Investors face “too much risk and not enough reward” from backing fossil fuel extraction companies in their portfolios, a report has warned.
The report Safeguarding Outstanding Natural Value, produced by WWF, Aviva Investors and Investec Asset Management, found a third of global natural World Heritage Sites (WHS), and 61% of those in Africa, were under threat from oil, gas and mining exploration.
It warned investors about the risk of involvement with extractives companies working, or intending to work, in or near WHS. It said investors face the threat of both financial and reputational risk if they back the companies involved, saying there is too much risk for not enough reward.
WHS cover less than 1% of the planet and containing outstanding natural value such as iconic landscapes and species and are home to some of the rarest and most animals on Earth, such as mountain gorillas, African elephants, snow leopards, whales and marine turtles. Examples include the Grand Canyon, the Great Barrier Reef, and the Selous Game Reserve in Tanzania.
WWF is calling on investors to use the report to engage with the extractive sector at industry level to encourage the wider adoption of ‘no go’ and ‘no impact’ commitments for natural WHS, and for companies to proactively disclose active, existing, or intended activity within, or adjacent to, natural WHS.
WWF UK chief executive David Nussbaum (pictured) said: “We are going to the ends of the Earth in pursuit of more resources – resources, including minerals, oil and gas, that are becoming more difficult and more expensive to extract. Some of the world’s most treasured places are threatened by destructive industrial activities that imperil the very values for which they have been granted the highest level of international recognition: outstanding natural value.
“Protecting these iconic places is not only important in terms of their environmental worth; it is crucial for the livelihoods and future of the people who depend on them. Working with industry leaders such as Aviva and Investec will help us to get this message out to the wider finance industry. Investors have a unique opportunity, and indeed responsibility, to be stewards of capital and shape our future.”
Aviva Investors chief executive Euan Munro added: “We place significant store on our portfolio managers taking wider environmental, social and governance issues into account in their investments. Mismanaged, these can lead to catastrophic loss of value for long term investors. This report provides the information we need to make better decisions and encourage others to do the same.”
Investec Asset Management chief executive Hendrik du Toit added: “We support the need for further awareness and clearer disclosure by extractive companies on their exposure to these areas to better inform investment decisions. It will also allow investors, such as ourselves, to engage more effectively with companies and be better placed to address our responsibilities toward our clients who are concerned about this pressing issue.”
Earlier this week the Bank of England (BoE) gave a stark warning that climate change poses a huge risk to global stability.
At a gathering of insurers at Lloyd’s of London on Tuesday, BoE governor Mark Carney highlighted the rapid increase in weather-related catastrophes and the jump in both the physical and financial costs.
Carney said the challenges currently posed by climate change “pale in significance compared with what might come”, adding “so why isn’t more being done to address it?”.
He concluded: “With better information as a foundation, we can build a virtuous circle of better understanding of tomorrow’s risks, better pricing for investors, better decisions by policymakers, and a smoother transition to a lower-carbon economy.
“By managing what gets measured, we can break the Tragedy of the Horizon.”
Nussbaum added: “When the governor of the Bank of England warns of the economic impacts of climate change, it’s certainly time to listen. This week alone Shell has pulled out of the Arctic, WWF has launched a report about mining companies encroaching on natural world heritage sites, and now Mark Carney is effectively saying ‘change course or prepare for disaster’.”
Elsewhere this week, Shell announced it was pulling out of drilling operations in the Alaskan Arctic for the “foreseeable future”.
The global oil giant said it had made a marginal discovery of oil and gas with its summer exploration in the Chukchi Sea but not enough to continue exploration for the time being.
Look out for an interview with the WWF’s David Nussbaum in the next issue of portfolio institutional.
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