How Church’s Leaning Toward Renewable Energy Will Affect BP and Shell

By: MICHEAL KAUFMAN
Published: Dec 5, 2014 at 10:29 am EST

Companies engaged in the oil businesses are increasingly in the limelight and under pressure to adopt techniques that will assure minimum carbon emissions into the environment. In a recent development, the Church of England (COE) has urged BP plc. (ADR) (NYSE:BP) and Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) to cut carbon emission levels and invest more in renewable energy. The COE, along with church commissioners, that manage a $9.5 billion investment portfolio, and the Church of England’s pension board that manages a $2.34 billion fund, both plan to file shareholder resolutions on climatic change in the next four weeks.

The move was aimed to demonstrate the Church’s role in societal well-being. The Church has deep guidelines on which businesses to invest in, and which to avoid. The lead on the issue was taken by CCLA investment Management (The Church’s fund managers), which manages around $2.35 billion (1.5 billion pounds) in the CBF Church of England Funds.

Overall, the Church manages $9 billion in investment portfolios. It had expressed concerns over global warming’s impact on climatic change. According to latest research by the Intergovernmental Panel on Climatic Change (IPCC), the world is on a verge of a detrimental climatic change, and companies should lower their carbon exposure to avoid further damages. The Church particularly pointed towards BP and Shell, two of the largest oil companies in the world, which have the highest exposure to these carbon emissions of all the companies that are listed on the London Stock Exchange (LSE).

Edward Mason, the head of investment at the Church Commissioners, said: “If we are to avoid catastrophic climate change, the current business models of the energy majors are not sustainable in the long term.” He also indicated that oil companies have a higher responsibility, as their operations involve burning fossil fuels that contribute substantially to these climatic changes.

The COE has investments in both Shell and BP, which are two of the top-five investments in its $9 billion investment fund. The COE’s stake in Shell and BP are $156.25 million (100 million pounds) and $78.12 million (50 million pounds), respectively. Although the COE holds an overall stake of less than 1% each in both companies, it is highly optimistic that it will be able to draw support from over 100 shareholders. It believes that this issue holds great ethical significance, which would be the basis for it gaining support.

This intervention comes as a result of severe pressure on the Church to cancel its investments in the fossil fuel business; this is fueled by a meeting of the United Nations (UN) next week in Lima, Peru, which will comprise of ministers from over 200 countries. The meeting would discuss a draft text for the carbon reduction deal next year.

Mr. Mason also pointed out that these renewable forms of energy are the future of the oil industry, and if these companies want to sustain their profitability in the long-term, they would have to adapt to these alternate forms of energy. Considering the relatively smaller size of investments by the Church in the two oil giants, it would be difficult for it to convince the companies to adapt the newer model. The Church would require substantial support from other shareholders, which seems rather unlikely at the moment.

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