On April 22, Earth Day, Cornerstone hosted a webinar titled “Every Day Must Be Earth Day: Climate, Coronavirus and Complexity. CEO Erika Karp was joined by Karl Burkart, Managing Director of One Earth, a project of Rockefeller Philanthropy, and former Director of Science & Technology at the Leonardo DiCaprio Foundation. One Earth is dedicated to advancing cutting-edge science to address the climate crisis. The organization funded a breakthrough climate model (published as Achieving the Paris Climate Agreement Goals by Springer Nature) which shows how the world can achieve the ambitious 1.5°C goal through currently available technologies at a lower cost than our current energy system.
In a wide-ranging discussion, Erika and Karl tackled these questions:
- Is the COVID-19 pandemic related to climate change?
- Will the pandemic-related drop in carbon emissions lead to lasting changes?
- Will the oil market collapse slow the pace of transition to alternative energies?
- What is the impact of the current crisis on social and economic justice?
- What can people do to move the needle on climate justice?
In preparation for our call, Karl provided a written assessment of the questions we used to shape our discussion. Below are his responses.
Is the COVID-19 pandemic related to climate change?
There is a large and growing body of scientific literature linking climate change to the spread of vector-borne disease. Studies have focused mostly on insect carriers such as mosquitos (malaria) and ticks (Lyme). There is a general consensus that increased warming will drive increased vector-borne diseases, but no one knows exactly where and by how much.
It’s also possible that vertebrate animals are being exposed to more vector-borne diseases, making them carriers of novel diseases to humans. These ‘zoonotic’ diseases — pathogens that jump between species — include the COVID-19 outbreak, but it’s very hard to make a direct link to climate change. What we do know is that deforestation and encroachment of human activity on wildlands is creating greater risks for both humans and animals, as edge effects increase. We need to retain our current footprint of wildlands (approximately 50% of the terrestrial surface) in order to save biodiversity, preserve priceless carbon sinks, and reduce the risk of future zoonotic diseases.
Climate change will certainly increase risks to public health, and we’re only just starting to learn about the ways this could happen. An emerging body of science is looking at “zombie pathogens” that have been frozen, sometimes for centuries, but are thawing due to climate change. One anecdotal example of this, an outbreak of anthrax in Siberia in 2016, was caused by increased temperatures thawing permafrost and an anthrax-infected reindeer carcass from 1941. Whether this will happen at larger scale is a very controversial topic and the science is new, but it’s clear there are strong linkages.
Will the pandemic-related drop in carbon emissions lead to lasting changes?
It’s hard to talk about the silver lining to such a horrible pandemic, but it is true that emissions will likely drop 5-10% or more as a result of COVID-19. This is essentially exactly what was needed to get us on track to 1.5°C — a net reduction of 56% of global emissions by 2030 (or roughly 6.5% per year).
I myself had a pretty bad carbon footprint due to my travel and speaking engagements, and I’m seeing many of these venues events now going online, including Climate Week, which is normally held in New York concurrent with the UN General Assembly in September. The irony of Climate Week is that you have the whole world gathered in one place talking about solving the climate crisis while emitting enormous amounts of CO2. We’re now being forced to learn how to do many things virtually, with a much-reduced carbon footprint.
This could be a tipping point when virtual working becomes the standard, rather than the exception. A study in 2018 showed that 70% of people were able to work remotely on occasion. What if that were reversed – with physical officing being the exception rather than the rule? The permanent reduction of carbon emissions implicit in such a transformation of our work lives would be a game-changer. But I think many are rightfully skeptical that this will turn into permanent behavior change. And behavior change is only a piece of the climate change puzzle…
There’s only so much we can do as individuals to help. We need permanent policy shifts. We need to stop subsidizing fossil fuels (at a whopping $4.7 trillion per year according to the IMF) and start subsidizing clean, renewable energy. To make that shift happen, we will need a different kind of behavior change… VOTING. People need to start voting for candidates in much larger numbers at all levels of government of they care about clean air, clean water, and a balanced climate. Perhaps if we get nationwide mail-in voting, this could be the beginning of more civic engagement, which will drive the policy changes needed to solve the climate crisis.
