 |
 |
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
|
News September 2004
The following are summaries of news stories that appeared in the September 2004 print edition of Environmental Finance magazine
IFC consults on new social and environmental policy
The International Finance Corporation (IFC) has opened its redesigned social and environmental lending policies for consultation. But some NGOs are anxious that their voices may not be heard above those of the banks that have signed up to the Equator Principles – especially after the World Bank’s controversial Extractive Industries Review.
The IFC’s 10 existing Safeguard policies were developed in the years leading up to 1998, and cover issues such as environmental assessment, the safety of dams, and forestry. The renamed Policy on Social and Environmental Sustainability is an attempt to streamline the organisation’s approach to social and environmental issues.
The changes will have an impact beyond the IFC, as the Equator Principles – launched in June 2003 (see Environmental Finance, July–August 2003, Bankers see green) and to which 27 banks are now signatories – are based on the Safeguard policies. The banks have agreed to follow the Principles when carrying out project finance deals worth more than $50 million, and have said previously that they will consider updating their own policies in line with the IFC’s changes.
The close involvement of the Equator banks worries Jon Sohn, a senior policy analyst at US-based think-tank the World Resources Institute: “I think that [the IFC] is using the excuse of having to bring the Equator banks along in order to lower their standards,” he says.
UK criticises ETS transparency, targets
Most EU countries are not demanding reductions under the EU Emissions Trading Scheme (ETS) that would bring their industries in line with Kyoto Protocol targets, according to an interim report commissioned by the UK government.
The report*, produced by sustainable energy consultancy Ecofys, says most national allocation plans (NAPs) do, however, require industry to reduce emissions to below ‘business-as-usual’ levels over the first phase of the EU ETS, from 2005 to 2007. But the UK government has used the report to criticise its EU partners and the Commission for a lack of transparency, and says the approach taken by France, Spain and possibly Italy could produce competitive distortions (see Plans add to competition fears). “The report makes clear that many NAPs include little information on which to judge allocation levels,” the UK government said in a statement. “In many NAPs there are assumptions on savings from policies and measures other than the EU ETS which appear not to be substantiated.”
*Analysis of the National Allocation Plans for the EU Emissions Trading Scheme
BP opens for emissions business
Oil giant BP has launched an emissions trading operation that is gearing up to trade in a wide range of environmental markets. Traders in Houston and London will trade products including EU carbon dioxide allowances, sulphur dioxide allowances in the US Acid Rain Program, and nitrogen oxide allowances under the US national programme and regional programmes such as that in Houston–Galveston.
BP employs two traders for its operation – which completed its first trade in June – and hopes to offer its emissions trading services to clients.
Hurricane Charley hits
Many Florida residents may have little to be thankful for, but the insurance industry found itself much less badly hit by Hurricane Charley than expected. The hurricane, which made landfall on 13 August, struck the Florida coast with winds of 145 miles an hour. But a last-minute swerve away from the densely populated Tampa–St Petersberg area, and the storm’s unusually narrow six-mile radius, limited the damage.
Risk Management Solutions, the California-based catastrophe risk modelling firm, estimates insured losses at between $6 billion and $8 billion – down from the $10 billion it was estimating just before landfall. By contrast, Andrew cost insurers $15.5 billion on total economic losses of around $26 billion.
TIFFE warms to weather derivatives
The Tokyo International Financial Futures Exchange (Tiffe) intends to launch weather derivatives early next year. An exchange spokesman says Tiffe is discussing the possibility “enthusiastically” with industry and hopes to launch futures contracts based on average monthly temperatures in four Japanese cities in spring 2005.
The announcement follows a late-May statement by the Tokyo Commodity Exchange setting weather derivatives as one of its “medium-term goals”.
The Tiffe news comes less than a month after the Chicago Mercantile Exchange launched monthly and seasonal weather futures and options based on average daily temperatures in Tokyo and Osaka. The underlying index against which these contracts are settled is the EarthSat Pacific Rim Index. No trades were reported in the first three weeks after their launch.
Meanwhile, the rival New York Mercantile Exchange has confirmed that it is still considering adding weather derivatives to its existing range of oil, gas and electricity contracts.
