News June 2005

The following are summaries of news stories from the June 2005 print edition of Environmental Finance magazine

NGOs appeal to banks over controversial Lao dam

NGOs have asked private sector banks involved in financing the proposed Nam Theun 2 dam in Laos to include a requirement for independent monitoring of the project in their loan agreements.

The request follows an announcement in early May by the project’s developer, Nam Theun 2 Power Company, that it had secured $1 billion of financing – the most raised by a private sector hydropower project to date. This figure includes loans worth a total of $326 million from nine international banks and $500 million from seven Thai banks. Alongside these are arrangements with a number of multilateral banks and export credit agencies, including the World Bank.

NGOs have voiced concerns about the social and environmental effects of the 1,070MW project and claim that the developer’s environmental impact assessment and social development plan are “seriously flawed” – and hence not a suitable basis for the World Bank’s support of the project.

JPMorgan Chase enters emissions markets

The second largest bank in the US has entered the energy and emissions markets with a slew of hires from reeling financial institution Morgan Stanley Dean Witter. JPMorgan Chase has appointed George ‘Beau’ Taylor as global head of gas and power trading and Trevor Woods as vice president and head of US coal and emissions trading, among others, to help launch this new business.

The bank hopes to build a world-class energy and energy-related commodities trading business, according to company spokesman Brian Marchiony. By 17 May, JPMorgan had hired seven people for its US trading team and one for its London office to focus exclusively on trading these commodities. Most came from Morgan Stanley – which has been haemorrhaging senior staff in recent months – and which declined to comment for this story.

Climate talks lead to rare sense of optimism

Progress towards a post-2012 climate change regime was unexpectedly boosted in Bonn last month, with participants at an intergovernmental seminar on the issue reporting a new mood of optimism among climate negotiators.

“We were nervous going into the meeting about what would transpire,” says a Canadian official who was present. “But we were very pleased with how it went. Everyone was talking about moving forward.”

The meeting – dubbed the Seminar of Government Experts – was one of the few outcomes of COP 10, the latest major UN climate change meeting, which took place in Buenos Aires last December. The seminar – which has no formal role in moving the UN climate change process forward – was intended to promote “an informal exchange of information” ahead of the next meeting, in Montreal at the end of this year.

Henderson looks to sustainable future

Henderson Global Investors is in the process of reorientating £250 million ($457.5 million) of its socially responsible investment (SRI) assets away from traditional ‘screened’ portfolios into companies that are working towards a more sustainable future. The UK-based asset manager believes that it is the first to draw up a comprehensive global universe of such companies.

“In recent years, people have drawn a funny equation that says corporate social responsibility [CSR] equals SRI, which means that many companies that met a minimum hurdle on CSR made it into SRI funds,” says Mark Campanale, UK-based head of SRI business development at Henderson. “The effect of that was that many SRI funds looked like normal funds.”

Acting in response to investors’ wishes, Henderson has altered the criteria under which its £195 million Global Care Growth Fund is invested to focus on “industries of the future” that are working to solve problems such as pollution, climate change and the increasing consumption of resources. At the end of April, retail and institutional investors in the £55 million Henderson Ethical Fund voted in favour of following the same stance, and to change the name of the fund to the Henderson Industries of the Future Fund.

GE makes green push

US industrial giant GE has followed in the steps of JPMorgan Chase in announcing a bold environmental commitment – and also in calling for progress from the US federal government on energy and environmental policy.

“We are living in a carbon-constrained world, where the amount of carbon dioxide must be reduced,” said Jeff Immelt, GE’s CEO, in a 9 May speech. He called on the US government to provide leadership by clarifying policy, committing to the use of market mechanisms – such as emissions trading – and promoting diverse energy sources.

The speech launched the company’s ‘ecomagination’ strategy – a major push into environmental technologies, which aims to double GE’s revenues from this sector by 2010.

It also included a commitment to reduce GE’s greenhouse gas (GHG) emissions to 1% below 2004 levels by 2012, and to reduce its GHG intensity – a measure of emissions per unit of output – by 30% by 2008 compared with 2004.

