22 March 2019 | The London Institute of Banking and Finance | Ben Caldecott
The stock of cumulative investment in clean energy looks set to increase annually by at least US$300bn to US$350bn over the next decade. But it will have to increase by much more if we are to meet the commitments implied in the Paris Agreement on Climate Change. This means that global debt capital markets must be accessed. Ben Caldecott explains why.
12 March 2019 | HSBC Guest Blog | Ben Caldecott
Demand and interest in sustainable finance is not a passing fad. Environmental challenges are getting worse, societal concern for the environment is growing, and as countries develop there will both be more assets to be invested, as well as more concern for sustainability-related issues. Policymakers, regulators, financial institutions, and the ultimate owners of wealth - citizens - are coming together in Malaysia and elsewhere to ensure finance becomes more sustainable. Not only is aligning finance with sustainability a great opportunity, it is also a necessary condition for saving our environment.
18 December 2018 | Nordea Guest Blog | Ben Caldecott
Investor influence on companies and their environmental footprints differs enormously by asset class, sector, and geography, as well as (of course), by the size and reputation of the investor(s) in question. This needs to be much more clearly expressed to clients seeking to influence company behaviours through their investment choices.
A necessary starting point is, of course, understanding the environmental footprint companies and assets in personal or institutional investor portfolios have, and what particular environmental issues are being targeted. The next step needs to be a much more sophisticated and realistic conversation about what influence is possible where, followed by an effective execution strategy that prioritises concerted action and coordination with other like-minded investors. Asset managers and financial advisors need to up their game and provide these solutions. Only then is there a good chance that investors can actually reduce the environmental footprint of their holdings.
12 September 2018 | World Economic Forum | Ben Caldecott
We have an entered an age of ubiquitous information and, potentially, ultra-transparency. New sensors, whether cube satellites in space or those contained in our smartphones, are generating constant streams of data. In the realm of sustainability and finance, these capabilities will allow us to upend the current information asymmetries that exist between companies and their investors, and between financial institutions and their regulators.
Ultra-transparency and the associated earth observation and data science capabilities we need, as well as the balance between public and private contributions to make them widespread, must be figured out now. Without progress on data, the TCFD and so many other related processes will not succeed.
Committed emissions from existing and planned power plants and asset stranding required to meet the Paris Agreement
Over the coming decade, the power sector is expected to invest ~7.2 trillion USD in power plants and grids globally, much of it into CO2-emitting coal and gas plants. These assets typically have long lifetimes and commit large amounts of (future) CO2 emissions. Here, we analyze the historic development of emission commitments from power plants and compare the emissions committed by current and planned plants with remaining carbon budgets. Based on this comparison we derive the likely amount of stranded assets that would be required to meet the 1.5C-2C global warming goal. We find that even though the growth of emission commitments has slowed down in recent years, currently operating generators still commit us to emissions (~300GtCO2) above the levels compatible with the average 1.5C-2C scenario (~240GtCO2). Furthermore, the current pipeline of power plants would add almost the same amount of additional commitments (~270GtCO2). Even if the entire pipeline was cancelled, therefore, ~20% of global capacity would need to be stranded to meet the climate goals set out in the Paris Agreement. Our results can help companies and investors re-assess their investments in fossil-fuel power plants, and policymakers strengthen their policies to avoid further carbon lock-in.
18th January 2018 | Climate Policy | Ben Caldecott
At present, policymakers do not have a means to accurately and impartially gauge the impact of climate policies on corporate solvency. If they did, policymakers could optimise climate policy so that it delivered the least loss of corporate solvency for any given level of emissions reduction. An ideal solvency trajectory for firms affected by climate change policy would cause corporate solvency to initially decline - approaching but not exceeding 'distressed' levels - and then gradually improve to a new 'steady state' once the low-carbon transition had been achieved, at which point the carbon-limiting regulation would continue. At present, there is considerable potential for industrial outcry and political lobbying to influence policy resulting in negative social consequences. By contrast, a climate change policy partly based on corporate solvency could be adjusted relatively mechanically at each financial reporting period, and would be automatically sensitive to variations in the business cycle.
