Consumers and governments are fighting back, demanding higher recycling rates and bans on single-use plastics. In the way, however, are many of the world’s biggest fossil-fuel companies, hoping that increased plastics production will make up for shrinking oil demand as the transportation sectors shift to electric power. According to energy think tank Carbon Tracker, the U.S. petrochemical industry has invested $97 billion in new petrochemical capacity over the past decade, and was planning another $40-billion worth of expansion over the next five years.

Can you say “stranded assets”? Industry can justify these investments only if producers promote ever-greater plastics consumption, especially in the developing world. Indeed, The New York Times reported last fall that Big Oil was lobbying U.S. trade negotiators to help them “flood Africa with plastic.”

Shareholder advocacy group As You Sow, based in Berkeley, California, is pushing back with a 50-page research report that says growth-hungry fossil-fuel companies are downplaying their investment risks. The report – Plastics: The Last Straw for Big Oil? – warns that “oil companies describe this growth as aligned with society’s goals to responsibly decarbonize. Yet, in a world that is awash with plastic production and waste, facing a continued climate crisis, and seeking environmental justice and equity, the proposed expansion of plastic production raises red flags for investors and requires enhanced scrutiny.”

The report offers 10 issues for investors to ponder. Here are five of them:

1. As growing ESG (environmental, social and governance) concerns push the world toward a net-zero, circular economy, more than US$400-billion worth of proposed global investment in plastic production, in total, risks being stranded.

2. With half the polyethylene produced in the U.S. already being exported, the industry’s growth assumptions rely on high plastic consumption in the “global South.”

3. The world mismanages about 41% of its plastic waste. Momentum is growing to reduce plastic consumption and shift to a circular economy – which would reduce feedstock demand.

4. With industry promoting more efficient plastics-recycling technologies, the report accuses producers of placing “responsibility and great costs on consumers, governments, or others at the end of the supply chain,” rather than assuming responsibility themselves. “There is no silver bullet solution to plastic pollution, and absolute reduction of plastic production is key.”

5. The industry’s carbon footprint will become a major concern. “Fossil-based plastics and other petrochemicals have a significant climate footprint,” the report says. It warns that the plastic life cycle alone could consume 19% of the world’s remaining carbon budget by 2040 if business continues “as usual.”

On top of that, more community and consumer groups are recognizing the local health risks of plastics production – which tend to impact lower-income communities. As You Sow says grassroots opposition is eroding the industry’s “social license to operate.” It urges investors to tighten the screws by asking producers tough questions, such as “Does your company have protocols and strategies that mitigate against the human-health risks associated with petrochemical emissions?” and “Does the company provide air-quality monitoring at the fenceline, and make this data publicly available?”

The post How to stop the coming plastic boom appeared first on Corporate Knights.

Exxon Mobil Corp. has been fending off a so-called proxy fight from a hedge fund known as Engine No. 1, which blames the energy giant’s poor performance in recent years on its failure to transition to a “decarbonizing world.” In a May 26, 2021 vote, Exxon shareholders approved at least two of the four board members Engine No. 1 nominated, dealing a major blow to the oil company. The vote is ongoing, and more of the hedge fund’s nominees may also soon be appointed.

While its focus has been on shareholder value, Engine No. 1 says it was also doing this to save the planet from the ravages of climate change. It has been pushing for a commitment from Exxon to carbon neutrality by 2050.

As business sustainability scholars, we can’t recall another time that an energy company’s shareholder – particularly a hedge fund – has been so effective and forceful in showing how a company’s failure to take on climate change has eroded shareholder value. That’s why we believe this vote marks a turning point for investors, who are well placed to nudge companies toward more sustainable business practices.

Hedge funds to the rescue?

Climate strategies aimed at saving the planet are an odd play for a hedge fund. Such investment firms are better known for getting companies to stop investing in this type of thing so they can collect quick profits.

