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Analysis: A nay to fossil fuels

By Paul Mackintosh  
October 23, 2019

At the recent Building Bridges Summit in Geneva, billed as a major event to connect the financial community and the United Nations’ 17 Sustainable Development Goals (SDGs), the first and loudest spontaneous cheer from the audience came when Thomas Vellacott, chief executive officer of WWF Switzerland, asked why the financial sector was still lending to fossil fuel companies. And this was a hard financial audience, comprising some 900 Swiss and international representatives from the world’s foremost banking, asset management and investment companies, as well as every level of Swiss policy echelons.

With this kind of support for retreat from petrochemicals assets, it’s hardly surprising that, according to Bloomberg, Singapore’s Temasek Holdings has decided against investing in the upcoming Saudi Aramco initial public offering. The decision underlines a statement in September by Temasek International CEO Dilhan Pillay that the state investment company would probably not be investing in fossil fuel assets in future.

Time and again when talking to investors and asset managers lately, I’ve heard comment on the need to divest from, or avoid exposure to, petrochemicals assets. The constant refrain is that those assets are an unacceptable risk in financial as much as in environmental terms; their potential deterioration in value means that investors do not want to be locked into a losing story.

The fact that no one can accurately price in the potential downside risk of climate change, since there is no past precedent for it, only increases the unacceptable level of uncertainty.

Certain other issues weren’t mentioned regarding Temasek’s decision. These include Saudi Arabia’s dreadful human rights record; its retrogressive social structure – which makes a mockery of gender equality, the fifth SDG – to name but one; its apparent inability to protect its own oil assets, as in the recent drone attacks; and its abysmal war record in Yemen.

But the sheer pragmatic financial grounds were obviously enough for Temasek. Aramco hardly looks like a safe asset for anyone concerned about climate-related downside risk. It produced 4.4% of the entire world total carbon emissions since 1965, according to research quoted by Bloomberg.

There was one other loud cheer from the audience at the summit in Geneva. That was when Andre Hoffman, vice chairman of Roche and billionaire member of the family that controls the pharmaceutical giant, declared that “short-term profit maximisation has destroyed the planet, environmentally and socially”. That’s a slightly louder call than the Saudi monarchy’s call for investors to keep it afloat on its lake of oil.