News July-August 2003

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

Compromise gives green light to EU trading sheme

The world’s first mandatory international greenhouse gas emissions trading scheme is set to go ahead on schedule, following a last-minute compromise between the European Parliament and European Union (EU) ministers. From 2005, more than 10,000 installations across the 25 countries of the enlarged EU will face caps on their carbon dioxide emissions – and the right to trade allowances to help them meet their targets.

“The largest emissions trading scheme in the world to date will be a reality from 2005,” said Margot Wallström, EU environment commissioner. “Companies … must now start incorporating climate change into day-to-day commercial decisions.”

Rabobank eyeing weather market – and hiring

Netherlands-based Rabobank International has hired the head of weather derivatives at French rival Credit Lyonnais, and has charged a member of its management board with the task of looking into the weather market’s potential.

A spokesman for the bank confirms that it has hired Peter Brewer, who set up Credit Lyonnais’ weather desk last year, but declines to comment on what his role will be.

CDM sparks new row

The Executive Board of the Clean Development Mechanism (CDM) has frustrated project developers but pleased environmental lobbyists by withholding approval from all the initial methodologies proposed for calculating emissions baselines and monitoring greenhouse gases.The decision has revived an angry debate over the meaning of the term ‘additionality’.

On 8 June, the CDM Board said that, of the initial 14 submissions, six could be approved within weeks, provided certain changes are made. The others, however, would have to begin the submission process all over again. The verdicts were based largely on recommendations from a technical committee known as the CDM Methodology Panel.

Hurdles remain for US asbestos bill

A series of compromises has brought closer a US bill to cap industry’s asbestos liabilities – but disputes over the size of payouts to victims means the bill’s prospects remain uncertain.

After months of negotiation, Utah Republican Senator Orrin Hatch’s bill – the Fairness in Asbestos Injury Resolution Act – could provide as much as $153 billion to help settle asbestos-related claims. But trades unions argue that this sum may not be adequate.

SG weather team in management buy-out

The bulk of SG’s weather derivatives team has parted company with the French investment bank following a management buy-out that has established an independent asset management company. The London-based group, led by Diego Wauters, received regulatory approval on 23 June to begin trading as Coriolis Capital Management.

“We’ve been discussing this over the last 12 months,” says Coriolis chairman and CEO Wauters, “and, since the end of last year, it’s become more interesting for both parties.”

Climate change investment bank planned

Three heavy-hitters from the UK climate change fraternity are planning to set up a boutique investment bank specialising in “financial markets created by policy”, such as greenhouse gas emissions allowance and renewable energy markets, according to a source close to the venture.

The three behind Climate Change Capital are James Cameron, a leading climate change lawyer with Baker & McKenzie, Lionel Fretz, a former partner at carbon consultancy EcoSecurities, and a prominent expert in climate change risk management who cannot currently be identified. Cameron will continue to work part-time for Baker & McKenzie. A fourth founder, Mark Woodall, set up Impax Capital, another niche environmental investment bank, in 1994.

Poor communication holding back CSR, says Arthur D Little

Communication between the socially responsible investment (SRI) community and the companies they engage with is “confused and frustrated,” says US management consultancy firm Arthur D Little. This, in turn, is preventing a meaningful dialogue on the business case for corporate social responsibility (CSR) with mainstream investors, it says.

Despite a desire to improve communications, both SRI analysts and companies are hindering the process, says Arthur D Little in its June report Speaking the same language. Companies are publishing unnecessarily long CSR reports, which often cloud their ‘material’ social and environmental issues, it says.

WEF, UNEP look to water

The World Economic Forum (WEF) and the United Nations Environment Programme have launched a ‘Water Initiative’ to “improve watershed management from the summit to the sea”.The initiative, launched in Geneva in early June, is designed to bring together the public and private sectors and illustrate the business case for better water management.

“Shared responsibility for the management of watersheds from the mountain ranges to coastal areas will improve the quality and quantity of water for business, populations and the environment,” said José Maria Figueres, senior managing director at the WEF, an international organisation funded by the world’s 1,000 largest companies.

Trucost puts a price on companies’ environmental costs

Trucost, a UK-based environmental research organisation, has launched an ‘environmental cost calculator’ that evaluates the environmental impacts of the UK’s 100 largest companies and sectors in financial terms, it says.

The new product identifies and assigns costs to a< company’s external environmental impacts, such as its carbon dioxide emissions or use of fresh water. These costs are used to calculate a single figure called an impact ratio, which represents a company’s environmental costs relative to its turnover. Both direct costs, generated by the company, and indirect costs, generated by its suppliers, are calculated, and companies are compared to their sector average.