15th December 2017 | ChinaDialogue | Ben Caldecott
The successful implementation of the Paris Agreement and the Sustainable Development Goals will be impossible if the huge amount of capital invested under Belt and Road Initiative (BRI) is inconsistent with tackling climate change and ensuring sustainable development. "Greening" BRI is therefore a priority of global significance. A pre-requisite for greening BRI is understanding, firstly, the impacts that current and planned BRI projects will have on the local and global environment, as well as on sustainable development and, secondly, the stranded asset risks current and planned BRI projects face from different physical and transition risks related to environmental change, particularly climate change. The new "Green BRI Platform" relies on methodologies Oxford has trialled and refined intensively with major financial institutions. At the heart of this project is a new online data and analysis platform that will be available in the first half of 2018. It can help all financial institutions meet their commitments to integrate climate and sustainability assessment into their decision-making across multiple sectors. This same information will also be useful for policymakers, regulators, companies, and civil society.
Coal-fired power stations in Coal in the 21st Century: Energy Needs, Chemicals and Environmental Controls published by the Royal Society of Chemistry
4th October 2017 | Royal Society of Chemistry | Lucas Kruitwagen, Seth Collins and Ben Caldecott
Lucas Kruitwagen, Seth Collins and Ben Caldecott contribute a chapter entitled 'Coal-fired power stations' to Coal in the 21st Century: Energy Needs, Chemicals and Environmental Controls published by the Royal Society of Chemistry. The future of coal in the 21st century depends largely on the future of coal combustion for power generation. This chapter provides a technical overview of coal-fired power stations and their exposure to a wide array of environment-related risks, including greenhouse gas emissions and stranded assets; water consumption and competition with agriculture, industry, and domestic uses; climate stresses induced by anthropogenic climate change (of which they are the primary cause); competition with renewables and generating flexibility; costs and trade-offs of mitigation options; retrofitability with carbon capture and storage; and the availability of finance. The future of coal in the 21st century depends largely on the response of policy makers, industry and the concerned public to these risks.
2nd October 2017 | The Economist Intelligence Unit | Ben Caldecott
We are entering the most capital intensive period in human history with clean technologies at the very centre. This will benefit owners and organisers of capital and the UK is uniquely placed to reap the benefits. Fundamental to this is transparency. Financial centres agglomerate and attract financial institutions and related service providers to be close to one another for many reasons. One of these reasons is to reduce information asymmetries and the transaction costs associated with gathering, assuring, and using information. For green finance to develop and expand in the UK, financial institutions must have unparalleled levels of access to information to enable its financial institutions to fully assess environmental risks, returns, and impacts. Data and information allows financial markets to access green opportunities and manage physical and transition risks related to environmental change.
22nd August 2017 | Business Times, Singapore | Ben Caldecott
While Europe and Asia are at different stages of development, the European experience provides some instructive lessons. Company executives in Europe were too optimistic about coal, a technology that they believed was "safe" or "tried and tested". Coal is, in fact, perhaps the generation technology most vulnerable to low marginal cost renewables, commodity price volatility, concerns about air pollution, competition from gas, and of course, necessary action to tackle climate change. The scale and pace of the decline in coal's economic attractiveness in Europe is significant and provides a cautionary tale for Asian utilities and their investors.
16th August 2017 | Business Standard | Ben Caldecott
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. 20GW has been cancelled in Germany alone. The economics of existing plants have deteriorated too. New analysis from the University of Oxford Smith School of Enterprise and the Environment finds that unjustified optimism in the future of coal at a company-level combined with wishful thinking in sector-wide forecasting led to the proposed coal expansions that ultimately backfired. The scale and pace of the decline in coal's economic attractiveness is significant and provides a cautionary tale for Asian utilities and their investors.
14th August 2017 | Hindustan Times | Ben Caldecott
The economics of coal-fired power generation is incredibly vulnerable, much more so than is recognised. Coal is particularly at risk from competition from low cost renewables, volatile commodity prices, growing concerns about air pollution, worsening water availability for cooling, the increasing incidence of heat waves that reduce operating efficiencies and, of course, necessary action to tackle climate change. These factors in combination are driving the structural decline of coal. The implications for Indian power companies and their investors are crystal clear: Bets on new coal don't pay off whilst solar and other renewables are both cheaper and much more resilient to the challenges and opportunities of the future.
Back-tag to the future! We need to tag and back-tag all new and outstanding issuance of securities 'green' or 'sustainable'
26th July 2017 | Responsible Investor | Ben Caldecott
All the current 'green' tagging of securities is focussed on new bond issuance wanting to self-identify as green. This accounted for only 2.1% of total new bond issuance globally in Q1 2017 and 0.25% of the global bond market. Many bonds that do not self-identify as green are as 'green' as their officially labelled equivalents. Accurately tagging all 'green' securities would enable institutional investors to shift allocations in the right direction over time. A major new undertaking is required by actors engaged in sustainable finance: the systematic tagging and back-tagging all new and outstanding issuance of securities and loans 'green' or 'sustainable'.