Recent research undertaken by one of us found that activist hedge funds tend to target companies that spend more of their resources on these types of sustainability initiatives. That is, they buy shares of a company to gain influence and then convince other investors to join them in demanding efficiency enhancements and cost-cutting protocols to return more cash to shareholders. A follow-up study found that companies cut spending on sustainability initiatives within five years of a hedge fund getting involved.

In other words, hedge funds focus on short-term returns – not long-term concerns such as climate change or even a company’s own future profitability. And this is because of how hedge funds fundamentally operate.

Hedge funds usually charge their investors – often wealthy individuals and institutional investors – a 1% to 2% management fee in addition to a 20% cut of any gain in their investments. In return, these clients expect quick and substantial returns that substantially outperform the market.

Engine No. 1, a new type of hedge fund?

This is what makes Engine No. 1’s fight so interesting.

It began in early December 2020, shortly after tech investor Chris James launched Engine No. 1 with two other hedge fund industry veterans. The firm said it was “purpose-built to create long-term value by harnessing the power of capitalism.”

Engine No. 1’s first order of business was to pick a fight with one of the world’s largest energy companies, Exxon Mobil. It sent a letter to the company’s board on Dec. 7, 2020, urging it to focus on clean energy and shake up its board of directors – a bold move for an upstart investment firm with just a 0.02% stake in the nearly US$250 billion company.

But Exxon was an obvious target for this strategy. It has been a laggard on developing low-carbon fuels for years and has promoted misinformation about the human impact on climate change for decades.

After Exxon refused to commit to a transition to carbon neutrality, Engine No. 1 formally launched its proxy battle in March to force a change of strategy at the company, which traces its history back to 1870, when John D. Rockefeller founded the Standard Oil Company.

A proxy battle is when a group of shareholders tries to garner enough support from other investors – in the form of votes – to force a company to do what it wants, whether it’s to cut costs or change strategy.

Exxon said it expected to spend $35 million more than its usual costs to deal with the proxy battle; unfortunately, by increasing Exxon’s expenses, these are costs that are actually footed by investors. Engine No. 1 put its expenses at $30 million. The total cost, by some estimates, has exceeded $100 million.

Engine No. 1 was hoping to replace a third of the oil giant’s board of directors with four individuals who have more clean energy experience. The hedge fund was also seeking corporate governance reforms, a review of Exxon’s climate action plan – and its impact on the company’s finances – and greater public disclosure of its environmental and lobbying activities.

Even before the vote, the campaign was already changing the way Exxon does business. In the past few months, Exxon has proposed a $100 billion carbon capture project in Houston and committed $3 billion to low-emission technologies through a new venture.

Though Exxon denies any of these investments were due to pressure from Engine No. 1, it’s hard to believe the hedge fund wasn’t a catalyst. These are some of the biggest investments Exxon has proposed in sustainability in recent years, and they came right after pressure from the hedge fund – as well as the election of a new U.S. president who has made fighting climate change a priority.

Another likely reason for the new initiatives is that Engine No. 1’s campaign was enlisting significant support from other major Exxon investors, such as the California Public Employees’ Retirement System and the New York State Common Retirement Fund, which laid additional pressure on Exxon to do something about its lagging sustainability strategy.

So despite its pushback against Engine No. 1 and its proposed climate plan, clearly Exxon Mobil’s attention to its sustainability plans has been piqued.

What it all means

So why is Engine No. 1 really doing this – and do its motives matter?

While the firm is pushing hard for more investment in sustainability and clean energy, the focus in its statements on what’s driving this fight is mostly about shareholder value. And many of its demands, such as better long-term capital allocation strategy, a plan to enhance shareholder value and a “misaligned” management compensation, are straight out of a typical hedge fund’s playbook.

What we see as fundamentally different here is the emphasis the hedge fund is putting on the connection between sustainability and long-term profits. It makes a strong case that the reason Exxon’s financial position has been deteriorating is because of its failure to invest in low-carbon technologies.