Exchanges eye green certificate market…
Two European exchanges are to host markets for green certificates, as EU regulations on disclosing the source of power to consumers – via so-called ‘certificates of origin’ – come into effect. The Austrian Energy Exchange (EXAA) has announced plans to host bimonthly auctions from November for two types of green certificates. And a new exchange – the Amsterdam-based CertiChange – is to offer a continuous green certificate market.
The EU’s 2001 Renewables Directive requires member states to set up systems whereby renewable energy generators can apply for certificates of origin for each MWh of green power they produce.These systems, which are coming into force across the EU this year, allow the certificates to be traded separately from the underlying power. Electricity suppliers can use the certificates to prove to buyers of green power that, at some point on the grid, the equivalent amount of green power was generated.
… as carbon competition hots up
Rival exchanges are jostling for position as they seek to establish themselves as the dominant marketplace for standardised contracts in carbon emissions ahead of the launch of the EU Emissions Trading Scheme (ETS) on 1 January 2005.
Futures contracts in EU Allowances – the trading unit of the mandatory EU ETS – are due to be launched by the end of this year on the International Petroleum Exchange (IPE) electronic trading platform Interchange. This follows an agreement in April that the Chicago Climate Exchange – a voluntary market for reducing greenhouse gas emissions in North America – would licence the IPE to list and market spot and futures contracts being developed in Chicago.
Another new venture, Climex, is also planning to list contracts based on carbon dioxide emissions. This operation, based in Amsterdam, forms part of the NewValues initiative which also aims to trade renewable energy certificates and nitrogen oxides emissions. NewValues is backed by Rabobank, the Dutch transmission system operator Tennet, consultancy Ecofys and several other Dutch companies.
Investors warned of potential water resource risks
Water shortages and poor water quality pose considerable risks to investors and financial institutions, according to the preliminary findings of a study by the UN Environment Programme Finance Initiative and Swedish think-tank the Stockholm International Water Institute. Risks of Water Scarcity: A Business Case for Financial Institutions also points out that financial institutions can help improve the sustainability of water supplies through their investment decisions.
The most obvious risk to businesses is the possibility of water shortages, resulting in lower production levels or limits to expansion. But the study highlights a number of other potential risks including:
- deteriorating water quality due to inadequate or non-existent treatment of sewage and industrial waste;
- weak governance of water quality and supply by corrupt or inadequate government bodies;
- changing political and regulatory conditions as countries attempt to improve water supply and prevent pollution;
- the potential for disputes arising over cross boundary water resources; and
- the loss of a company’s water rights because of local community opposition.
‘Little depth, rigour’ in FTSE environmental reporting
Fewer than one in four companies in the UK’s FTSE All Share index put any figures to environmental disclosures in their annual report and accounts, according to a new study from the Environment Agency. The survey, published in July, found that mentions of the environment are made in the reports of 89% of companies, but few of these “could be described as comprehensive or adequate for shareholders to properly assess environmental risks or opportunities”.
The agency commissioned the study – carried out by environmental research company Trucost – in advance of the introduction of mandatory operating financial review (OFR) regulations that come into force in the UK from January. All companies will be required to publish in their report and accounts an OFR that must include information on environmental policies and performance where “necessary for the understanding of the company’s development, performance and position”.
London Stock Exchange offers ‘survey fatigue’ solution
The London Stock Exchange (LSE) is launching a Corporate Responsibility Exchange (CRE) to tackle ‘survey fatigue’ among companies targeted by socially responsible investment fund managers and analysts.
UK-listed companies spend an average of seven working days a month filling in questionnaires from rating agencies, research firms and institutional investors on corporate social responsibility and corporate governance, says the LSE. Research it carried out on the issue revealed that many companies feel overwhelmed and only around a third can keep up with demands for information.
The online CRE will allow companies to answer a collection of the most commonly asked questions, taken from a number of existing questionnaires. Corporations will pay between £800 ($1,437.92) and £3,000 to be included, and the service should reduce the number of questionnaires that they receive, says the LSE. Those wanting access to the information will pay around £20,000, it says.
