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Time to offload the high-risk, low-return carbon assets



Shareholders are increasingly feeling disgruntled, and rightly, by the risks fossil fuel companies are taking with their money. Gyorgy Dallos of Greenpeace International writes how investors of oil and coal assets face a swiftly deteriorating deal.

In a landscape of increasing operative and regulatory risks and low interest rates, it is time for shareholders to start demanding more. Low bond yields, poor share price performance and lousy dividend payments do not justify the risks.

Bondholders of oil majors, for example, may get only 0.5% higher yields than holders of similar maturity US treasury bonds. Oil companies also retain a vast amount of profit, maintaining a 20-30% dividend payout ratio, compared with other companies such as pharmaceutical giant GlaxoSmithKline’s 82% or UK retailer Sainsbury’s 51%. Coal dividend yields are often even lower than those of the oil giants.

In the past 12 months up until the end of February, Shell shares fell 5%, Total by 9% and BP by 11%, underperforming rising market indices. The S&P 500, for example, rose by 10%.

In the US, Arch Coal shares fell by 62%, Alpha Natural Resources 56% and Peabody by 37%. In Europe coal-heavy utilities like Italy’s Enel or Poland’s PGE suffered substantial share price losses.

And the risks are increasing as the economics of coal deteriorates in the US, India and China.

Shale gas is booming in the US and pushing out coal, while renewable energy is pushing both coal and gas out of the European market, depressing market prices. In China, air pollution has sparked public concern and government action.

Deutsche Bank has estimated that global shipments of thermal coal could be 18% lower than forecasted by 2015 should China, the biggest importer, further toughen measures to curb air pollution.

In the US, the Mercury Air Toxics Standard aimed at reducing emissions of mercury and other pollutants will lead to the shutdown of numerous coal power plants. In Europe, the Industrial Emissions Directive is expected to have similar impacts.

Many oil companies are also pushing into the deepest waters, the tar sands and other highly sensitive environments. Shell has so far invested almost $5 billion to tap offshore Arctic oil in what has only proven to be a fiasco.

These types of projects face huge liabilities if anything goes wrong, such as Chevron’s recent Brazil oil spill. BP’s Deepwater Horizon oil spill have cost shareholders (such as Yorkshire public pension funds) at least $40 billion so far and the total bill might be double.

The near future brings new and bigger risks. Today’s oil and coal assets would likely lose value or be written off if the world adopts stringent emissions reduction targets to limit global warming. HSBC has also calculated that if constraints on carbon emissions were imposed after 2020, they could reduce coal asset valuations by as much as 44%.

Perhaps more significantly, the largest oil and coal companies could become exposed to the issue of carbon liability as disastrous climate events are increasingly being linked by science to carbon emissions. The world’s largest historic greenhouse gas emitters could soon become vulnerable to demands for compensation.

And yet, in a low interest rate environment when pension funds are struggling to balance their books, investors remain overly exposed to these types of assets.

The world’s largest sovereign fund, the Norwegian Government Pension Fund, has Shell, ExxonMobil, BG Group and BP among its top 10 equity holdings, while other pension and insurance funds are often loaded with oil and coal bonds. Anyone buying into the FTSE 100 and other popular indices are exposed to many of the same companies.

And oil companies want to increase that exposure, planning to invest $1.2 trillion in 2013 – half of the UK’s GDP. While a large part of this is expected to be financed from retained profits (limiting dividends to shareholders), a significant share will come through debt and equity issues. Coal companies will also seek hundreds of billions of dollars for projects in Australia’s Galilee Basin or in China.

As shareholders increasingly file sustainability-related resolutions at company AGMs, it’s high time for pension funds and other shareholders to demand higher dividend payouts. More cash back to the shareholders and less investments into the most risky unconventional oil fields seems like a win-win scenario. Increasing oil and coal risks must also be priced into the bonds these companies offer.

Investors must urgently rethink if they really want to maintain such a large, and potentially costly, exposure to these high-risk and low-return oil and coal assets.

Gyorgy Dallos is a senior advisor at Greenpeace International

Further reading:

Claims of oil prosperity fail to note the finite nature of fossil fuels

Campaigners criticise ‘short-sighted’ government energy policy after oil boost

Report urges oil investors to hold companies to account over responsibility

Do ethical funds and fossil fuels mix?

The Guide to Sustainable Investment 2013


How Going Green Can Save A Company Money



going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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5 Easy Things You Can Do to Make Your Home More Sustainable




sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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