28th June 2017 | The Economist Intelligence Unit | Ben Caldecott
Debt capital markets, particularly bond markets, will play a critical role in financing large parts of the transition to global environmental sustainability. These deep pools of low cost capital are well suited to the capital-intensive projects and technologies that need to be deployed to implement both the Paris Agreement and the Sustainable Development Goals (SDGs). The green bonds that now dominate the conversation in ESG and Responsible Investment circles are the kind issued by a sovereign, multilateral institution, or company as 'use of proceeds' bonds. But green bond advocates need to be much more honest about what a green 'use of proceed' bond does and does not do. They face significant problems and these are underplayed and under-appreciated by market participants.
27th June 2017 | Responsible Investor | Ben Caldecott
The key factor for the development of sustainable finance is demand for related products and services, particularly from asset owners. One generalisation that can be made across all these different groups is that the larger the asset owner, the greater the number opportunities it has to access different asset classes and markets, as well as develop, operate, and use different types of analysis to improve decision-making. Helping smaller asset owners to consolidate and upskill could help create champions able to spur significant demand for products and services related to sustainable finance and investment. This could complement demand from existing larger asset owners.
2nd May 2017 | The Economist Intelligence Unit | Ben Caldecott
The planned listing of part of Saudi Aramco on one or more international stock exchanges is one of the big energy stories of this year and next. It is anticipated that the listing of around 5% of Saudi Aramco could give it an implied value of potentially up to US$2 trillion, making it the most valuable company on earth. This is likely to be viewed with some trepidation by those concerned with tackling climate change. After all, Saudi Aramco has both the world's largest proven oil reserves and largest daily oil production. If its oil reserves were burnt they would account for around 15% of the remaining global carbon budget - the amount of carbon that can be emitted for a 66% probability of keeping the rise in global temperatures below 2°C. However, there is a potentially compelling, if counter-intuitive, climate 'upside' associated with the IPO of Saudi Aramco and there could be good cause for those concerned about climate change to promote its listing, particularly on a well-regulated exchange such as the London Stock Exchange.
29th March 2017 | Responsible Investor | Ben Caldecott
The financial system has the capacity to change remarkably quickly. Many of the 'permanent' features of capital markets in terms of norms, practices, asset classes, and architecture are in fact quite new and became 'standard' very quickly. This highlights how rapid innovation and then the dissemination and mainstreaming of such innovation is a feature of capital markets. Low barriers to replication, large incentives for replication, and highly connected clusters where information and knowledge are shared quickly in common languages (accounting, mathematics, and English) all make this possible. This suggests pathways to successfully mainstream sustainable finance at the scale and pace required given the environmental challenges we face. This is part of a series of articles by Ben Caldecott, Director of the Sustainable Finance Programme at the Oxford Smith School, published by Responsible Investor.
23rd February 2017 | Lloyd's of London Emerging Risk Report
A new study as part of Lloyd's Emerging Risk Report Series was carried out in partnership with the Sustainable Finance Programme at the Oxford Smith School. The report, 'Stranded assets: The transition to a low-carbon economy', recommends that firms should stress-test portfolios to build a picture of potential exposure to stranded assets or consider the specific environmental characteristics of investments in their portfolios whilst playing an active role in the development of legislation and regulation around environmental policy. The report looks at actual and potential examples of how stranded assets caused by societal and technological responses to climate change could affect assets and liabilities in the insurance and reinsurance sector. The study aims to increase the understanding and awareness of these issues in the insurance industry. The report found this to be especially relevant for insurers and reinsurers exposed to vulnerable carbon-based assets and liabilities in the energy, commercial property and shipping sectors.
31st January 2017 | Responsible Investor | Ben Caldecott
Integrating the environment and climate change into investor decision making will make capital less likely to flow to assets that are incompatible with sustainability and more likely to flow to assets that are. This is a necessary condition to address climate change and the other environmental challenges facing humanity. Doing so will also help financial institutions appropriately manage risk, improving the resilience of the financial system as a whole. For these reasons mainstreaming sustainable finance is critically important. Success in mainstreaming sustainable finance will depend on understanding what mainstreaming actually means and what this might really entail. Too often 'mainstreaming' is brandished around as an objective in this context without it being appropriately defined - which makes it very hard to track progress or to see what various efforts are contributing. This is the first of series of articles by Ben Caldecott, Director of the Sustainable Finance Programme at the Oxford Smith School, published by Responsible Investor.