UK industry backs concept of NOx and SO₂ trading

The possibility of introducing a UK trading scheme to reduce emissions of nitrogen oxides and sulphur dioxide has been welcomed by most of the respondents to a discussion paper on the subject.

The paper was issued by the Environment Agency in August 2002 and attracted 26 responses. “Most of the major stakeholders” gave their views, the agency said. They included representatives of the electricity sector, energy intensive industries, consultancies, brokers and pressure groups.

SAM to liquidate Smart Energy fund

SAM Sustainable Asset Management’s plans to liquidate its SAM Smart Energy fund have run into strong opposition from its largest shareholder, Good Energies. The Zurich-based asset manager has proposed to offer investors proceeds of the fund in either cash or as shares in a new fund. But Basel-based Good Energies, which owns approximately 20% of the fund, has slammed SAM’s handling of the proposed liquidation.

The two companies have been squabbling since May, when SAM first announced its plans to liquidate. SAM argues that the fund’s size, which was SFr17 million ($12.6 million) as of 2 July,“is too small to continue its current operations in today’s structure”. It recommends distributing the proceeds of the liquidation either as cash or, preferably, as shares in a “to be established” SICAV (société d’investissement à capital variable) investment fund with a similar alternative energy mandate.

Good Energies, however, is proposing to continue with the existing fund, but manage it less frequently to keep costs down until the market recovers. SAM criticised Good Energies’ alternative as “a journey into uncertainty… [which] has serious disadvantages” compared to its proposed alternative. “They have a misunderstanding of how markets typically work,” says Pfeuti.

Morley’s sustainability ranking shows scores rising

More companies in the UK’s FTSE100 equity index are eligible for investment from Morley Fund Management’s socially responsible investment funds, the fund manager has announced. Overall, scores in its annual sustainability ranking – published for the second time in June – have improved since last year, it says, although many companies are still not effectively communicating their sustainability issues to investors.

Morley’s ‘sustainability matrix’ rates each company against two criteria: their core product, ranked from A to E; and their ‘management vision and practices,’ ranked from 1 to 5. Its eight retail SRI funds, with assets of £450 million($752 million) will not invest in any companies ranked D, E, 5 or C4.

The results “demonstrate a distinct improvement in companies’ awareness and
reporting of social, ethical and environmental [SEE] issues,” says Paul Moody, Morley’s head of SRI.

EU ministers disappoint industry and NGOs on liability law

European Union environment ministers have upset both industry and environmental pressure groups by weakening proposed environmental liability legislation endorsed by the EU Parliament in May. The draft legislation aims to make companies responsible for the environmental damage they cause (see Environmental Finance June 2003, page 6).

The key concern of industry is that, in its latest version, the legislation would give member states “huge discretion” on when to charge companies for environmental restoration work, says a spokesman for Unice, the union of 35 European employers’ federations.

Environmental pressure groups, who had welcomed the tough line taken by the
EU Parliament in May, are also unhappy with the ministers’ compromise position.

Vienna Carbon Club moves to Geneva

The Vienna Carbon Finance Club is setting up its headquarters in Geneva, thanks to financial support from the Swiss government, and has therefore changed its name to the Climate Investment Partnership.

The non-profit investment partnership, which aims to provide new sources of funding for greenhouse gas reduction projects, has attracted around 20 participants from the public and private sector during its initial design phase.

‘Coalition of the willing’ accelerates on green energy

The ‘Johannesburg Renewable Energy Coalition’ (JREC) is considering creating a €100 million ($115 million)-plus fund to invest in renewable energy projects, as part of efforts to increase global renewable energy generation. The coalition of 82 countries also plans to set national renewable energy targets by June next year.

JREC, which held its first ministerial-level conference in June in Brussels, was launched as a ‘coalition of the willing’ late in the proceedings of the World Summit on Sustainable Development in Johannesburg last September, after hopes for setting global targets and timetables for increasing the share of renewable energy were dashed (see Environmental Finance, October 2002, page 14).

Uncertainty persists despite NSR rulings

Uncertainty surrounding the New Source Review (NSR) programme in the US is set to continue following a 24 June setback in the efforts of the federal Environmental Protection Agency (EPA) to prosecute polluters under the programme. However, a landmark lawsuit brought under the NSR by New York State was settled on 11 June by Atlanta-based power utility Mirant.

In the later case, the EPA argues that the Tennessee Valley Authority (TVA) made improvements to its older, coal-burning plants without installing state-of-the-art pollution control technology, as required by NSR. As the TVA is a federal government operation, the agency simply ordered the utility to comply. But a three-judge panel ruled that the TVA was free to ignore NSR enforcement orders until the EPA sued it in a federal court and proved its charges.

go to Features July-August 2003