Or, like a hedge fund, Exxon has been focusing on the short-term gains from fossil fuels at the expense of its long-term future in a global economy that puts a premium on sustainability and a penalty on carbon-intensive activities.

Moreover, the readiness of so many major investors – including the three largest U.S. pension funds and BlackRock, the world’s biggest investment manager with $7.4 trillion in assets under management – in joining Engine No. 1 shows which way the winds are blowing, which Exxon seems to now also realize.

So the vote itself isn’t the story here. It’s that the weight of activist hedge funds – the most potent form of shareholder activism – seems to be shifting in favor of sustainability. As we see it, this means companies and executives that don’t invest in the transition to low-carbon energy will increasingly risk incurring their wrath.

Mark DesJardine, Assistant Professor of Strategy and Sustainability, Penn State and Tima Bansal, Canada Research Chair in Business Sustainability, Western University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Canadian inventor says solar panels ‘almost cheaper than plywood’

Our most popular story of the year. JP Morgan says innovations have made solar power dirt cheap. He told Gideon Forman that the challenge now is getting politicians to understand this.

The world needs more Ethiopia and less Exxon

2019’s Nobel winners reveal how different the world could be when our leaders invest in a better future. Ethiopian Prime Minister Abiy Ahmed Ali won the Nobel Peace Prize this year for ending a multi-decade war with Eritrea. Former ExxonMobil scientist Dr. M. Stanley Whittingham also won a Nobel prize this year for his pioneering work in the development of the lithium-ion battery for the company in the 1970s. For whatever reason, after Whittingham’s initial breakthrough, Exxon put the rechargeable battery project on ice, citing high manufacturing costs and safety concerns. Our editor-in-chief Toby Heaps wonders how different the world would be had the company invested its vast resources in a better future rather than holding it back.

Youth rising: Meet 2019’s top 30 under 30 sustainability leaders

As world leaders descended upon New York City for the UN Climate Action Summit in September, millions of young people gathered in more than 200 countries on seven continents to make their voices heard. They walked out of their classrooms, their workplaces and their homes to join a 16-year-old Swedish girl in demanding that the climate crisis be treated like the emergency it is. In Canada and around the globe, youth are stepping up to create a more sustainable world. We challenge you to read up on our latest 30 under 30 leaders and not feel inspired to rise to new heights in 2020.

Think you can’t afford that EV? In a faceoff against gas cars, the numbers say otherwise

Electric vehicles face a major obstacle: They cost too much. Or at least that’s what the sticker price tells us. Corporate Knights pits 2 EVs against 2 internal combustion vehicles on total cost of ownership. Guess who wins?

O holy funds

Who knew one of our most popular stories of the year would be a guide to how Pope, the Aga Khan and Anglican Church invest their money?

From bomb shelters to boardrooms: Cisco’s Rola Dagher says giving up was never an option

Our Women in Leadership columnist Sheima Benemberek spoke with this tech industry president about how she went from Lebanese bomb shelters to heading one of the biggest corporations in Canada.

Is your ethical investing app upselling greenwash?

‘Animal welfare’ funds heavy in animal testing? Low-carbon funds dripping in oil? Our managing editor Adria Vasil offers up a BS-free green guide to 9 socially-responsible investing apps AKA robo-advisors.

Which smartphone is more ethical, Apple or Samsung?

Our popular Sustainable Stock Showdown columnist Tim Nash pitted all kinds of companies against each other in 2019. His most popular column answered a question a hotly debated question: Apple or Samsung?

 A tale of transformation: the Danish company that went from black to green energy

Rounding out some of our most popular stories of the year, Eric Reguly delved into the real-life story of how one of Europe’s most coal-intensive companies grew into a green energy giant.

The post ‘Almost cheaper than plywood’ solar, bargain EVs and youth rising round out 2019 appeared first on Corporate Knights.

