Worries about our impending doom at the hands of an ever-warmer planet have taken a back seat since the world was engulfed by financial tumult in 2009. But the dual challenges of climate change and finite fossil fuels remain a powerful threat to the future economy.
While energy firms have been investing in renewable sources and the popularity of so-called ‘clean tech’ products like electric cars and home-mounted solar panels has increased, politicians understandably feel the private sector needs a bit of hurrying along. At last year’s COP21 Paris climate summit, world leaders agreed a deal to limit global temperature rises to two degrees Celsius.
It’s not like you can just turn the global thermostat up and down so that’s something of an aspirational goal, but it could have big implications for the world’s energy companies. Now the biggest of those by market cap, ExxonMobil, faces calls from investors (including the Church of England) to run a ‘stress test’ as to how it will cope with the new regulations that are likely to arise from it.
Stress tests are best known for their use in the world of banking. The Bank of England, for instance, regularly makes Britain’s banks simulate the effect of a big financial shock, like a collapse in house prices or a slowdown in developing markets on their balance sheets, to see whether they could survive another crisis and continue to support Britain’s economy.
An ExxonMobil stress test would force the company to assess and disclose exactly how it expects its financial performance to be affected by new regulations and the inevitable long-term shift away from oil and gas. European energy firms including Shell and BP have already made similar concessions to shareholders but Americans Exxon and Chevron have so far resisted doing so – perhaps not a surprise given they’re from a country where a leading presidential candidate (Ted Cruz) recently described global warming as a ‘pseudo-scientific theory’.
The divine intervention of the Church of England alone might not be enough to make it spill the beans but the investor resolution is backed by other big names including Axa, BNP Paribas and the New York City Pension Fund.
‘We are delighted with the scale of support this resolution has received so far,’ said Edward Mason, head of responsible investment for the Church Commissioners. ‘The resolution is part of a much wider trend following the Paris Agreement for investors to ask companies to improve disclosure on how they are positioned for the risks and opportunities posed by climate change.’
After seeing what’s happened to banks and energy firms, perhaps investors in other companies will begin to demand similar ‘stress tests’ of other companies in the future. Tesco could be forced to model the impact of another 1% encroachment into its market share by Aldi and Lidl. Or perhaps WPP could be asked to spell out how it would cope if Google or Facebook launched their own well-funded ad agencies? As investors demand more clarity from listed companies in a constantly changing world, you never know.