Divestment: From the Heart or the Head ? Paris Divestment Conference Ian Simm, Founder & Chief Executive 1 September 2015 CLEAR INVESTMENT
The financial crisis exposed weak individual institutions‌..
‌.but also system-wide failure
BP share price before and after Gulf of Mexico spill 110
BP
Global Oil & Gas Producers Index
100
Price (Rebased to 100)
90
80
70
60
50
40
Jan 08
Jul 08
Jan 09
Jul 09
Jan 10
Sources: FactSet, BP share price (GBP) & FTSE All World / Oil & Gas Producers Index
Jul 10
US Listed Coal Producers have underperformed since 2011 180,00
S&P 500 160,00
140,00
120,00
100,00
80,00
60,00
40,00
20,00
0,00 Mrz 11Jun 11Sep 11Dez 11Mrz 12Jun 12Sep 12Dez 12Mrz 13Jun 13Sep 13Dez 13Mrz 14Jun 14Sep 14Dez 14Mrz 15Jun 15
For sources please see page 42.
S&P 500 Energy
Coal
The key investment risk is society’s response, not the weather Source of risk
Timescale of material portfolio impact
Investment response Insurance
2040+
Climate Change
Storm
Society’s response to Climate Change
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Government intervention Changing consumption patterns
Diversification Portfolio management
‘’Hold’’ 2020 2025
‘’Sell’’ ‘’Buy’’
8
Background – illustrative oil market Price ($/tonne)
Supply 1
Demand
Cumulative Market Volume (tonnes) Source : Impax Asset Management * The analysis holds irrespective of how “carbon pricing” is implemented CLEAR INVESTMENT
9
Impact of government intervention - carbon pricing (1) Supply 2
Price ($/tonne)
Supply 1
Carbon price (T)
Demand
Cumulative Market Volume (tonnes) Source : Impax Asset Management * The analysis holds irrespective of how “carbon pricing� is implemented CLEAR INVESTMENT
10
Impact of government intervention - carbon pricing (2) Supply 2
Price ($/tonne)
Carbon price (T)
Retail Price
Wholesale Price
Supply 1
“Stranded Assets”
Demand
Cumulative Market Volume (tonnes) Source : Impax Asset Management * The analysis holds irrespective of how “carbon pricing” is implemented CLEAR INVESTMENT
11
Impact of Carbon Pricing (or equivalent)
• Industry volume
• Wholesale energy prices
• Retail energy prices
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Carbon foot-printing is not the answer Kingspan Plc
CO2 emissions (m tonnes/year) +0.1
-1.7
-1.6 Manufacturing Avoidance in use CLEAR INVESTMENT
Net
13
Energy efficiency markets (EE): Major investment opportunities Smart grid
EE construction materials 2020/19E: US$
2020E: US$
57bn3
245bn2
LED
2018E: US$
26bn4
1BaML,
2014. 2Transparency Market Research, Navigant Research, 2014 3GTM research, 2014. 4Aixtron, 2014
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Forecast European Union net capacity additions (GW) 121 110 79
Carbon Capture and Storage (CCS) Gas
Other renewables
Wind and solar
-27 -52
-50
2016 2016 - -2020 2020 2016-2020
2021 - 2025 2021-2025
Nuclear
2026 - 2030 2026-2030
Source: International Energy Agency statistics (2015)
15
Optimising an equity portfolio for carbon price risk
Model inputs: A Energy Index B Energy Efficiency Stocks
Portfolio Optimisation Model
New Global Equity Index
Global Equity Index minus A and B
16
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Summary • Climate change is a system-wide risk • Today’s main investment risk is not the climate • Winners & losers – risk of unintended consequences • The optimal portfolio will evolve as risk changes
Important information
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