News July-August 2002

Governments plan to boost emissions projects

Eight more governments are to invest in greenhouse gas-reducing projects abroad to help them meet emissions targets under the Kyoto Protocol – promising a boost for Clean Development Mechanism (CDM) and Joint Implementation (JI) project developers.

Five Nordic countries, Austria, Japan and Italy are all planning credit purchase programmes, encouraged by the progress of the Protocol towards ratification and the crystallisation of the rules governing CDM and JI projects over the past 10 months.

US pollution rules still hazy

The future of air pollution rules in the US remains unclear despite a flurry of legislative and administrative announcements in recent weeks.

On 13 June Environmental Protection Agency administrator Christie Whitman announced government plans for a radical revamp of the New Source Review policy.This controversial policy requires major industrial sources of emissions to modernise their pollution control equipment when they upgrade their facilities.

Weather bond market warms up

French investment bank SG has recently placed its fifth weather-linked bond in just over a year, and predicts growing investor interest in this novel asset class.

The bonds have been relatively small – with the latest coming in at less than €20 million ($20 million), says Diego Wauters, global head of insurance derivatives at SG in London. But he expects increasing demand: “It’s attractive for investors to buy a weather-linked note, with other markets collapsing – it offers diversification.”

Exxon, BP, Shell face same green impacts, WRI finds

Research from the World Resources Institute (WRI) has thrown up a surprising finding: ExxonMobil, the bête noire of the environmental movement, is no more financially exposed to the two critical environmental issues that face the oil and gas industry than its environmentallyprogressive rivals, BP and Royal Dutch/Shell.

The Washington-based environmental think-tank’s Changing Oil report analyses how the value of 16 leading oil and gas companies is likely to be impacted by actions to combat climate change and growing ecological constraints on access to energy reserves, under various different scenarios.

Weather market storms ahead

The size of the weather derivatives market grew dramatically last year, according to the latest Weather Risk Management Association survey – but ongoing turmoil in the energy markets means few observers are confident of the trend continuing in the short term.

The survey, which covered the period 1 April 2001–31 March 2002, found a 43% increase in the number of contracts traded worldwide. The 3,937 contracts represented an underlying notional value of more than $4.3 billion – up 72% on the previous year.

Prices rise in UK carbon market

While equity markets around the world have been plunging in recent months, one of the world’s newest markets – the UK’s emissions trading scheme – has seen prices soar by almost 50% between its early-April launch and mid-July.

The unusual asset on which this market is based – a reduction of one tonne of carbon dioxide – has risen from around £5 ($7.50) to about £7.25. It is by no means a liquid market yet but most observers have been pleasantly surprised by levels of activity.

Strict Ethibel index ‘could protect licensees’

Ethibel has launched a sustainable equity index family that it says is both considerably stricter and based on more rigorous research than existing indexes.And the Belgian socially responsible investment firm says its approach could protect licensees from criticism by their investor clients.

“This is very deep green compared to the FTSE [4Good] and Dow Jones [Sustainability] indexes,” says Lut Verstappen, head of communications at Ethibel. “They’re much less severe in their selection – their selection criteria seems more based on the financial needs of their investors, rather than on sustainable development.”

Voluntary vs mandatory – CSR debate rages

The European Commission has rejected the European Parliament’s call for legislation to force firms to report on social and environmental issues. In a white paper published on 2 July, the Commission instead backed existing voluntary approaches to the adoption of corporate social responsibility (CSR) policies by European companies.

“We are at a very early stage of development for CSR,” said Commission representative Guisy Chiovato Rambaldo at an ethical investment conference in London before the paper was released, adding that the Commission wants to promote the benefits of CSR to European businesses, rather than impose legislation at this stage.

Carbon accounting push for UK firms

Consultancy Andersen has published a discussion paper as a first attempt to clarify the financial accounting treatment of emissions and allowances under the UK Emissions Trading Scheme. “We are seeking to raise the profile of emissions trading within the finance function and ensure that it receives the attention that it deserves and requires,” says Fiona Gadd, outgoing partner in charge of the UK greenhouse gas trading team at Andersen. Her team produced the paper under the auspices of the International Emissions Trading Association and the UK Emissions Trading Group.

Accounting for carbon under the UK Emissions Trading Scheme sets out a number of options as to how permits, emitted gases, financial incentives and emissionsrelated expenditures under the scheme could be subjected to accounting and disclosure practices.

GHG targets for cement leaders – but not until 2006

Ten leading cement companies have set out a sixpoint, five-year action plan to help move the industry towards sustainability. However, the companies, which include leading proponents of greenhouse gas emissions trading such as Lafarge and RMC, have deferred setting targets for carbon dioxide (CO₂) emissions until 2006.

Some observers criticised the timetable:“There’s a need for clear and ambitious CO₂ targets,” says Jean-Paul Jeanrenaud, head of business and industry relations at WWF, an environmental pressure group, who sat on the platform at the plan’s launch press conference in Paris on 3 July.“This could quite easily be achieved in a year’s time.”

‘Sustainability pays’, says CIS

Socially responsible investment (SRI) and engagement’ can deliver financial outperformance, and there is a business case for corporate social responsibility – under certain circumstances, according to new research from the UK’s Cooperative Insurance Society CIS). The report also summarises original research commissioned by CIS on engagement’ strategies and on attitudes of UK retail investors towards SRI.

“We have no doubt that higher social, environmental, ethical and corporate governance standards will lead to higher returns for investors in the long-term,” said Chris Hirst, chief investment officer at CIS, at the launch of the Sustainability Pays report on 11 July.“What we’ve asked is, where’s the evidence?”

Natsource buys GCSI

Natsource has bought Ottawa-based consultancy Global Change Strategies International (GCSI) for an undisclosed sum, further expanding the global reach of the fast-growing brokerage and advisory services firm.

“We were doing a number of projects working with them and discovered we had complementary skill sets,” says Jack Cogen, president of New York-based Natsource. “In particular, we’ve been doing projects in Canada and wanted more of a presence.” Natsource already has offices in Toronto and Calgary, while GCSI is represented in Vancouver, Edmonton and Toronto as well as Ottawa.

PCF’s Plantar project gets go-ahead

The Prototype Carbon Fund’s (PCF) Plantar project in Brazil was validated by Det Norske Veritas (DNV) on 12 June, despite fierce criticism of the venture by several non-governmental organisations. The project has attracted more comments that all the other PCF projects combined, Chandra Shekhar Sinha, PCF portfolio manager, told the JI & CDM 2002 conference in New York in late June.

The project involves the continuing use of plantationreared firewood to produce charcoal as a fuel for pig ironproduction instead of allowing it to be replaced by coke. In response to early concerns raised by DNV, the project will not use the same eucalyptus plantations that it has in the past. Instead, the developers will plant 23,100 hectares of new trees on land that has not been forested since 31 December 1989.

go to Features June 2002