Davey: We need to look at rules on transparency of fossil fuel investments

The Financial Times reports:

Britain’s energy secretary has called for tougher rules to be applied to companies holding “risky” fossil fuel assets that could plunge in value because of global action to tackle climate change.
Ed Davey’s move makes him one of the first senior politicians to weigh into a growing debate on the future of oil, gas and coal companies as governments work on sealing a global climate deal in Paris next year.

“We’re seeing a move from a carbon economy to a climate economy,” Mr Davey told reporters on the sidelines of UN talks in Lima shaping the Paris agreement.

If the pact is strong enough to stop global temperatures rising more than 2C from pre-industrial times — a limit governments have already agreed should not be breached — it could require a huge shift away from fossil fuels to alternative sources of energy.

Mr Davey said some analysts estimate this could lead to as much as $28tn in lost revenues for the global fossil fuel industry over the next two decades.

That has prompted calls from some investors for asset managers, insurers, banks and other financial groups to be more open about the size of their fossil fuel investments, a move Mr Davey said he backed.

“I think there is a case for making it mandatory,” he said. “People need to know the risks.”

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10 Comments

  • Eddie Sammon 11th Dec '14 - 11:55am

    I take a hard line against Ed Davey’s idea on the basis he is trying to make his opinion on fossil fuel share prices compulsory.

    He should regulate fossil fuel industries, but he should not be overriding the opinion of finance professionals on share prices.

    The market attempts to factor in all risks and there is no evidence to say analysts are less good at analysing the risks of this industry than others.

  • Interesting to read what has been said — “..on the sidelines of UN talks in Lima..”

    Earlier this week George Monbiot wrote some interesting things on Transparency and taming the power of globalised corporations.  
      
    His article starts —
    Does this sometimes feel like a country under enemy occupation? Do you wonder why the demands of so much of the electorate seldom translate into policy? Why parties of the left seem incapable of offering effective opposition to market fundamentalism, let alone proposing coherent alternatives? Do you wonder why those who want a kind and decent and just world, in which both human beings and other living creatures are protected, so often appear to be opposed by the entire political establishment?

    I recommend this article, there is much in it for Liberals who have a proud record of opposing the concentration of power and wealth in the hands of the few.
    http://www.theguardian.com/commentisfree/2014/dec/08/taming-corporate-power-key-political-issue-alternative

  • There have actually been some very interesting articles in the Finance section of the Grauniad over the last months about just this issue. Eddie – I think you are being more than trusting of the financial sector in your comments. Once it becomes more consensus that we are in an extraordinary bind with climate change, and we have to leave fossil resources in the ground, there will be a crash. Ed Davey seems to have responded to those in finance who believe we should try to get the sector taking it more gradually, so that values (if humanly possible) decline at a manageable rate. Your approach would seem to point to utter disaster. At present, the sector seems to have developed a consensus that world leaders are not too serious about radical action!

    John – the whole series in this week’s issues about pulling out from dominance by corporates is fascinating.

  • Eddie Sammon 11th Dec '14 - 5:37pm

    Tim13, thanks for your comment, but do we honestly believe countries like Russia will sign a radical deal? It would never happen and other countries are much more fearful of internal revolution than climate change.

    I was probably slightly too harsh in my comment, but I was annoyed how this was presented as being about transparency when fund managers are already compelled to be very transparent about where they invest, so this seems to be more about Ed Davey’s and other people’s opinions on stock prices.

    Regards

  • Eddie Sammon 12th Dec '14 - 10:53am

    Yes Simon, my perfectly well explained point is a “special lapse in logic”. All regulated investments are issued with Key Facts Documents detailing where all the money goes, by sector and the top shares too, so it is hard to get more transparent than that.

    What it sounds like to me is introducing special risk warnings like we currently have with funds that invest overseas and with derivatives, but special risk warnings are not about transparency, but opinions. We don’t have special opportunity warnings do we?

    If you want to reform risk warnings then reform risk warnings, but it is annoying to try and paint this as being about “transparency” and suggesting those against it are against “transparency”. It is nothing to do with it and transparency now seems to just be a buzz word that people use when they want to justify new regulations.

  • Eddie Sammon 12th Dec '14 - 9:10pm

    Hi Simon, I just didn’t like the way the headline and the article suggested the fossil fuel and finance industries are some kind of shadowy operations that need to be more transparent.

    Sorry for going too harsh in my original comment.

  • Eddie Sammon 12th Dec '14 - 10:52pm

    Check out the headline in the Independent: “New era of cheap oil ‘will destroy green revolution'”.

    So about Ed Davey’s pending collapse of the fossil fuel industry?

    http://www.independent.co.uk/environment/new-era-of-cheap-oil-will-destroy-green-revolution-9922217.html

  • “transparency now seems to just be a buzz word that people use when they want to justify new regulations”

    If we’re talking about the provision of information to investors considering buying stocks, I suspect Eddie Sammon is right – the information is already there.

    However if we’re talking about the holding of risky investments by banks and insurers I’m not so sure. We need to know if we can trust an insurer not to go bankrupt. In recent times we discovered, did we not, that many financial institutions were taking risks they neither understood nor divulged. That may repeat itself with fossil investments.

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