Special Issue of the Journal of Sustainable Finance & Investment: Stranded Assets and the Environment
15th December 2016 | Ben Caldecott
Ben Caldecott, Director of the Sustainable Finance Programme at the Oxford Smith School, is the guest editor of a Special Issue entitled 'Stranded Assets and the Environment' published by the Journal of Sustainable Finance & Investment. To critically review and help formulate a better understanding of stranded assets, and to help foster the development of the academic literature on the topic, the Sustainable Finance Programme organised the 1st Global Conference on Stranded Assets and the Environment on the 24th and 25th September 2015 at The Queen's College, Oxford. The conference brought together over 120 leading scholars and practitioners from a range of disciplines, including economics, finance, geography, management, and public policy. The Special Issue contains 8 of the 25 papers presented at the conference and these were selected through a multiple stage short-listing process based on an editorial assessment of quality and novelty, followed by double-blind peer review.
11th December 2016 | Alexander Marks
A secure energy future will remain out of reach unless Australia's energy system adjusts to new technologies like rooftop solar generation and battery storage, according to a paper released by the Centre for Policy Development and the Sustainable Finance Programme at the Oxford Smith School. Avoiding Gridlock: Policy Directions for Australia's Energy System argues that rising prices, lower energy consumption, and technological advances in renewable generation and storage are reshaping our electricity system. Regulators must keep pace to improve outcomes for consumers and strengthen overall energy security.
14th November 2016 | Ben Caldecott
Ben Caldecott, Director of the Sustainable Finance Programme at the Oxford Smith School, provides a guest expert commentary on what the environment might mean for commodity traders in the 2016 Trafigura annual responsibility report. He argues that the vast majority of commodity traders will be reluctant to adapt as there are sunk costs and it is too easy to irrationally discount these factors. The firms that adapt and do so early have a good chance of flourishing in a significantly altered operating environment, but those that don't will see significant asset stranding.
The Inter-American Development Bank (IDB) published report authored by a team led by Ben Caldecott, Director of the Sustainable Finance Programme at the Oxford Smith School. Despite the importance of stranded assets, there is little analytical work available on the subject in Latin America and the Caribbean, a region that is vulnerable to the physical effects of climate change and to regulatory responses to the phenomenon. The report provides a better understanding of the topic that could lead to the design and implementation of management strategies that might contribute to diffusing some of the associated risks.
28th October 2016 | Sustainable Finance Programme
This report has been developed as part of a joint initiative with E3G, the Oxford Smith School Sustainable Finance Programme, 2 Degrees Investing Initiative, Ario Advisory, Carbon Tracker Initiative, ClientEarth, Climate Bonds Initiative, Climate Disclosure Standards Board, Eurosif, Future-Fit Foundation, Preventable Surprises, ShareAction, and WWF. It outlines a 'Sustainable Finance Plan 2030' that focuses on three key aims and objectives that should be central to the European Commission's strategy on sustainable finance. First, the Commission should focus on increasing investment in sustainable infrastructure. It should use the current infrastructure investment gap as an opportunity to boost development and employment opportunities, shore up investor confidence in the European project, and put the EU on a pathway to sustained economic recovery whilst managing climate risk. Second, it should look for opportunities to increase responsible investment practices. The need to address social and environmental problems should be at the heart of the financial reform agenda to enable sustainable growth. Third, the Commission should improve climate risk disclosures. Good governance and better information can help improve corporate accountability, an enabler of inclusive prosperity. Eight priority actions are recommended to take this forward.
7 October 2016 | Ben Caldecott and Roger Urwin
In June 2016, the Investment Institute brought together Ben Caldecott, the Director of the Sustainable Finance Programme at the University of Oxford's Smith School of Enterprise and the Environment, and Roger Urwin, Global Head of Investment Content at investment consultant Willis Towers Watson, to discuss the issue of stranded assets and how investors can defend their portfolios from the long-term value destruction that could arise from asset stranding.
In a guest commentary for Standard & Poor's the Sustainable Finance Programme at the Oxford Smith School examines how in the absence of perfect reporting, asset-level data can open up sophisticated new bottom-up approaches to measuring environmental risk that are particularly relevant to credit risk analysis.
In the latest issue of the Oxford Energy Forum published by the Oxford Institute for Energy Studies, the Sustainable Finance Programme at the Oxford Smith School examines the limited role CCS might play in mitigating environment-related risk in the thermal coal value chain.
