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News June 2002
FTSE ranking raises hackles 
Morley Fund Management has whipped up a storm of controversy with the release of its ‘sustainability matrix’ ranking the UK’s 100 largest companies. It shows which FTSE-100 companies can be included in Morley’s socially responsible investment products.
Companies that have fallen outside Morley’s SRI investible universe have attacked the exercise, accusing the fund manager of carrying out insufficient research and overly simplifying a complex issue. Others, while supportive of the process, criticise Morley’s approach in that it excludes certain activities.
But Morley has vigorously defended its matrix.“We expected controversy, but we hope that this will lead to improved dialogue with companies,” says Jo Johnston, senior analyst at the fund manager, which is the investment arm of CGNU, the UK’s largest insurer.
‘Spot market’ in weather planned
Two former foreign exchange traders plan to launch what they hope will become the “spot market” for weather trading. Their Atlanta-based exchange, called the Weather Board Trade (WBOT), will list five average temperature indexes and five precipitation indexes, covering five US regions.
“We hope that this will bring a two-sided market into play that will attract capital markets players and speculators,” says Dan Johnson, managing director of the WBOT.
Ontario Power poised for major GHG trade
Ontario Power Generation (OPG) has reached an agreement in principle to buy a total of 9 million tonnes of carbon dioxide (CO2) emissions reductions from Blue Source, a US company specialising in aggregating greenhouse gas reductions. The deal is expected to comprise a firm agreement on 6 million tonnes and an option for further 3 million tonnes, David Coates, OPG’s senior emissions trader, told the Spring meeting of the Emissions Marketing Association in New Orleans on 7 May.
FTSE4Good – getting better?
The selection criteria which underpin the FTSE4Good indexes for the socially responsible investment (SRI) community are being tightened in the first change of methodology since the indexes were launched last July. But Mark Makepeace, FTSE Group chief executive, says he does not expect a significant change in index composition when the new criteria come into effect in September.
The new criteria are “tough but achievable,” he says. “A large number” of companies in the indexes will have to come up to standard but he expects “the vast majority will do just that.”
EPA endorses trading for water pollution
Christie Todd Whitman, the administrator of the Environmental Protection Agency, is backing a ‘cap-and-trade’ approach to help improve the nation’s water quality. The policy would allow states to implement trading programmes to address pollution in designated lakes, rivers and streams.
“We’ve made a lot of progress controlling pollution from industrial and municipal sources,” said Whitman on 15 May when she unveiled the proposed Water Quality Trading Policy. “Now we must look to innovative strategies that complement our current programmes to help us address the remaining challenges,” she said. The new proposal would keep existing controls and safeguards in place “but offers greater flexibility and incentives to states, tribes and companies to comply with the Clean Water Act.”
GHG curbs seen boosting power prices
Electricity prices in Europe will rise by an average 13% by the end of 2005 as power companies struggle to comply with national and European Union targets for reducing emissions of greenhouse gases (GHGs), predicts ICF Consulting.
In a new study – European Wholesale Power Outlook 2002 – the consultancy notes that the 15-nation EU is committed under the Kyoto Protocol to reduce total GHG emissions by 8% below 1990 levels by 2012. Much these reductions will have come from the power sector as it is a major source of carbon dioxide, the most important greenhouse gas.
SRI funds warned against ‘erosion of ethics’
There is a danger of an “erosion of ethics” in socially responsible investment (SRI) products, according to the New Economics Foundation, a London-based think tank. In a new report it notes that a “patchwork of approaches” has developed as more and more players have entered this rapidly growing market and it argues that ethical funds should be required to meet a minimum baseline standard. Otherwise, the long-term credibility of SRI could be undermined by “over-hyped” initiatives, the authors warn.
Registry to cloud ROCs market?
Rules that insist that the registry for the UK green certificates market be fully transparent could end up having exactly the opposite effect, say some market participants. The legislation states that the “contents of the registry shall be available for inspection by the public on request”.This means that electricity suppliers are likely to resort to tactics to make it impossible for competitors to work out how many certificates they hold, some argue.
“The problem with transparency is that registering positions means that traders could potentially trade against you if you’re short, for example,” says spokeswoman for Powergen, one of the UK’s largest electricity suppliers.
Germany’s Hesse buys emission reductions
The German state of Hesse is organising a tender for energy efficiency projects as part of its efforts to reduce emissions of greenhouse gases. On 28 May, as Environmental Finance went to press, companies across the nation were able to participate in a reverse bid auction for a portion of the €1.3 million ($1.2 million) on offer.
The initiative is being funded and coordinated by the State of Hesse, the government- owned German Bank for Reconstruction, Deutsche Telekom, Dresdner Bank, chemicals firm Infraserv- Höechst, and xlaunch, an electronic market platform owned by the Deutsche Börse. Rules for the bidding are closely based on those used in the Emissions Reduction Units Purchasing Tender launched by the Dutch government in May 2000.
Amendments flood in for EU trading scheme
The European Parliament is grappling with over 300 draft amendments to a directive set up an EU greenhouse gas emissions trading scheme and is facing criticism from business that the scheme will be insufficiently open and flexible.
Jorge Moreira da Silva, MEP, the rapporteur of the Parliament’s environment committee who is leading Parliament’s response to the directive, told Environmental Finance that the volume of amendments has delayed the directive’s timetable. The committee is now to vote on them on 17 June, with amendments most likely going before the plenary of the Parliament in September, rather than July as planned.
Business has reacted negatively to a number of proposed amendments – particularly those covering the allocation of emissions allowances and limits on the extent of trading. And the debate over whether or not the scheme should be mandatory from its planned launch in 2005 continues to rage.