News June 2003

The following are summaries of news stories that appeared in the June 2003 print edition of Environmental Finance magazine

Pressure builds for compromise on EU ETS

Pressure is mounting in Brussels for a compromise agreement on the proposed European Union greenhouse gas emissions trading scheme, as it approaches its second reading by the European Parliament. But the member of parliament leading its response is hopeful that such an agreement can by forged.

A failure by the Council of Ministers, representing the EU’s member states, and the Parliament to agree on amendments to the emissions trading directive this month could lead to a delay in the start of the scheme, analysts say. It is due to begin in January 2005, and will cover emissions of carbon dioxide from at least 5,000 installations across five industry sectors.

Standard Bank, EcoSecurities announce carbon alliance

South Africa’s Standard Bank and carbon advisory firm EcoSecurities have announced "an exclusive cooperation agreement” to provide carbon finance and trading services to corporate and government clients.

The agreement, announced as Environmental Finance went to press, will concentrate on structuring, monetising and, going forward, trading carbon credits earned by projects that reduce or avoid greenhouse gas emissions, primarily in emerging markets.

CME launches seasonal weather contracts

The Chicago Mercantile Exchange (CME) plans to list six seasonal weather derivatives contracts at the end of May, expanding its existing suite of monthly products.The new contracts will cover the summer and winter seasons in three US locations: New York, Chicago and Cincinnati.

The exchange is to list both futures and options on indexes of ‘heating and cooling degree days’ (HDDs and CDDs) running from November to March and May to September – the heating and cooling seasons used by energy companies.They will complement the CME’s existing monthly HDD and CDD futures and options contracts referenced to 10 US cities.

Co-operative Bank turns down $7 million on ethical grounds

The Co-operative Bank turned away £4.4 million ($7.1 million) of revenue last year from potential clients that failed to meet its ethical criteria, it says. However, it attributes £30 million of its £122 million profit in 2002 to its ethical stance.

The bank plans to start disclosing its investments by sector over the next three years so they can be openly reviewed for their ‘greenness’, says Paul Monaghan, head of sustainable development. It will involve a “complete re-engineering of the bank’s management system,” he adds.

Natsource plans $200 million ’carbon buyers’ pool’

Natsource is expecting to raise around $200 million for a “greenhouse gas [GHG] credit aggregation pool” which, if successful,would make the US energy and environmental broker the world’s largest private sector buyer of carbon credits.

The pool would buy credits from projects that reduce emissions of GHGs. It would then pass the credits through to participants who could use them to help meet GHG reduction targets, either taken on under domestic schemes or under the Kyoto Protocol on climate change.

EU Parliament takes tough stance on environmental liability

Controversial European Union legislation on environmental liability moved a step closer on 14 May when the EU Parliament voted in favour of a proposed directive that will hold companies responsible for damage they cause to the environment.

Environmental pressure groups have welcomed the vote but industry is alarmed. Business groups had lobbied for companies to be exempted from the legislation if they could show they were operating in accordance with existing legislation and were using the best available techniques at the time any environmental damage occurred.

Brokers put RECs market on-line

London-based TFS and rival broker Evolution Markets of New York have both launched internet services to try to improve transparency and liquidity in the new markets for renewable energy certificates (RECs). The initiatives contrast with the decision of Icap, one of the world’s largest brokers, to close its environmental products desk in London last month.

TFS’ new GreenScreen service is a web-based dealing platform for the various environmental markets emerging in Europe. In addition to RECs – which enable the environmental attributes of renewable power to be traded separately from the underlying electricity – the system can also handle contracts in the UK and Danish emissions trading schemes and the forthcoming EU-wide carbon market.

Evolution Markets, meanwhile, is offering an internet-based bulletin board on which buyers and sellers can post indicative prices, primarily for renewable energy certificates in the voluntary US market, but also for those eligible under state-level compliance programmes in places such as Texas, Massachusetts and New Jersey.

Not all brokers are so bullish on the environmental markets, however. Icap, which was voted best broker in the UK’s emission trading scheme in the 2002 Environmental Finance market survey and is the largest broker in the wholesale financial markets, has closed its emissions and weather desk in London. “The market is not sufficiently large or commoditised to justify brokers at present," says a company spokesman.

Defra claims flying start for UK emissions trading

Just over 2,000 trades, representing more than 7 million tonnes of carbon dioxide (CO₂e), took place during the first year of the UK’s pioneering emissions trading scheme, according to figures released last month by the government. And the 34 companies that voluntarily took on GHG reduction targets have already cut emissions equivalent to 4.64 million tonnes of CO₂ – more than their total reduction targets for the whole five years of the scheme.

