the environmental performance of coal companies and will inform specific investor actions related to risk management, screening, voting, engagement, and disinvestment. The research also has clear implications for current disclosure processes, including the new Task Force on Climate-related Financial Disclosures.
Protected areas (PAs) are a large and growing asset class with unique legal and social characteristics. This report sets out a new asset framework for PAs, that involves new typologies for assets, investments, value creation, value capture, and risk management. This new framework could help PAs to generate more value, attract new investment, and better manage the risks that could strand PA assets. The new asset framework also represents a heuristic tool that can help underpin the case for new investment in PAs. In the report, we apply the framework to case studies in Brazil and Tanzania, conduct a systematic meta-analysis of the literature on PA value creation, undertake a preliminary assessment of the state of investments into PAs, and review current and emerging risks facing PAs.
Making Climate Policy More Like Monetary Policy: Calibrating Climate Policy Through Corporate Solvency
We propose that corporate solvency metrics be used as an objective tool for policymakers to calibrate the optimal magnitude of climate policies, and thereby achieve greater emissions abatement at lower social cost. In particular, solvency metrics could calibrate the optimal severity of climate policies and/or the generosity of industrial compensation. Policymakers currently monitor and regulate certain aspects of corporate solvency for financial firms (such as capital reserve requirements) in order to reduce the risk of bankruptcy while simultaneously maintaining profitability. In a similar vein, policymakers could do likewise with respect to climate change policies which target carbon-intensive firms.
25 August 2015 | Ben Caldecott, Dane Rook | Working Paper
Investment consultants are key 'gatekeepers' for asset owners, such as pension funds, and are instrumental in determining whether products and services are accepted or not by the financial community. Empirical research conducted as part of this study suggests that inadequate investment consultant-asset owner relationships are hindering the development of green investment. This study investigates this problem and examines its potential causes. We make recommendations to remedy these issues, set out new criteria to assess the capabilities of investment consultants with respect to green investment, and outline a new algorithmic tool to empower asset owners.
Cognitive Biases and Stranded Assets: Detecting Psychological Vulnerabilities within International Oil Companies
16 July 2015 | Dane Rook, Ben Caldecott | Working Paper
The trend for a larger volume of capex to be spread across a smaller number of projects increases the risk of psychological error - they become more likely as projects become larger, more complicated, and of lengthier duration. To help shareholders and companies guard against cognitive biases, we assessed and ranked the Boards of the six major international oil companies to see how susceptible they are to groupthink and salience, which can exacerbate psychological errors. We also set out diagnostic tools that can be used for this purpose.
20 April 2015 | Ben Caldecott, Dane Rook | Conference Proceedings
The University of Oxford's Smith School of Enterprise and the Environment and The Rothschild Foundation held the third Stranded Assets Forum at Waddesdon Manor, Buckinghamshire, on the 6th March 2015. The Forum explored whether the investment consultant industry is up to the job on environmental, climate, and sustainability topics and examined ways to address potential barriers. This report provides a summary of the proceedings and deliberations from the Forum. It outlines the key discussion points and issues that emerged during the sessions held.
We have located subcritical coal-fired power stations in Australia and identified the ones most at risk of stranding due to their carbon intensity and local environmental impacts. The research shows which companies own these assets in Australia and ranks companies by exposure. In addition, we examine the implications of subcritical coal for Australian policymakers, in particular we look at the costs, benefits, and mechanisms for phasing out subcritical coal in Australia.
We have located subcritical coal-fired power stations globally and identified the ones most at risk of stranding due to their carbon intensity and deleterious effects on local air pollution and water stress. The research shows which companies own these assets and ranks companies by exposure. Furthermore, we examine how environment-related risks facing subcritical coal assets might develop in the future.
10 February 2015 | Dane Rook, Ben Caldecott | Working Paper
This paper sets out new metrics to assess whether natural resource company capex is responsibly diversified. There is growing criticism of existing metrics for assessing the prospects of oil majors, such as Reserve-Replacement Ratios, and we have sought to address this directly by introducing two novel, and straightforward, metrics - capex density and capex evenness. The paper also includes a starter manual for how to use these new metrics and is accompanied by a capex balance calculator, which can be downloaded here.
3 February 2015 | Ben Caldecott, Guy Lomax, Mark Workman | Working Paper
Negative Emissions Technologies (NETs) have the potential to remove carbon dioxide from the atmosphere and this could reduce the impacts of ocean acidification and anthropogenic climate change. To see whether carbon budgets can be extended by NETs and if so, for how long, we quantify the 'extra space' that they could create and then examine the potential implications for carbon-intensive sectors.
