News April 2001

BP has come under fire from the socially responsible investment community and pressure groups for what some see as a heavy-handed reaction to four shareholder resolutions concerning environmental and human rights issues. Lawyers for the UK oil and gas major have effectively killed two of the resolutions, filed in advance of its 19 April annual general meeting.

However, some investors say that they will find it impossible to support a surviving resolution tabled by investors organised by Greenpeace - despite broad sympathy with its aims. It "directs" BP to produce a report by the end of 2001, with targets and timetables, setting out a strategy for "reducing and eventually phasing out the production and sales of fossil fuels".

Electricity generators are not to be fully drawn into the UK's greenhouse gas emissions trading scheme for at least five years, Environmental Finance has learned. This decision has disappointed trading advocates, and illustrates the conflicting pressures in government energy policy.

The sector - which accounts for 25% of the UK's GHG emissions - will, however, be permitted to participate on a 'project basis'. This means that generators' emissions will not be capped, but they will able to sell carbon credits to the extent that they reduce or avoid emissions from eligible projects.

The head of Russia's largest electricity company - and a former first deputy prime minister - is seeking Western support to develop the country's capacity to participate in international emissions trading.

Anatoly Chubais, chairman of the management board of Unified Energy System of Russia and an architect of Russia's post-Soviet economic reforms, is in talks with consultancy Andersen to co-ordinate Western investment and cooperation with 'capacity-building' in Russia.

A major expansion of trading in nitrogen oxides (NO_x) allowances in the US seems almost certain following a Supreme Court ruling on 5 March.

The court refused to hear an appeal by a collection of states and industry groups against a March 2000 appeal court ruling that upheld the authority of the Environmental Protection Agency to set rules on inter-state transfers of air pollution.

Fannie Mae is planning to step in to help the US source some of its elusive domestic greenhouse gas emissions. The government-sponsored mortgage finance company is exploring a scheme to encourage homeowners to improve the energy efficiency of their properties, in exchange for the carbon and nitrous oxide reduction credits that the efficiencies generate.

The scheme will see Fannie Mae aggregating credits earned by homeowners who carry out energy efficiency improvements, which it will then sell into the market. In the US, utilities typically offer incentives for such improvements. Fannie Mae will return the lion's share of the revenues from credit sales to participating utilities, which will use the money to increase the incentives they offer to domestic efficiency measures.

President George W Bush's recent u-turn on his campaign pledge to cap industrial emissions of carbon dioxide and the hardening of his hostility to the Kyoto Protocol has caused dismay both in the US and overseas. But, although climate change may be low down the list of priorities for the national government, recent announcements show it is still a major concern for many states and cities in the US.

Two leading UK fund managers have introduced environmental and social criteria into their corporate governance guidelines - with one threatening to vote against the report and accounts of FTSE 100 companies that fail to produce environmental reports.

In March, Henderson Global Investors and Morley Fund Management both published new versions of their guidelines. The two firms have strong socially responsible investment (SRI) teams, but in both cases, the guidelines will also apply to companies held by non-SRI funds..

Tokyo-Mitsubishi Securities has set up a team to help finance clean energy development in Japan and abroad. The team - called the Clean Energy Finance Committee - will offer financing services to both individual projects and to renewable energy companies.

"This is the first such group within a financial institution in Japan," says committee chair Junji Hatano. Until last year, Hatano was director and deputy president of Tokyo-Mitsubishi Securities, which is the investment banking arm of the Tokyo-Mitsubishi group.

Fortum, one of the leading energy companies in the Nordic region, is planning to offer weather hedges to its clients in Europe and to increase its own use of weather derivatives. The Helsinki-based company entered the market for the first time last year to hedge some of its exposures to weather risk.

A new set of equity indexes being launched by FTSE International will give the socially responsible investment (SRI) business a boost, fund managers say. Named FTSE4Good, the family will comprise 'tradeable' and 'benchmark' indexes for the UK; Europe; the US; and the world. The indexes are in the final design stage, says a FTSE spokeswoman, and the list of constituents is due to be announced at the end of May. Most of the indexes will go live in June.

The launch of Australia's latest socially responsible investment funds has forced AMP, one of the country's leading financial services companies, to review the environmental performance of a subsidiary.

In the run up to the March launch of three SRI products by AMP Henderson Global Investors - a company owned by AMP - environmental groups highlighted that another AMP subsidiary - Stanbroke Pastoral Company, Australia's largest beef producer and rural landholder - held permits to clear more than 100,000 hectares of virgin and regenerating bushland.

French utility giant Vivendi Environnement is looking for buyers for its first million tonnes of carbon credits from an innovative methane-capture project in Venezuela. The company expects to generate at least 20 million tonnes of credits over the life of the project, which it hopes will help set 'best practice' standards for the Kyoto Protocol's Clean Development Mechanism.

"Our goal is to put triple-A rated credits into the market, with all the transparency that requires," says Laurent Segalen, senior manager at consultancy PriceWaterhouseCoopers in Paris. "This is a case study." Vivendi hopes to sell the credits equivalent to around $5/tonne of carbon dioxide.

The International Emissions Trading Association hopes to produce a draft accounting standard for UK companies' carbon assets and liabilities within "three to four months", according to Fiona Gadd, a partner at accountants Andersen, one of the two firms leading the push.

There is a pressing need for such a standard in advance of the introduction of the UK's emissions trading scheme, due to start in earnest in January 2001, says Gadd. It is hoped that work done in the UK can contribute to international efforts to develop common accounting standards, she adds

The Edison Electric Institute (EEI) is working to establish a potentially multi-billion dollar insurance facility to protect US electricity distributors nationwide from the price spikes currently crippling California's utilities. The facility - which would pay out under certain weather conditions or if wholesale electricity prices spike - is partly designed to stave off possible back-tracking on electricity deregulation, as politicians and regulators reconsider plans in the light of the Californian experience.

"Because of California, there's a push-back on deregulation," says Richard McMahon, executive director of the EEI's Alliance of Energy Suppliers (AES) group. "Every time there's a weather event, or a [power station] outage, there's the danger of political and regulatory intervention."

Two leading private equity 'carbon funds' specialising in clean energy and energy efficiency projects in developing countries are now making their first investments ahead of their final closings expected this summer.

Both funds - the Dexia-Fondelec Energy Efficiency and Emissions Reduction Fund and the Renewable Energy and Energy Efficiency Fund for Emerging Markets - have a target annual rate of return of 20% but also offer investors the possibility of extra income from 'carbon credits'. Such credits are expected to be created and acquire a market value if the Kyoto Protocol agreement to reduce emissions of greenhouse gases, or a similar agreement, comes into force.