To put that number in perspective, if a rich country like Canada were to invest 1% of its GDP planting new trees over a period of just eight years, it could remove up to half of the heat-trapping greenhouse gases (GHGs) that have been deposited by humankind in the atmosphere since the Industrial Revolution.

Former ExxonMobil scientist Dr. M. Stanley Whittingham also won a Nobel prize this year for his pioneering work in the development of the lithium-ion battery for the company in the 1970s. In its citation for the prize, The Royal Swedish Academy of Sciences said: “This light-weight, rechargeable and powerful battery is now used in everything from mobile phones to laptops and electric vehicles. It can also store significant amounts of energy from solar and wind power, making possible a fossil fuel-free society.”

For whatever reason, after Whittingham’s initial breakthrough, Exxon put the rechargeable battery project on ice, citing high manufacturing costs and safety concerns.

That wasn’t the only time Exxon scientists developed potential breakthrough technologies to decarbonize the global economy. Exxon holds more low-carbon patents than any company on the planet, according to a Chatham House report.

Exxon’s annual sales are more than triple Ethiopia’s GDP. One wonders how different the world would be had the company invested its vast resources in a better future rather than holding it back. Exxon’s shareholders should be asking this question too. Over the past 10 years, Exxon’s stock has been a dog, returning just one dollar for every six generated by an equivalent investment in the broader U.S. stock market.

The reason for this is the best news possible: economics. The low-carbon way is now the better, cheaper way. This is true across a host of critical technologies from electric vehicles to renewable power and storage.

To wit: A recent report by BNP Paribas Asset Management (which has US$469 billion in assets under management) found that oil needs a long-term breakeven price of $10–$20 per barrel to remain competitive in mobility, which accounts for more than a third of demand for crude oil. The report concludes the “economics of oil for gasoline and diesel vehicles versus wind- and solar-powered electric vehicles are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors.”

It’s good news that investors are waking up to the greatest threat to humanity, and even better news that it is for economic reasons, as that suggests the possibility of a massive scale-down of financing of climate problems in favour of climate solutions. But it’s not happening fast enough.

It’s as if our house is on fire and we are waiting for the boxing day sale on sprinklers.

We need to turn the firehose on. For decades, dealing with climate change (now a climate emergency) has been a massive collective action problem with little incentive to be a first mover, because it has been viewed as an environmental problem. Any single actor (with the exception of China or the U.S.) could not hope to make more than a dent on their own, and the benefits would not be reaped for decades into the future.

But when viewed through the lens of economics, the first mover disadvantage becomes an advantage. Those who lead the race to the rising low carbon economy stand to reap the biggest gains.

Which brings us to Canada, eh. With our energy industry on the ropes and struggling to remain relevant in what Shell CEO Ben van Beurden describes as a “lower forever” oil price world, the sooner we change our mindset to see the low-carbon economy as something to fight for rather than against the better.

Ditto for the rest of our economy — from the beleaguered internal combustion auto sector and energy-inefficient heavy industry to buildings and the balkanized electrical grid — embracing the opportunities of a low-carbon economy could bring our country together instead of driving it apart.

But it will take a serious chunk of change: about $300 billion over the next six years, according to The Capital Plan for Clean Prosperity, a Corporate Knights report for the Council for Clean Capitalism.

The simplest most effective way to move Canada to the front of the global low-carbon economic expansion would be for the federal government to initiate a large clean stimulus package backed by an annual $50 billion green bond program that would provide grants for businesses to deploy climate solutions.

As the global economy enters a period of contraction, the timing for such a stimulus could not be better.

Using the best models available, such a bold move could add as many as 900,000 jobs and $700 billion of GDP growth over six years.

Unlike Ethiopia we have abundant means to do this. A $300 billion pot of free money would focus the imagination of Canadian businesses. We should not underestimate our ability to capitalize on the awesome low-carbon growth opportunity.

The post The world needs more Ethiopia and less Exxon appeared first on Corporate Knights.