Will the oil market collapse slow the pace of transition to alternative energies?
This is an excellent question and a very complicated subject. In my opinion, COVID-19 is “sinking all boats” — fossil fuel energy and renewable energy. I was in Riyadh for G20 meetings in late February, and prior to COVID-19 breaking out there was already a brewing conflict with OPEC+ nations balancing whether or not to cut production to stimulate falling prices. The fact of the matter is, the oil industry was already heading for a rough year. We supported research by Carbon Tracker, a think tank in the UK that has been analyzing data from many of the Oil & Gas majors, and they predicted a major decline in the sector in the early 2020s, as more and more people switch to electric and hydrogen modes of transport.
Then COVID-19 hit. The oil markets are now in a freefall, with negative trades for the first time in history. This will put a lot of oil and gas companies out of business, including the oil services industry (companies that manage, build, and maintain the production pipeline). Massive layoffs are happening right now, and when the economy comes back to life, hopefully in a year or two, it will be a huge and difficult ramp-up for the fossil fuel industry. There will be many, many losers and only a few winners. And some of the losers need to lose, like the tar sands in Alberta, which produce 25% more supply chain emissions per barrel of oil than the global average. Then there is increased demand for electric vehicles. Just last month, Tesla had record sales in China.
I’m almost brave enough to predict that COVID-19 will be the beginning of the end of the fossil fuel era as we’ve come to know it. We will have to rebuild our economy, and I think clean economy will win out, with solar and wind power now heading to 4 cents per kilowatt hour (c/kWh) on average and one solar hybrid project last summer bidding below 2c/kWh. Renewables also make the most sense as a stimulus for economic recovery, creating jobs at a ratio of 3 to 1 per dollar invested versus fossil fuels. This is not to say the renewable energy industry isn’t also being pummeled. This was set to be the biggest year in history for solar deployment, and now there are massive layoffs. We’ll just have to see how bad it will be on both sides and hope for a realignment of subsidies to promote a clean future.
What is the impact of the current crisis on social and economic justice?
First let’s consider health. Before COVID-19 hit, there were an estimated 4.2 million deaths per year due to ambient air pollution, according to the World Health Organization. Low-income communities constitute by far the majority of those deaths. And this isn’t the case just in the developing world. A recent study in California shows that black and brown people are exposed to 40% more emissions than white people. This is often due to the location of low-income communities in proximity to fossil fuel plants — land that wealthier (and historically whiter) people didn’t want to build on.
So we need to acknowledge that low-income communities were already struggling with lung disease and other diseases at a higher rate. Now, according to a new study, those same communities are experiencing many more COVID-related deaths than the national average. In Michigan and Illinois, for example, black people make up 41% of Covid-19 deaths, despite being less than 15% of the population. And in Louisiana, nearly 60% of the people who died of coronavirus in the state are black, while the demographic is just a third of the state’s population. Top all that off with the lack of socialized healthcare in the US, and you have a recipe for disaster.
There’s blame to share in many directions, but first let’s point a finger at the fossil fuel industry, and the lack of regulations to protect communities from pollution. Second, let’s look at our healthcare system in the US. Many European countries last month called citizens home who were on visas in the US because they deemed our country as lacking sufficient medical infrastructure. Post-COVID, these two problems have to be addressed to even begin a conversation about social justice. In the global context, I shudder to think about the impacts of so many people losing their jobs and livelihoods. But one thing that does appear to be emerging is a growing movement to tackle climate injustice head-on. I think COVID-19 is going to add fuel to that fire as these great inequalities in our economic system are revealed.
What can people do to move the needle on climate justice?
It shouldn’t take a global pandemic for us to see clear blue skies and breathe in clean fresh air. We deserve better. If anything good can be said of COVID-19, it is this momentary glimpse of what the sky should look like and some space to think about the future we want to create.
So what is the future we want to live in post-COVID? I think that’s the question we all need to be asking. Are we going to let the fossil fuel industry come roaring back to life? Or are we going to finally start to build the clean energy future we all need? We could have an opportunity to start righting the wrongs, provide low-income communities with access to clean energy while providing job training and income opportunities for a clean energy future. This is what a Green New Deal should focus on – pivoting subsidies away from the ailing fossil fuel sector and towards investments in renewable energy, along with a major jobs program to transition coal, oil and gas workers to good, long-term jobs in solar, wind, and energy efficiency.
