Friday 30th September 2016                 Change text size:

#COP21: Barclays, “Investor momentum around portfolio decarbonization will likely continue to build.”



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Renewable stocks rose up to 10% yesterday, while Peabody Coal fell 13% to all time low following the Paris Agreement. This is part of a larger reaction from investors and financial analysts – including Barclays – who are warning clients about the long–term signal sent to the markets.

According to a Monday morning investor note from Barclays, “Investor momentum around portfolio decarbonization will likely continue to build.”

Barclay’s top takeaways for investors include:

– Accelerated transition to renewables: The Paris Agreement will tighten global climate policy over the years.

– Increased pressure on companies to disclose their carbon risks: The Financial Stability Board’s newly-announced Task Force for Climate-Related Financial Disclosure (TCFD), chaired by Michael Bloomberg, will lead to greater awareness among investors of the carbon intensity of different companies.

– Portfolio measurement, divestment and decarbonization: The increasing focus on climate risks has prompted investment funds to evaluate the carbon-intensity of their portfolios in these three ways. For example, the Portfolio Decarbonization Coalition increased their assets committed to decarbonization from $100bn to $600bn during the COP.

The Barclays note builds upon predictions laid out in their pre-COP equity research.

In the wake of Paris, investment analysts and business leaders are overwhelmingly echoing Barclay’s financial advice:

– Renewable energy stocks have soared in European trading – Norway’s REC Silicon, which makes the key raw material for solar panels, surged 10 percent; Shares in wind turbine makers Vestas Wind, Nordex and Gamesa also rose by between 2-5 percent, outperforming a 0.7 percent rise on the benchmark pan-European FTSEurofirst 300 index. (Reuters)

– Coal stocks have fallen and Peabody Coal lost over 13% on Monday (google finance)

– Euracoal, the coal industry’s European lobbying association has said that the landmark deal to cap global warming at the UN Climate Change Conference (COP21) in Paris means the sector “will be hated and vilified, in the same way that slave traders were once hated and vilified”. Brian Ricketts, Secretary-General of the European Association for Coal and Lignite (Euracoal), wrote to his members, “The climate bandwagon is rolling and gathering speed such that the fossil fuel industry will spend the coming years and decades in the spotlight for all the wrong reasons.”(Euractiv)

– The Economist reported, “Perhaps the most significant effect of the Paris agreement in the next few years will be the signal it sends to investors: the united governments of the world say that the age of fossil fuels has started drawing to a close.”

– IEEFA, reported in Deutsche Welle: The Institute for Energy Economics and Financial Analysis (IEEFA), which researches issues related to energy and the environment, said that in the longer term the Paris agreement could, indeed, change investor habits. “We have long outlined in our analysis that there is significant stranded asset risk in continuing to invest heavily in fossil fuel companies, particularly greenfield development projects,” IEEFA analyst

Tim Buckley told AFP. “Denial of an inevitable global transformation of energy markets has only served to make the end cost for investors and consumers higher.”

Patrick Pouyanne, CEO of French oil giant Total SA told Bloomberg Business, “As a major oil and gas company, we are clearly at stake in these discussions [but] an optimist sees in every difficulty an opportunity. I’m definitely an optimist; I have to be.”

Michael Skelly, president of Clean Line Energy Partners, a Houston-based company that develops long-haul transmission lines for renewable energy, saw the accord as a pivot point for a changing industry. He pointed to the investments that the United States made during the last century in its power grid and hydroelectric power. “Both have provided low-cost electricity in the ensuing decades,” he said. “In 2050, we will look back at the investments prompted by the Paris accords and see exactly the same phenomena.” (New York Times, December 13, 2015)

According to PwC in Business Green, “The immediate implications for business haven’t changed over the weekend and the Agreement is highly unlikely to move markets in the short term. For business, the sharp end of the Agreement is in the national plans or INDCs*. We analysed the major ones in our Low Carbon Economy Index, which signal to business a step change in effort to tackle emissions at the national level.”

Investor began signally the coming change even before negotiators finalized their work:

Ahead of Paris Bank of America Merrill Lynch, in their climate change solutions primer for clients, said “coal has become a stranded asset” while Goldman Sachs noted that the four biggest US coal companies lost 90 percent of market capitalization in 2015. “These companies struggled as coal prices fell and clean energy options became more competitive.”

Sarbjit Nahal, head of thematic investing strategy at Bank of America Merrill Lynch told Bloomberg TV before the Paris Agreement was adopted, “As investors we need to be very cognizant of this whole concept of stranded assets. The fossil fuel reserves that we’re potentially never going to be able to get out of the ground. We can see that with coal, where we’ve had anywhere from $2.6 to $4 trillion under management which has been divested and I think as we as a society try to reach that 2 degree target, the next line of attack is really going to be oil and ultimately even gas.”


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