“This is an impressive amount of trading,” Chris Leigh, head of climate change policy at the Department for the Environment, Food and Rural Affairs (Defra) told a conference in London on 20 May. “It’s been a worthwhile exercise from that point of view.”

Eurosif to unveil SRI transparency guidelines

The European Social Investment Forum (Eurosif) is due to release pilot guidelines early this month designed to improve the transparency of socially responsible investment funds. Agreement has been reached on most of the guidelines, following a wide-ranging consultation process, says Matt Christensen, Eurosif’s executive director.

“We’re going to present the guidelines to the [Eurosif] board on 6 June,” he says. “Hopefully [asset managers] will start using them immediately.” The guidelines will be tried out for up to a year before being finalised, he adds.

EU carbon market demands high-level attention – PwC

The process of allocating emission allowances in the planned EU emissions trading scheme demands close attention by senior management in the business community, says a new study from PricewaterhouseCoopers and Dutch consultancy ECN.

As it will have direct financial consequences for the companies affected, the allocation process “needs ‘buy-in’ from top industry representatives at an early stage,” says Hans Warmenhoven of PwC in Utrecht, one of the three authors. Furthermore, the allocation process must be open and transparent, they stress.

Uncertainty clouds cost of EU chemicals law

Industry is wildly overestimating the likely costs of the European Union’s proposed overhaul of chemical sector regulation, according to environmental groups. But financial analysts claim both sides are guilty of “phenomenal misinformation” and argue that there is still too little detail to quantify the likely costs of the proposed legislation.

On 7 May, the European Commission launched an eight week consultation period on the draft legislation. It is designed to replace 40 existing pieces of legislation,“to increase the protection of human health and the environment from exposure to chemicals” while maintaining the sector’s competitiveness, the Commission says.

Accounting bodies propose GHG reporting rules

The International Accounting Standards Board (IASB) and its UK equivalent have released proposals for accounting requirements for companies participating in greenhouse gas emissions trading schemes.

“Emission control schemes that utilise marketable allowances are becoming widespread … and companies are looking for timely guidance,” says Kevin Stevenson, chairman of IASB’s International Financial Reporting Interpretations Committee.“[We are] intent on eliminating the risk that divergent accounting practices will develop in this new area.”

Dutch agency seeking budget hike for carbon credits

Dutch government agency Carboncredits. nl has reported a “tremendously high response rate” for its latest greenhouse gas (GHG) emission reduction purchase tender, and is applying to the Ministry of Economic Affairs for a budget increase due to the large number of high quality projects that have tendered.

The 17 projects that have reached this stage of the tender – out of 30 that originally applied – is significantly higher than the previous two Emissions Reduction Unit Procurement Tenders the agency ran, it says. These projects have tendered emissions reductions totalling the equivalent of 19.8 million tonnes of carbon dioxide. Credits purchased will count towards the Dutch target under the Kyoto Protocol, the international GHG reduction agreement.

‘Strong interest’ in SRI among Dutch pension funds

Three quarters of Dutch pension funds either incorporate sustainability criteria in their investment decisions, or plan to do so in the near future, according to a new survey.

However, most funds focus on ‘moral’ questions, such as human rights and corruption, rather than environmental or corporate governance issues.The survey also found that only one in eight consider engaging with companies to improve their sustainability performance to be a viable socially responsible investment policy.

Religious investors set CSR benchmarks

Religious shareholders and non-governmental organisations have released an exhaustive set of corporate responsibility principles aiming to guide corporations’ global practices and provide criteria by which to measure them.

A decade in the making, the Principles for Global Corporate Responsibility: Bench Marks for Measuring Business Performance, consist of no fewer than 100 principles, 129 criteria and 118 benchmarks to measure a company’s performance on environmental, social, and labour issues.

EMA plans US emission markets indexes

The Emissions Marketing Association is planning to create price indexes for the US sulphur dioxide and nitrogen oxide emissions markets, it announced last month. Market participants have welcomed the proposal, which is designed to encourage companies without actual emissions, such as financial institutions, into the emissions markets.

“If we can get an index that everybody is comfortable with, it will bring additional players into the market, particularly financial players,” says Michael Loreman, director of coal and emissions trading at Tulsa-based energy company Williams.“It will help liquidity overall.”

Canadian government to adopt sustainability indicators?

Canada is considering reporting on its sustainability performance alongside national macroeconomic data, based on recommendations from an independent government-appointed advisory body that has developed six national sustainability indicators.

The National Round Table on the Environment and the Economy (NRTEE) announced its recommendations last month, following a proposal in 2000 from finance minister Paul Martin to develop environmental and sustainability indicators.This marks the first time a national government has initiated plans for sustainability reporting, claims Carolyn Cahill, an NRTEE spokeswoman. The Cabinet plans to review the NRTEE’s recommendations over the next few months, she says.

go to Features June 2003