Europe to get first SRI hedge fund

UK-based Armajaro Asset Management plans to launch what it believes will be Europe’s first socially responsible investment (SRI) hedge fund later this summer.

The market-neutral Coolum Strategus SRI fund will take a long position in European listed companies that are undervalued or show strong social and environmental performance, and a short position in those with a poor social and environmental record or that have poor financial prospects, says Roel Bellens, managing director of Belgian research boutique Strategus, which will act as an advisor to the fund.

Carbon volumes jump, but uncertainties persist

The launch of the EU Emissions Trading Scheme has contributed to a dramatic jump in carbon trading volumes, according to the latest World Bank study of the market. But, despite significant pent-up demand for carbon credits, growth in ‘project-based’ reduction trading slowed in 2004, underscoring concerns about the ability of the Kyoto Protocol’s Clean Development Mechanism (CDM) to deliver large volumes of credits quickly.

The report, State and Trends of the Carbon Market 2005, examined trades in ‘project-based’ markets, particularly the Kyoto Protocol’s CDM and Joint Implementation schemes, and allowance markets, such as the EU Emissions Trading Scheme (ETS).

Project-based trades rose to 107 million tonnes (Mt) of carbon dioxide equivalent in 2004, up 38% from the previous year, a much less sharp rise than in the previous two years. However, the launch of the EU ETS has led to an explosion in allowance trading which, between the inception of the market in 1998 and May 2004, accounted for only 2.5% of total volumes. In the first three months of this year, after the scheme’s official launch on 1 January, the report tracked 39Mt of trades in the EU ETS, compared to 43Mt of project transactions.

IDB to update environmental and social policy

The Inter-American Development Bank (IDB) plans to begin “mainstreaming” environmental and social concerns in its development lending, adopting in large part the recommendations of a specially commissioned panel.

“These recommendations will serve as a springboard to an enhanced environmental agenda, which the bank is already in the process of carrying out,” said Enrique Inglesias, IDB president.

The panel, chaired by Bruce Babbitt, a Clinton-era US secretary of the interior, made 20 recommendations overall, including harmonising IDB practices with those of other multilateral financial institutions, such as the International Finance Corporation and commercial banks that have signed the Equator Principles (see pages 16–17).

UK planning trading scheme for oil platform discharges

From the start of next year, the discharge of oil from offshore oil and gas platforms in the waters around the UK will be covered by an emissions trading scheme.

Legislation is due to go before the UK parliament this summer to allow the ‘dispersed oil in produced water trading scheme’ to start on 1 January. The scheme would include the 100-plus platforms on the UK continental shelf which expel water during the processing of oil and gas, and is designed to meet an international obligation to reduce the amount of oil that is released back into the sea with this so-called ‘produced water’.

EU proposes cash for developing country weather programme

The European Commission has proposed €25 million ($31.5 million) in initial financing for a programme to help developing countries provide weather risk management products to their agricultural sectors.

The Global Index Insurance Facility – under development by the International Task Force (ITF) on Commodity Risk Management – is intended to bridge the gap between local weather insurance programmes and the international insurance markets. “Risk management can unlock wealth,” said John Nash, advisor in the agriculture and rural development department of the World Bank, speaking after the 8th annual meeting of the ITF, a public–private partnership, in Switzerland last month. “Our goal is to offer poor people in developing countries the opportunity to reduce their vulnerability to extreme [commodity] price and weather events.”

Major investors pledge $1 billion for clean technology

Institutional investors that collectively manage more than $3 trillion in assets will aim to invest $1 billion over the next 12 months to help promote the use of clean technology.

This was one of the key commitments resulting from this year’s Institutional Investor Summit on Climate Risk, held in New York on 10 May. Such an investment, they said, “will enhance and sustain the long-term viability of corporate assets and shareholder value.”

In another commitment, the investors said they would “require and validate that relevant investment managers, seeking to manage our fund assets, describe the resources, expertise and process that they use to assess the risks associated with climate change”.

go to Features June 2005