Internationally, we know developing countries are going to be hard hit by the pandemic and one initiative, Sunfunder, is working to bring energy access to rural areas of Africa where it’s needed most. There is a risk of default for many community solar projects across Africa due to the pandemic, which would be a horrible loss to the people there, derailing more than a decade of progress to bring clean, affordable energy in the region. So these are the types of efforts that need to be supported now more than ever.
One thing we do at One Earth is to identify key initiatives that are strategically important in creating a green future and achieving the 1.5°C goal of the Paris Climate Agreement. If you’re interested, please feel free to visit our website OneEarth.org and sign up for a monthly briefing of projects around the globe that are working towards a green, and sustainable future.
Editor’s Note: From an investment perspective, there are numerous ways to deploy capital in support of climate justice. Cornerstone Capital Group works with to clients to identify their financial goals and impact interests, and recommends appropriate investment solutions. Our recommendations reflect rigorous research into investment opportunities to understand their risk and return profile, their environmental, social and governance characteristics, and the degree to which an investment facilitates access to the products, services and systems needed to achieve the United Nations Sustainable Development Goals. If you would like to explore how Cornerstone may be able to serve you, click here.
The International Renewable Energy Agency (IRENA) published a report earlier this year highlighting the potential for renewable energy to alleviate some of the world’s most pressing social and environmental challenges. Their work aligns with Cornerstone’s thinking about the intersectional nature of these issues, as expressed by our Access Impact FrameworkTM. Below is an excerpt from IRENA’s report, republished with permission and lightly edited for length.
The ongoing energy transformation, driven by renewables, is bringing far-reaching, systemic change to our societies. This offers important opportunities for greater inclusion and equality.
Accelerating the deployment of renewables can alleviate poverty, create jobs, improve welfare and strengthen gender equality. Still, to fully realise this potential, the renewables industry has to tap a wider pool of talent – notably that of women, who have been largely underrepresented, depriving the energy transition of critical capacities.
Renewable Energy: A Gender Perspective provides new insights on women’s role in renewable energy employment and decision-making globally. This key report aims to help fill the knowledge gap in this field. Based on a ground-breaking, first-of-its-kind online survey combined with in-depth research, the study highlights the importance of women’s contributions in the energy transformation, the barriers and challenges they face, and measures that governments and companies can take to address these.
Adopting a gender perspective to renewable energy development is critically important to ensure that women’s contributions – their skills and views – represent an integral part of the growing industry. Increased women’s engagement expands the talent pool for the renewables sector. In the context of energy access, engaging women as active agents in deploying off-grid renewable energy solutions is known to improve sustainability and gender outcomes.
In recognition of these opportunities, the 2030 Agenda for Sustainable Development adopted in 2015 introduced a dedicated goal on gender equality (SDG 5), noting that the “systematic mainstreaming of a gender perspective in the implementation of the Agenda is crucial”.
Women in Renewable Energy: Access Context
Energy access and gender are deeply entwined components of the global development agenda. The transformative effect on women of gaining access to affordable, reliable and sustainable modern energy is well-known. Energy access frees up time for women who otherwise may spend an average of 100 hours a year collecting fuel wood and gives them more flexibility in sequencing tasks, since lighting allows them to do more at night. It also improves access to public services and opens new opportunities for part-time work and income-generating activities.
The distributed nature of off-grid renewable energy solutions offers tremendous opportunities for women’s engagement along multiple segments of the value chain. Many of the skills needed to take advantage of those opportunities can be developed locally and women are ideally placed to lead and support the delivery of energy solutions, especially in view of their role as primary energy users and their social networks.
Organisations have found it difficult to ignore the value of involving women in the renewable energy supply chain. SELCO India, for instance, trained female solar technicians in the early 2000s simply (at least initially) as a means to accomplish its business goals: technicians were needed to enter the homes of customers to repair solar lanterns and cookstoves. As women become engaged in delivering energy solutions, they take on more active roles in their communities and consequently facilitate a gradual shift in the social and cultural norms that previously acted as barriers to their agency.