“We believe hanging on to fossil fuel assets is a financial risk,” wrote Jagdeep Singh Bachher, the UC’s chief investment officer, and Richard Sherman, chair of the UC Board of Regents’ Investments Committee, in an op-ed in the Los Angeles Times.

By the end of September, the UC’s $70 billion pension fund and $13.4 billion endowment will no longer hold any stakes in companies involved with extracting fossil fuels.

With so much shareholder wealth concentrated in so few hands, divestment is a potentially powerful lever for activists to pressure companies to emit fewer greenhouse gases or invest in cleaner energy. Climate change campaigners have used divestment to great effect, securing more than $11 trillion in commitments from endowments, pension funds, and private trusts to divest from fossil fuel companies.

For climate activists, the logic is that it is unethical to continue to invest in an industry whose products cause harm to the planet and whose members, like ExxonMobil, have spent decades obfuscating the science and the problem. And for institutions like universities, whose mission is to educate the next generation, betting on fossil fuels presents a glaring incongruence between their stated values and their actions that jeopardize the future of their students.

However, fund managers at the UC system — encompassing Berkeley, Los Angeles, Davis, and several other campuses — say their decision to divest isn’t guided by these high-minded principles.

“The reason we sold some $150 million in fossil fuel assets from our endowment was the reason we sell other assets: They posed a long-term risk to generating strong returns for UC’s diversified portfolios,” Singh Bachher and Sherman wrote.

But the UC system hasn’t detailed just how they will execute the divestment, as Felicia Mello explained in CalMatters:

One unanswered question: exactly how the university will define a fossil fuel asset. UC currently invests about $150 million in the top 200 publicly-traded coal, oil and gas companies, Baccher said at Tuesday’s board of regents meeting. Divestment will not be limited to those companies, however, UC spokesman Stett Holbrook said. “We have developed a more comprehensive, custom list,” he said in an email to CalMatters.

Nonetheless, the UC system’s divestment announcement is a huge win for climate activists and adds to the pressure on other universities that are still holding on to their investments in coal, oil, and natural gas.

Schools like Harvard and Yale that have declined to divest their multibillion-dollar endowments from fossil fuels have argued that divestment adds an unnecessary political element to their portfolios. Investment managers have also argued that they have a better chance at shaping a company’s behavior as an investor, and that fossil fuels will continue to be burned for years, regardless of any divestment activity.

Activists counter that declining to divest is a political action. They also say that as lucrative as fossil fuels remain, it’s still unethical to profit from them, logic that universities invoked when they divested from tobacco companies.

And while divestment on its own won’t convince a fossil fuel company to change its ways —plenty of other investors are ready to step in — it adds to the public pressure on companies that emit greenhouse gases.

UC’s announcement comes after UC President Janet Napolitano and the 10 chancellors of UC schools signed a letter this summer declaring a climate emergency. The move also comes ahead of a worldwide youth-led strike on Friday protesting inaction on climate change, spurred by Swedish climate activist Greta Thunberg.

In tandem with tactics like climate change litigation and pushing for aggressive climate action through frameworks like the Green New Deal, divestment activists are trying to alter the business case for fossil fuels. Campaigners have already radically changed the conversation on climate change among public officials, particularly among 2020 candidates for president. The question is whether this campaign will result in any meaningful policy changes and accelerate the drive to decarbonize the economy.

This story originally appeared in Vox. It’s
republished here as part of Corporate Knights’
partnership with Covering Climate Now, a global
collaboration of more than 300 news outlets to
strengthen coverage of the climate story.

The post University of California drops fossil fuels from its $80 billion portfolio appeared first on Corporate Knights.

Environmental advocates have had good reason to scorn Exxon at least as far back as 1989, when the Exxon Valdez spilled roughly 11 million gallons of oil into Alaska’s Prince William Sound. More recently, a 2015 investigative report from Inside Climate News revealed that Exxon scientists knew about the climate impacts of fossil fuel use back in the 1980s and undertook a massive lobbying and advertising campaign to sow seeds of doubt and uncertainty around the science of climate change.

