Is the IEA report a tipping point for oil investment?

The eventual death of thermal oil and coal will not come from environmentalists or even directly from renewables – it will come when the big banks decide to stop funding them, making them “unbankable.”

Two years ago, one of the biggest funders of fossil fuels, Goldman Sachs (NYSE: GS), made history after becoming the first major U.S. bank to exclude funding new oil exploration or drilling in the Arctic, as well as new thermal coal mines all over the world.

GS ‘ environmental policy has declared climate change as one of the “most important environmental challenges of the 21st century” and is committed to helping clients manage climate impacts more effectively, including through the sale of weather catastrophe bonds. The giant Wall Street bank has also pledged to invest $ 750 billion over the next decade in areas focused on climate transition.

Months later, the world’s largest asset manager, BlackRock Inc. (NYSE: BLK), has declared its intention to increase its ESG (Environmental, Social and Governance) investments more than tenfold from $ 90 billion to a trillion dollars in the space of a decade.

BlackRock followed up on this last year, releasing a chilling update on its approach to engaging with business, essentially saying it will abandon its traditional operating mode to side with the boards of directors of companies, but will instead start to favor shareholders’ resolutions.

But just in case investors think these companies are playing their usual renewable energy rhetoric, there is now strong evidence that they are really serious.

For the first time ever, the world’s largest investment banks are supporting investments in renewables more than their counterparts in fossil fuels.

According to Bloomberg data covering nearly 140 financial services institutions around the world, at least $ 203 billion in bonds and loans have been invested in renewable energy projects through May 14, up from $ 189 billion for companies focused on hydrocarbons.

This is the first time in the history of modern fossil fuels that such a change has occurred.

A powerful tipping point

How important is this development?

Consider that in 2019, banks invested $ 737B in fossil fuels but only $ 238B in clean energy. The trend remained unchanged in 2020 at the height of the pandemic, with banks pumping $ 688 billion into fossil fuels but only $ 323 billion into renewables.

Since 2015, when the world agreed to limit warming in the Paris Climate Agreement, banks have invested more than $ 3.6 trillion in investments in fossil fuels, nearly 3 times more than the total of bonds and loans that have been invested in green projects according to Bloomberg data.

In total, investment banks have pocketed an estimated $ 16.6 billion through the establishment of bonds and loans for energy companies since the Paris Agreement, compared with just $ 7.4 billion through the issuance of bonds and loans for energy companies. green bonds and loans.

The latest development could very well be a new trend in the making, with some clean energy enthusiasts stating that we have reached “a powerful tipping point” in the clean energy transition.

Exxon slammed

At the start of this year, American oil giant Exxon Mobil Corp. (NYSE: XOM) has been targeted by angry activist investors as well as CalSTRS (California State Teachers’ Retirement System), one of the largest pension funds in the country.

But it didn’t stop there.

New York State’s $ 226 billion pension fund recently announced plans to divest from oil and gas stocks In the years to come.

Exxon has been criticized for its half-hearted commitment to reducing its carbon and greenhouse gas emissions.

Exxon has joined the growing number of U.S. oil and gas producers who have promised to reduce greenhouse gas emissions. Sadly, activists and analysts for the most part blasted Exxon’s announcement as “disappointing, “”inadequate,” and “no baby. “

A 15-20% reduction in greenhouse gas emissions intensity over nine years is not an ambitious goal – it is essentially the status quo “, said Pavel Molchanov, energy analyst at Raymond James. Related: US Shale Finally Gives Shareholders a Salary

What is really missing [Exxon’s] the announcement is that there is nothing on capital spending, strategy or investing. It’s all kind of DIY around the edges,“said Andrew Logan, director of oil and gas at Ceres, a sustainability nonprofit that works with investors on climate change.

Meanwhile, the No. 1 engine, one of the groups of shareholders engaged in a activist campaign to shake up the company, said he agreed, saying: “…while reducing emissions intensity is important, nothing in Exxon Mobil’s stated plans positions it better for long-term success in a world seeking to reduce total greenhouse gas emissions. “

In addition, Ceres announced a consortium of investors managing $ 9 trillion in assets which is fully committed to investing within the framework of net zero carbon objectives.

ESG dynamics

Indeed, it is clear that ESG investments are growing rapidly, with investors actively demanding environmentally and socially responsible choices.

Indeed, over the past five years, ESG (Environmental, social and governance) investing has become the biggest global trend. Even the big banks feel the ethical pressure keenly.

ESG flows have killed it this year, accelerated exponentially by the COVID-19 pandemic, and showing no signs of abating even once we have a vaccine. Life will not return to normal in the financial world, and this is shaping up to be the biggest wealth transfer we’ve ever seen.

Sustainable investment assets now total $ 17.1 trillion. This is 50% more than in 2018.

During this year, 77% of institutional investors will completely stop buying products that are not sustainable in one way or another, according to PwC.

Blackrock himself says his clients double their ESG assets in just five years.

In fact, fund managers say climate change is their No.1 concern and the “dominant criteria“determine where they put their money to work.

And it is not a question of morals or ethics. This is the free market.

By Alex Kimani for Oil Octobers

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