Barriers to engagement
Over two-thirds of survey respondents noted that women face barriers to participation in the renewables-based energy access sector. Cultural and social norms were cited by respondents as the most common barrier, followed by lack of gender-sensitive policies and training opportunities and inequality in ownership of assets. Security and the remoteness of field locations were also mentioned as other barriers to participation.
Policies and solutions
Training is often an integral part of energy access programmes, but greater efforts are needed to make them more accessible to women. Training sessions must be tailored and scheduled around women’s childcare responsibilities and be sensitive to mobility constraints, security concerns and social restrictions that may prohibit women from participating.
Dedicated financing schemes are particularly important if women are to play an active role in the off-grid renewables value chain (e.g., as technology distributors) and tap into the entire spectrum of opportunities created by modern energy access (e.g., investments in productive appliances). The Self-Employed Women’s Association in India, for instance, connects women to financing options through the Thrift and Credit Cooperative, providing affordable payment options so that women can invest in livelihood options, family education and household safety. SEWA also provides a special energy loan product and has set up a company that employs women to market, sell, install and service solar home lighting solutions that benefit over 20 000 people.
Opportunities and gaps will become evident if gender is mainstreamed at the level of energy access policies, programmes and projects. In 2013, the Economic Community of West African States established a programme to mainstream gender in the formulation of energy access policy and in the design and implementation of energy projects and programmes. A dedicated policy for mainstreaming gender in energy access, endorsed in 2015, aims to ensure that women are part of the solution and leverage their role as energy users, community members, business owners and policy makers.
Gender audits, as tools, can ensure due consideration of the known gender differences in household decision-making, preferences and priorities. These have been used in Botswana, India and Senegal, among other countries, to support the integration of gender into energy access projects. The socio-economic dividends of gender mainstreaming are immense; several examples covered in the report suggest improvements in women’s self-perception and empowerment within the community. In Indonesia, for instance, over 500 “wonder women” have been trained as social entrepreneurs, selling clean energy technologies that have reached over 250 000 people. It is estimated that around 20% of women became more empowered within their families – taking on a greater role in household decision making – and almost half of them perceived an improvement in their status.
Advancing equality and diversity in the energy sector is a compelling proposition rather than a zero-sum game. Establishing gender as a pillar of energy strategies at the national and global levels will produce a swifter and more-inclusive transition to renewable energy while accelerating the attainment of multiple Sustainable Development Goals.
 For the purposes of this report, gender refers to men and women.
SDG 7 aims to ensure universal access to affordable, reliable and modern energy services, with an emphasis on renewable energy. 1 Central to this goal is expanding the infrastructure and enhancing the technology for supplying energy in developing countries. Affordable and clean energy are crucial to the achievement of almost all of the Sustainable Development Goals. While progress towards SDG 7 has been made in recent years, it falls short of what will be needed to meet the targets for 2030. SDG 7 is further refined by targets that can be more readily translated into actions. These targets highlight the interconnected nature of the goals: For example, strategies to achieve the goal of Affordable and Clean Energy are intertwined with strategies that support SDG 3 (Good Health and Well-Being) and SDG 10 (Reduced Inequalities). Below are a series of synergies that can come from providing access to products, services and systems that address Affordable & Clean Energy.