Exxon is facing numerous lawsuits from cities and states across the U.S. who want the company to pay up for climate adaptation measures.  The lawsuit that I’m tracking most closely comes from the state of New York State’s Attorney General, which argues that Exxon misled investors by failing to accurately disclose and incorporate climate change risks into its business decisions. At Exxon’s annual general meeting coming up at the end of the month, New York State’s Comptroller and the Church of England will be voting against the company’s board in what has become, as Forbes put it, “a referendum on Exxon’s paltry engagement with investors on climate risk.”

Exxon was also hit with another climate risk-related investor suit this month (the third so far). It’s impossible to guess the liabilities from these lawsuits, but any ruling against Exxon will have a negative impact on its share price (which have tumbled ever since the price of oil collapsed in 2014).

Curiously, Exxon’s latest strategy has involved pledging to donate US$1 million towards a Republican-backed pro-carbon tax plan. Forgive me if I’m not impressed. Thinkprogress.org reported that the plan would end other regulations on carbon emissions and protect oil companies from further lawsuits. have declared they’ll vote against the board.

I will give Exxon credit for one tiny glimmer of green. It recently announced a $100 million joint partnership with the U.S. Department of Energy to fund research and development into breakthrough technologies to improve efficiencies and reduce carbon emissions. However, the cynic in me knows that $100 million is a drop in the bucket for a company that made over US$285 billion in 2018, and that this strategy falsely presumes that we don’t already have all the technology we need to transition away from fossil fuels.

Knowing that many investors want to ditch their shares in Exxon, Corporate Knights’ research team and I started looking for the most sustainable fossil fuel company on the stock market. We found Neste (NTOIY), a Finnish oil refiner that is now redefining what an energy company looks like. Although it still earns most of its revenues from oil refining and gas stations, biofuels like renewable diesel are now the fastest growing part of its business, comprising half its total profits. Its biofuels are made from a combination of waste sources (animal fat and used cooking oil) and plant sources (rapeseed oil and palm oil).

Because of concerns around natural forests being cleared to make room for palm oil plantations, Neste has been working to decrease the percentage of palm oil in its formula and claims to be using 100% certified and traceable sources (it even discloses the exact coordinates of all of its supplier mills). Still, environmentalists have raised concerns about state-owned Neste buying from an Indonesian supplier that has been repeatedly caught using illegal rainforest harvests. Neste has said it considers the sustainability of its supplier to have been “sufficiently restored,” but full transparency: palm oil does remain a liability for Nestle.

I really like renewable diesel as a transitional renewable energy source since it can fuel any regular diesel engine. It’s a much easier sell since companies don’t have to spend money to upgrade vehicles. Renewable diesel also fits in nicely with European Union fuel standards that require reductions in CO2 emissions and air pollution, which should give Neste a leg up. Though Neste will have to keep an eye on the fact that E.U. is planning on phasing out palm-oil derived biodiesel from transport fuel by 2030.

On the bright side, Neste is investing heavily in the growth of its renewable division, announcing a $1.8 billion biofuels production plant in Singapore. I’m also excited that they’ve started producing renewable jet fuel that will drastically reduce emissions in the aviation sector. It’s no surprise to me that Neste was named #3 on the 2019 Corporate Knights Global 100 Most Sustainable Corporations in the World list.

I’m not the only person who’s excited – investors have sent the share price soaring over the last five years. Some will argue that Neste is currently overvalued, and they’re not wrong. However, there’s still lots of room for the company to grow as the world shifts away from fossil fuels towards renewable sources.

If you’re looking to divest your portfolio from fossil fuels entirely, Neste may not be the company for you. But by showing the world how an oil and gas company can successfully transition into a renewable energy powerhouse, Neste wins this week’s Sustainable Stock Showdown.

Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.

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