Protected areas (PAs) are a large and growing asset class with unique legal and social characteristics. This discussion paper provides an update on the development of a new asset framework for PAs, that involves new typologies for investment, situated assets, forms of value, value capture, and risk. This new framework could help PAs to generate more value, attract new investment, and better manage risks that could strand PA assets.
10 October 2014 | Ben Caldecott, Dane Rook, Julian Ashwin | Conference Proceedings
The University of Oxford's Smith School of Enterprise and the Environment and The Rothschild Foundation held the second Stranded Assets Forum at Waddesdon Manor, Buckinghamshire, on the 4th September 2014. The topic was fossil fuel divestment and endowments. This report provides a summary of the proceedings and deliberations from the Forum. It outlines the key discussion points and issues that emerged during the sessions held.
1 September 2014 | Ben Caldecott, Nick Robins | Briefing Paper
This Briefing Paper was produced to help inform an International Institute for Sustainable Development (IISD) and UNEP Inquiry collaboration with policymakers in China, particularly those from the Development Research Center of the State Council (DRC) and People's Bank of China (PBoC). The paper examines the risks and opportunities associated with stranded assets, provides five international case studies, and identifies how these issues might be relevant to Chinese policy makers.
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14 July 2014 | Ben Caldecott, Jeremy McDaniels | Working Paper for UNEP Inquiry into the Design of a Sustainable Financial System
This Working Paper does three things: first, summarises the underlying logic for why the financial sector should care about the environment and environment-related risks; second, reviews the barriers preventing the financial system from managing such issues; and third, identifies the researchers and organisations working on these topics. This is a reference guide for those concerned with both how environment-related risks could affect the financial sector and what financial institutions can do to manage such risks.
The University of Oxford's Smith School of Enterprise and the Environment and The Rothschild Foundation held the first Stranded Assets Forum at Waddesdon Manor, Buckinghamshire, on the 14th and 15th March 2014. This report provides a summary of the proceedings and deliberations from the Forum. It outlines the key discussion points and issues that emerged during the sessions held.
28 January 2014 | Ben Caldecott, James Tilbury, Christian Carey | Discussion Paper
Scenarios can help investors, firms and policy makers increase the resilience of assets by making them better prepared for inherently hard to predict events. In this high-level discussion paper we review existing scenarios to determine trends and gaps in the literature and propose a general type of scenario that would be most useful for the management of stranded asset risks.
Stranded Generation Assets: Implications for European Capacity Mechanisms, Energy Markets and Climate Policy
17 January 2014 | Ben Caldecott, Jeremy McDaniels | Working Paper
An increasing number of major EU utilities have decided to mothball or prematurely close recently built, high-efficiency combined-cycle gas turbine (CCGT) power plants. This working paper examines how EU utilities are reacting, how these stranded assets are affecting firm value and strategy, and what implications may exist for energy market design, low-carbon energy and climate policy.
Stranded Down Under? Environment-related Factors Changing China's Demand for Coal and What this Means for Australian Coal Assets
16 December 2013 | Ben Caldecott, James Tilbury, Yuge Ma | Report
China's demand for coal is changing as a result of environment-related factors, including environmental regulation, developments in cleaner technologies, local pollution, improving energy efficiency, changing resource landscapes and political activism. We look at how this evolving demand picture could then translate into impacts on the coal price and then on the stranded asset risks faced by coal and coal-related assets in Australia - a country that is a large and growing coal exporter to China.
Stranded Assets and the Fossil Fuel Divestment Campaign: What Does Divestment Mean for the Valuation of Fossil Fuel Assets?
8 October 2013 | Atif Ansar, Ben Caldecott, James Tilbury | Report
The fossil fuel divestment campaign has rapidly gained traction throughout university campuses and elsewhere since its launch. As part of our research we test whether the divestment campaign could affect fossil fuel assets and if so, how, to what extent, and over which time horizons. We also look at the similarities and differences between this campaign and others, such as tobacco and apartheid.
9 August 2013 | Ben Caldecott, Nicholas Howarth, Patrick McSharry | Report
This report maps out environment-related risks in the agricultural supply chain and shows how they might create stranded assets over time. We have systematised the different risk factors and have completed an assessment of where and how risks might affect agricultural assets. We have also completed a high-level Value at Risk (VaR) assessment to give an indication of the magnitudes of capital exposed and to stimulate further work in this area.