Access to Safe, Affordable and Sustainable Transportation
According to the World Bank, transportation accounts for 23% of global energy related greenhouse gas emissions.2 High-carbon transport generates health, environmental, and economic losses associated with pollution as 70% of fuel energy is lost in engine and driveline inefficiencies.3 By 2030, there will be more than 1 billion additional people on earth, and aspirations for mobility will continue to rise. 4 Passenger traffic is expected to increase by about 50% while freight volume is expected to grow by more than 70% during that timeframe.5,6 If these increases rely on use of fossil fuels, the negative impacts on health, the environment and economies will be exacerbated. 7 Further, millions of people globally live in rural areas where there they often lack access to affordable (or any) transportation services,8 and in 2018 roughly 55.3% of the world’s population lived in urban areas. An additional two billion people are expected to move to cities by 2045, which will strain public transportation systems. Meeting the growing need for mobility in both rural and urban areas has the potential to improve people’s quality of life, as well as to reduce pollution via energy-efficient, affordable transportation. Urban mass transit systems and services need to be upgraded while rural transportation systems should be developed or improved.9, 10, 11, 12 Making transportation efficient, affordable and green will be essential in the fight to combat climate change. 13
Access to Adequate Housing and Living Conditions
Residential buildings account for 24% of energy consumption and 18% of CO2 emissions globally. Housing systems that are energy efficient and that use affordable, clean energy save costs and reduce air pollution.14 Current projections place the global housing deficit, especially for quality housing, at over 2 billion people by 2030. If new housing stock fails to be sustainable and energy efficient, cities and countries will be confronted with ever more dangerous energy consumption patterns. Well-designed and environmentally conscious housing development presents an opportunity to mitigate climate change. Planning of residential areas and thoughtful urban renewal, particularly focused on upgrading housing in heavily populated urban areas with substandard housing and informal settlements, can help reduce the carbon footprint of cities and the greenhouse gas emissions of the building sector.15
Access to Affordable, Sustainable and Modern Energy
Access to modern energy is fundamental for development and poverty reduction, yet many people, particularly in developing countries, struggle to obtain affordable, reliable, sustainable and modern energy resources to meet their increasing energy demand. Individuals who live in poverty and, consequently, poor housing disproportionately lack access to affordable clean energy services and clean cooking fuels.16, 17, 18, 19 Affordable and clean energy services are a crucial input to supporting the provision of basic needs such as food, lighting, use of appliances and water.20 Energy access policies and new technologies are steadily leading to progress, as the number of people without access to electricity fell below 1 billion in 2017.21 Despite these success stories, progress on providing electricity access remains uneven. The outlook for electrification shows that the world is not yet on track to achieve universal access by 2030.22 In 2016, 3 billion people, or over 40% of the world’s population, were still cooking with polluting fuels (e.g., coal or wood) and stoves, leading to high levels of household air pollution. The health and well-being of this population is adversely affected by the lack of clean cooking fuels. This is especially true for women and children, who are typically the main users of household energy. The solution is in transitioning to cleaner fuels and technologies, and improvements in stove efficiency.23, 24
SDG 7: References
Can investors be confident that International Oil Companies (IOCs) are sustainable for the long term? Technological, policy and market trends intended to mitigate climate change threaten permanent displacement of oil demand. The long-term investments of oil companies may prove to be liabilities if future demand falls short of expectations. The potential implications for investors are significant, but uncertain since the likelihood and impact of these trends are difficult to forecast.
In uncertain circumstances, business strategies and practices that historically have served shareholders well may become a hindrance to adapting to new operating environments. The primary risk for oil companies is an inability to adapt to scenarios that fall outside of historical norms.
Given the difficulty of making accurate forecasts in an uncertain environment, the most useful current signal of how well a company is positioned for the long term is its corporate governance. While there is no doubt that oil companies are preparing for the future, the question for shareholders is whether the companies are envisioning a future that looks much like the present or preparing to adapt to societal change that could result in an entirely new operating environment.
As we discussed in our June 2017 piece, “Making Their Voices Heard: Shareholders Vote for Greater Transparency on Climate Change,” a majority of shareholders at two IOCs and more than 40% at a few others supported proposals asking companies to disclose an analysis of the impact on their businesses of a global shift to a “low carbon” economy – one in which greenhouse gas emissions are sharply curtailed in order to limit global warming to 2 degrees Celsius. Some companies, such as Shell, Statoil and Total, have done so. Within the past few days, Exxon Mobil has promised to produce a report as well.
While these analyses are important, we believe oil company shareholders should be primarily concerned with whether the company has adopted practices for governance, disclosure and engagement that indicate flexibility and resilience in the face of secular decline for its primary product.
We explore six key questions to guide investors as they engage with oil companies and review upcoming climate risk reports:
- Does the company’s reporting include a scenario that envisions disruption to its own production?
- How transparent is the company regarding resilience of its resource base to secular price changes, both in aggregate and by asset type?