NY steps up pressure on utilities while feds stall
New York will require utilities in the state to reduce sulphur dioxide emissions by an additional 35,000 tons next year under the terms of emergency regulations announced on 17 August. The rules will also impose nitrogen oxide emission controls year-round and should require an extra 6,000 tons in reductions of that pollutant next year.
“Any delay in implementing these critical regulations will result in more than 40,000 tons of sulphur dioxide and nitrogen oxide being pumped into New York’s air,” said Erin Crotty, commissioner of the state’s Department of Environmental Conservation (DEC) in a statement announcing the emergency measure. “These regulations are critical in order to further protect public health and New York’s precious natural resources.”
New York had tried to impose such restrictions via Governor Pataki’s Acid Deposition Reduction Program but had been overruled in court. The DEC is appealing that decision and hoping to make these emergency health regulations a permanent rule, Crotty said.
UNEP to launch Responsible Investment Initiative
The UN Environment Programme (UNEP) is to work with institutional investors to draw up a series of guidelines for socially responsible investment (SRI), it announced in mid-July. The Responsible Investment Initiative will cover social, environmental and corporate governance issues and is intended for use by brokers and asset managers, especially pension fund managers.
However, the details of the initiative are yet to be decided and will depend on the outcome of a programme of consultation with investors, said UNEP. The final guidelines are due to be completed by September 2005.
UNEP’s decision to draw up the guidelines follows a meeting in Paris in June with a number of fund managers and investors, and the publication of its recent study The materiality of social, environmental and corporate governance issues to equity pricing (see Environmental Finance, July–August, Making connections at the UN). Compiled with 21 fund managers and brokerage houses, this warns of a threat to share prices if environmental, social and corporate governance issues are ignored by financial analysts and the broader investment community.
Australian investment managers ‘failing on disclosure’
Many Australian investment managers are not complying with either “the spirit or the letter” of disclosure requirements set out in the Corporations Act and supported by mandatory explanatory guidelines, says a report* released last month by the Australian Conservation Foundation (ACF). More fundamentally, much of Australia’s mainstream investment community does not appear to recognise the link between environmental and social performance and long-term investment returns, the report says.
Investment managers are obliged to disclose whether and how their investment decisions take account of environmental, social or ethical considerations and labour standards. The obligation was introduced through amendments to the Act made in 2001. Binding guidelines finalised last December by the Australian Securities & Investments Commission set out how investment managers should interpret the new requirements. But many investment managers are not fulfilling their disclosure obligations, says ACF corporate responsibility campaigner Charles Berger.
“The guidelines are clear: if you claim to take ethical considerations into account, you have to tell investors what your criteria and methodology are,” Berger says. “Except for the specialist SRI funds, most product issuers just aren’t doing that.”
RWE looks to weather options
RWE Trading – the trading arm of Germany-based utility giant RWE – is to begin trading weather options, in a move that could see an increase in the volume of weather trading carried out by the group. It is also carrying out an assessment of an ‘internal market’ in risk that could see it begin to hedge its massive weather exposures, according to a company source. However, for the time being it has shelved plans to offer weather derivatives products to its clients.
To date, RWE Trading’s UK-based weather desk has only participated in the weather market on a speculative basis, and this is likely to continue in the short term. However, the source says that, once it assesses where the risk lies connected to its gas exposures, it may begin hedging its related weather exposures in the UK and continental Europe.
US renewables industry applauds Kerry plans
John Kerry’s $30 billion energy plan has received a warm welcome from the US renewable energy industry. Unveiled in early August, the Democratic Party US presidential hopeful’s plan sets ambitious targets of deriving 20% of power generation and vehicle fuel from renewable resources by 2020.
“Our highest priorities were included in the proposal,” says Randy Swisher, executive director of the American Wind Energy Association. These are a federal ‘renewable portfolio standard’ setting a national target for power from renewables and a long-term ‘production tax credit’ (PTC) payable to generators of renewable energy. “If we have these two things, the market for wind will take off like nobody’s business,” Swisher predicts.
The plan proposes a five- to seven-year PTC, applied to “the full range of renewables technologies”. Under the current system, the credit (currently worth 1.8c/kWh) has to be renewed on an annual basis. The PTC lapsed at the end of last year, putting the brakes on new wind farm development in the US.
SUBSCRIBE for the full story each month