Power Companies and Wall Street Firms Begin to Assess Climate Risks
Report Outlines Disclosure and Analysis Improvements Needed to Gauge Regulatory Impacts
BOSTON – With input from investors, financial firms and electric power companies, Ceres today released a report outlining actions that power companies and Wall Street firms should be taking to address the financial risks posed by climate change. The report comes as more financial services firms, including Citigroup, JPMorgan and Sanford C. Bernstein, are boosting their research on the financial impact of emerging climate change regulations.
The report highlights best practices in climate risk disclosure by electric power companies and specific steps that investors, analysts and companies should take to improve their analysis of the risks that future climate change regulations pose for power companies. The report is the culmination of a two-year collaboration whose participants included Fitch Ratings, Bank of America and two-dozen other leading investors, financial firms and companies.
The report comes as U.S. power companies are proposing to build more than 150 new coal-fired power plants in the coming years – investments that could be substantially affected when greenhouse gas regulations are adopted regionally and nationally. Seven Northeast states plan to require greenhouse gas reductions from power plants, beginning in 2008.
“Investors recognize that greenhouse gas regulations are imminent and are beginning to analyze the financial impacts for power companies,” said Dan Bakal, electric power program director at Ceres, a leading U.S. coalition of investors and environmental groups working with companies on sustainability issues such as climate change. “This report provides much-needed guidance on the information investors need to determine which companies are – and are not – well positioned as climate regulations take hold.”
“Fitch believes that the electric power industry will be operating in a carbon constrained world,” said Denise Furey, senior director at the Fitch Ratings’ Global Power Group. “That’s why it is important for investors to evaluate the financial costs of climate change on the power industry, and Fitch believes this study and other reports from Ceres are valuable tools in this analytical process.”
“As shareholders who are concerned about building long-term shareholder value, we are especially interested in the financial implications of climate change on the electric power sector given the long life span of their power generating plants,” said New York City Comptroller William C. Thompson, whose office manages $95 billion in assets. “It’s encouraging that a growing number of mainstream financial firms are beginning to analyze these issues.”
The report, Best Practices in Climate Change Risk Analysis for the Electric Power Sector, highlights key findings from an extensive dialogue involving dozens of key power industry players, including such investors as the Connecticut State Treasurer’s Office and the New York City Comptroller’s Office and such companies as American Electric Power and PG&E. Environmental groups also provided valuable input.
The electric power sector accounts for 40 percent of the nation’s greenhouse gas emissions and future emissions are expected to grow 40 to 50 percent due to the recent spate of coal plant proposals. Meanwhile, there is growing consensus among investors and companies that climate regulations are inevitable and that coal-fired power generators will likely have the biggest financial exposure. Coal-fired plants typically emit double the greenhouse gases as power plants operating on natural gas.
Citing these financial risks to institutional investors and the electricity sector, the report calls for standardized disclosure and analysis practices that will allow investors to make accurate assessments of their investments. Specifically, the report calls for:
Emissions analysis comparing electric company emissions of CO2 and other pollutants – in absolute numbers and rates per megawatt hour – to determine which companies face the greatest risks from future regulations.
Governance analysis comparing electric company governance systems, policies and practices on climate change to determine which companies are best positioned to navigate the current uncertain future of climate change regulations.
Financial analysis comparing the financial costs of plausible regulatory scenarios for all electric power providers.
The report comes as a growing number of investors are pushing for better information from power companies on the financial risks from future regulations and strategies to mitigate those risks. Earlier this month, a dozen of the world’s leading investors published a new global framework for corporate climate risk disclosure – reporting guidance that includes many of the same features called for in today’s report. Investors have also filed dozens of shareholder resolutions with electric power companies requesting climate risk reports.
Ceres is a national coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change. Ceres also directs the Investor Network on Climate Risk (INCR), a group of more than 50 institutional investors that collectively manage nearly $4 trillion in assets. For a copy of the report and more information on Ceres, visit http://www.ceres.org