- Does the company’s strategy provide a realistic path to meeting investor expectations in a low carbon scenario?
- Is the company’s board composition and process sufficient to execute its strategy in the case of disruption?
- Would executive compensation plans align shareholders and managers in a disruption scenario?
- What effect does the low carbon strategy have on the company’s stakeholder relationships?
Download the full report here.
John K.S. Wilson is the Head of Corporate Governance, Engagement & Research at Cornerstone Capital Group. He leads a multidisciplinary team that publishes investment research integrating Environmental, Social and Governance (ESG) issues into thematic equity research and manager due diligence. He also writes and presents widely about the relevance of corporate governance and sustainability to investment performance for academic, foundations, corporate and investor audiences. John has nearly two decades of experience in sustainable investing and corporate governance.
Editor’s Note: The post was originally published on BSR’s website on November 7, and is republished with permission. See original post here. We continue to track issues of transparency and governance in the extractives sector following our flagship report Extractive Company Values in late 2016.
The U.S. government’s decision to withdraw from the Extractives Industry Transparency Initiative (EITI) landed with the thud of inevitability in early November. The stated explanation for the decision—which affirms a commitment to EITI principles and focuses on unique aspects of the U.S. tax system—has little credibility, given the current state of play in the anti-corruption field.
While the U.S. policy environment may be shifting, extractives companies would nevertheless be well advised to continue to pursue holistic, innovative approaches to stakeholder engagement, strategy, and values in order to restore and maintain the public trust, which is increasingly essential to protecting their reputations and licenses to operate.
The EITI was created in 2002 as a joint effort by government, business, and civil society to help citizens of resource-rich countries hold their governments accountable. EITI aims to provide the public with knowledge of exactly how much money oil, gas, and mining companies pay to governments in taxes, royalties, and other fees.
Its essential goal, however, is the protection and support of fundamental human and civic rights. The premise? With access to this information, citizens can try to ensure that these vital financial resources are used for public health, education, and infrastructure, rather than to enrich powerful figures linked to national governance.
Corruption used to be viewed as a problem afflicting developing countries, but this is no longer the case. The release of the Paradise Papers by the International Consortium of Investigative Journalists has picked up and amplified Lux Leaks, the Panama Papers, and other whistleblowing efforts. Just as money launderers can easily buy property in New York and San Francisco, offshore tax havens are used by politicians, the children of dictators, and some of our most prestigious multinationals.
Transparency activists immediately slammed the U.S. decision on EITI, emphasizing that traditionally recalcitrant Russian and Chinese energy companies now adhere to higher disclosure standards than the U.S. demands of American enterprises. America has already stepped away from its goal of being a role model on human rights, climate justice, transparency, and international cooperation under the current administration. The turn away from EITI is more of the same.
Of greater interest than Washington’s isolationist agenda is what energy and extractives companies might gain from the U.S. decision to stall on transparency regulations. The short answer is: not much. But responses to the EITI debate provide fresh evidence of a widening split over how oil and gas majors regard the sector’s long-term future, as well as their relationship with investors and the public.
Those companies that have made corporate commitments to meet the EITI’s standards of payment transparency include BP, Repsol, Shell, and Statoil. It is no coincidence that these are the very companies that have also chosen openly to embrace the Paris climate agreement while touting their investments in gas and renewables. Exxon Mobil, too, publicly supported the Paris Agreement in the wake of Donald Trump’s election.
The big strategic distinction in the oil industry is no longer over whether to acknowledge and plan for the existential challenges facing the sector; it is about how transparent companies ought to be while the energy transition proceeds. To this end, two strategies have emerged.
The first has been to acknowledge the science of climate change and the problematic history of the sector’s relationship with the government, and then to model best practice on disclosure to regain trust. Some companies, mainly based in Europe, are making headway in this direction—with the understanding that, when it comes to transparency, the horse long ago bolted from the stable. Because companies today must act as if everything they say or do might become public, disclosure has become the optimal approach to issues like payments to governments and political candidates, plans for stranded assets, or strategies to meet a low-carbon future.