17 May 2016 | Sustainable Finance Programme and 2° Investing Initiative
The Sustainable Finance Programme and 2° Investing Initiative ('2DII') published a joint submission to the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD), chaired by Michael Bloomberg. The submission recommends that existing asset-level information, that is widely available but in disparate locations, be brought together in ways that can complement existing voluntary disclosure.
29 February 2016 | The Economist Intelligence Unit | Ben Caldecott
The European Systemic Risk Board (ESRB) has joined with the Bank of England and the G20 Financial Stability Board in highlighting how a late and abrupt transition to a low carbon economy could have implications for financial stability. The ESRB has emphasised the need to pre-emptively manage 'stranded asset' risk in financial institutions, and throughout the financial system as a whole, but without better data availability this will be extremely challenging. Correcting this major gap is now an urgent priority.
9 December 2015 | The Conversation | Ben Caldecott
Whatever the outcome of the climate talks in Paris, one thing is certain: climate change will result in assets becoming "stranded". And, despite the claims of various naysayers, investors should be prepared. Ben Caldecott explores why stranded assets matter in The Conversation.
November 2015 | Inter-American Development Bank | Ben Caldecott, Ana Rios, Amal-Lee Amin
To lay the foundation for practical and implementable approaches to stranded assets, especially from a multilateral development bank (MDB) perspective, three main topics of consideration are highlighted in this publication by the Inter-American Development Bank (IDB) and authored by Ben Caldecott.
13 April 2015 | WorldWatch Institute with Ben Caldecott
Ben Caldecott contributes a chapter entitled 'Avoiding Stranded Assets' to State of the World 2015, the flagship publication of the Worldwatch Institute. The book explores hidden threats to sustainability and how to address them. Eight key issues are addressed in depth, along with the central question of how we can develop resilience to these and other shocks.
13 March 2015 | Aldersgate Group with Ben Caldecott
This report on "An Economy That Works" initiative hosts contributions from leading experts on one facet of the six core areas of An Economy That Works: high employment, equality of opportunity, wellbeing, low carbon development, zero waste and enhancing the UK's natural capital.
27 February 2015 | BusinessGreen by Ben Caldecott
Opinion piece by Ben Caldecott argues that remaining UK subcritical coal-fired power stations should be closed by the end of 2020.
9 September 2014 | China Dialogue by Ben Caldecott
Opinion piece by Ben Caldecott arguing how compensating owners of coal assets for prematurely closing their power stations could be a cost-effective and politically feasible way of dealing with coal divesment.
30 July 2014 | BusinessGreen by Ben Caldecott
Opinion piece by Ben Caldecott arguing how the world needs to develop Coal Closure Funds to manage the necessary decline of the industry.
13 June 2014 | China Dialogue by Ben Caldecott
The US fossil fuel divestment campaign could increase the chance of carbon pollution regulation, thereby stranding some carbon-intensive assets.
3 April 2014 | The Drum by Ben Caldecott
Divestment by Australia's Group of Eight universities would have little direct impact on the fossil fuel industry, but the message it would send would be powerful.
27 March 2014 | Business Spectator by Ben Caldecott
There are a variety of converging risks that could erode or destroy the value of polluting and environmentally unsustainable assets in Australia and almost everywhere else. These range from climate change, through to new environmental regulations, developments in clean energy technologies, resource limits, evolving public opinion, and litigation.
17 December 2013 | China Dialogue by Ben Caldecott
Falling Chinese demand for coal could impact the viability of Australian coal projects.
5 December 2013 | Pensions & Investments by Ben Caldecott
Changes in environmental regulations and technologies could quickly erode the value of assets in various sectors including energy and real estate. Ben Caldecott, Director of the Stranded Assets Programme at the Smith School of Enterprise and the Environment, Oxford University, offers steps to deal with emerging risks of so-called "stranded assets".
8 October 2013 | BusinessGreen by Ben Caldecott
Ben Caldecott explains why fossil fuel investors and companies should be concerned about the emerging divestment trend.
5 September 2013 | The Actuary
Catherine Cameron, Elisa Hewlett, Simon Jones and Paula Robinson evaluate the current carbon budget commitment and the implications for fossil fuel investments.
9 August 2013 | BusinessGreen opinion piece by Ben Caldecott
Writing in BusinessGreen, Ben Caldecott highlights the need for investors and asset managers in the agricultural supply chain to prioritise environmental factors in their risk management strategies.
6 February 2012 | The Guardian by Ben Caldecott and James Leaton
Writing in The Guardian, Ben Caldecott and James Leaton recommend that the Bank of England investigate the financial system's exposure to high carbon and environmentally unsustainable investments.