The second option has been to invest in the carbon transition and support transparency aspirations publicly while privately obstructing and stalling specific regulations and disclosure efforts for as long as possible. This approach may seem foolish to observers, but it buys some time for big investors and incumbents of the C-suite, who seem to think they might squeak through to retirement before the deluge strikes.
Oil and gas companies are perfectly aware of the deep deficit of trust. Some corporations seem to have concluded that efforts to move beyond a defensive public relations stance are destined to fail; indeed, the reputational benefits accruing from a more progressive approach have been mixed. So, with much of the debate polarized and entrenched and no clear path to public approval, some companies are retreating to the practices of habit as they wait to be dragged into the present after all other options have been exhausted.
With traditional approaches to managing corporate reputation no longer fit for purpose, companies need to devise strategies that extend far beyond reactive communication and public relations. Those corporations that hope to be considered innovative will need to embrace a holistic approach to stakeholder engagement, strategy, and values that prioritizes the importance of restoring trust, regardless of whether public policy requires them to do so.
Alison Taylor is Director, Sustainability Management, at BSR, a global nonprofit business network and consultancy dedicated to sustainability. Alison leads BSR’s sustainability management practice and also works closely with energy and extractives member companies. She focuses on approaches to sustainability through risk management, strategy, stakeholder engagement, transparency, ethics and governance, and organizational change.
Bloomberg New Energy Finance (BNEF) just held its annual Future of Energy Conference in New York. The theme of the conference was “The Age of Plenty, the Age of Competition,” a reference to the growth in energy options through fracking, solar, wind and storage and the relentless competition reducing costs and driving innovation. Below we summarize the main messages from the conference.
In our view, a major takeaway was the exponential growth in renewable energy deployment. However, due to the expenditure required to continue pushing down the cost, it remains unclear how investors can benefit aside from direct investment in projects.
While utilities are waking up to a “customer first” focus, we believe their capacity to deal with changes is limited, particularly with a slow-moving regulatory environment. There is an understandable fear that Silicon Valley is turning its attention to the power markets; one need only look at Uber and the taxi industry to consider the impacts of technology-driven disruption on incumbents. To this end, we observe the rapid growth in the number of companies developing software to manage sections of the grid from the generation to the household.
Utilities see the role of renewable energy as a part of the electricity generation mix, to be integrated by extending the grid through additional transmission infrastructure. Conversely, battery storage providers see the possibility of using renewables to downsize the grid and avoid transmission capex. The jury is still out on the winner, but the recent history of solar and wind provides evidence that storage could be substantially cheaper and more widely adopted than many industry observers currently forecast.
Batteries represent a new era for electricity, enabling warehousing and driving new applications that we have only begun to explore. In discussing the positon of storage in the system, “behind the meter” – at the customer location — seems superior as it generates all of the benefits of in-front-of-meter with the added advantage of reduced consumption and exposure to peak prices. Corporates appear to be major drivers in the uptake of storage.
Turning our attention to the transportation industry, electric vehicles are being viewed as a way to engage consumers in an energy discussion and increasingly as a “device that you drive.” One emerging idea for EV charging payments is block chain. This could enable seamless payment for EV charging anywhere on the grid. EVs may also be a boon for utilities as a new source of electricity demand with consumption potentially adding 11% to demand over the next decade.
In the traditional energy space, the nuclear discussion in the US remains focused on regulatory barriers, but new technology is coming. Small modular reactors, such as NuScale Power’s SMR, could be in operation by 2024-2025, and Transatomic has updated an older technology, the molten salt reactor, enabling it to use nuclear waste as fuel. Oil & gas companies are concerned about short term prices but the technology breakthrough in fracking has been breathtaking, enabling cost reductions and lower breakeven prices, notwithstanding the low price environment.
The investor panel discussed the selloff in Yieldcos. Panel members reiterated their confidence in the YieldCo model, though pointed to the need for improved governance. (For more on this topic see our report Are YieldCos Looking After Their Investors?) In discussing growing demand for green bonds, an investor said that price premiums relative to similar corporates will signal a new level of confidence in green bonds. Finally, asset owners are increasingly demanding that environmental, social and governance factors be considered in their investments, and divestment considerations are now becoming part of the discussion for ‘mainstream’ asset managers.
Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.
Sebastian Vanderzeil is a Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.