Report for the UN into the activities of the world's 3,000 biggest companies estimates one-third of profits would be lost if firms were forced to pay for use, loss and damage of environment•
Juliette Jowit
guardian.co.uk, Thursday 18 February 2010 18.19 GMT
The cost of pollution and other damage to the natural environment caused by the world's biggest companies would wipe out more than one-third of their profits if they were held financially accountable, a major unpublished study for the United Nations has found.
The report comes amid growing concern that no one is made to pay for most of the use, loss and damage of the environment, which is reaching crisis proportions in the form of pollution and the rapid loss of freshwater, fisheries and fertile soils.
Later this year, another huge UN study - dubbed the "Stern for nature" after the influential report on the economics of climate change by Sir Nicholas Stern - will attempt to put a price on such global environmental damage, and suggest ways to prevent it. The report, led by economist Pavan Sukhdev, is likely to argue for abolition of billions of dollars of subsidies to harmful industries like agriculture, energy and transport, tougher regulations and more taxes on companies that cause the damage.
Ahead of changes which would have a profound effect - not just on companies' profits but also their customers and pension funds and other investors - the UN-backed Principles for Responsible Investment initiative and the United Nations Environment Programme jointly ordered a report into the activities of the 3,000 biggest public companies in the world, which includes household names from the UK's FTSE 100 and other major stockmarkets.
The study, conducted by London-based consultancy Trucost and due to be published this summer, found the estimated combined damage was worth US$2.2 trillion (£1.4tn) in 2008 - a figure bigger than the national economies of all but seven countries in the world that year.
The figure equates to 6-7% of the companies' combined turnover, or an average of one-third of their profits, though some businesses would be much harder hit than others.
"What we're talking about is a completely new paradigm," said Richard Mattison, Trucost's chief operating officer and leader of the report team. "Externalities of this scale and nature pose a major risk to the global economy and markets are not fully aware of these risks, nor do they know how to deal with them."
The biggest single impact on the $2.2tn estimate, accounting for more than half of the total, was emissions of greenhouse gases blamed for climate change. Other major "costs" were local air pollution such as particulates, and the damage caused by the over-use and pollution of freshwater.
The true figure is likely to be even higher because the $2.2tn does not include damage caused by household and government consumption of goods and services, such as energy used to power appliances or waste; the "social impacts" such as the migration of people driven out of affected areas, or the long-term effects of any damage other than that from climate change. The final report will also include a higher total estimate which includes those long-term effects of problems such as toxic waste.
Trucost did not want to comment before the final report on which sectors incurred the highest "costs" of environmental damage, but they are likely to include power companies and heavy energy users like aluminium producers because of the greenhouse gases that result from burning fossil fuels. Heavy water users like food, drink and clothing companies are also likely to feature high up on the list.
Sukhdev said the heads of the major companies at this year's annual economic summit in Davos, Switzerland, were increasingly concerned about the impact on their business if they were stopped or forced to pay for the damage.
"It can make the difference between profit and loss," Sukhdev told the annual Earthwatch Oxford lecture last week. "That sense of foreboding is there with many, many [chief executives], and that potential is a good thing because it leads to solutions."
The aim of the study is to encourage and help investors lobby companies to reduce their environmental impact before concerned governments act to restrict them through taxes or regulations, said Mattison.
"It's going to be a significant proportion of a lot of companies' profit margins," Mattison told the Guardian. "Whether they actually have to pay for these costs will be determined by the appetite for policy makers to enforce the 'polluter pays' principle. We should be seeking ways to fix the system, rather than waiting for the economy to adapt. Continued inefficient use of natural resources will cause significant impacts on [national economies] overall, and a massive problem for governments to fix."
Another major concern is the risk that companies simply run out of resources they need to operate, said Andrea Moffat, of the US-based investor lobby group Ceres, whose members include more than 80 funds with assets worth more than US$8tn. An example was the estimated loss of 20,000 jobs and $1bn last year for agricultural companies because of water shortages in California, said Moffat.
Friday, 19 February 2010
Drax power plant suspends plan to replace coal with greener fuel
Ben Webster, Environment Editor
Britain’s biggest power station has suspended its plan to replace coal with greener fuel, leaving the Government little chance of meeting its target for renewable energy.
Drax, in North Yorkshire, which produces enough electricity for six million homes, is withdrawing a pledge to cut CO2 emissions by 3.5 million tonnes a year, or 17.5 per cent.
The power station, which is the country’s largest single source of CO2, has invested £80 million in a processing unit for wood, straw and other plant-based fuels, known as biomass. The unit is designed to produce more renewable electricity than 600 wind turbines, but will operate at only a fraction of its capacity because Drax says it is cheaper to continue to burn coal.
Drax is also one of dozens of companies delaying investments in new biomass power stations because of uncertainty over the Government’s policy on long-term subsidies. Hundreds of farmers growing biomass crops may now struggle to sell their produce.
Drax’s decision will make it almost impossible for the Government to meet its commitment to increase the proportion of electricity from renewable sources from 5.5 per cent to 30 per cent by 2020. Renewable energy is a key component of Britain’s legally binding targets to cut overall emissions by 34 per cent by 2020 and 80 per cent by 2050.
In an interview with The Times, Dorothy Thompson, Drax’s chief executive, blamed the Government for failing to give sufficient subsidy to biomass to make it competitive with coal.
Drax has bought two million tonnes of biomass, but Ms Thompson said that it was considering selling it overseas because it no longer made economic sense to burn it in its six boilers.
Ms Thompson said: “We are not confident that the [subsidy] regime for what is one of the cheapest forms of renewable energy will support operat- ing the biomass unit at full load. The UK is missing out massively on the potential for renewable energy from biomass. We want to run in a lowcarbon way but policy is against us.”
She accused the Department of Energy and Climate Change of lacking the skills to develop a successful biomass policy and focusing too heavily on expensive and unreliable wind turbines. “I think they simply have not put enough expertise into biomass. Wind is not a silver bullet; its benefits have been overstated.”
Ms Thompson said that the Government was holding back biomass by offering it only a quarter of the subsidy given to offshore wind farms and capping the amount of crops that can be burnt in coal-fired power stations.
She said that it was cheaper for Drax to pay for emissions permits to burn coal, the most polluting fossil fuel, than to switch to biomass.
Each megawatt hour of electricity costs Drax £31 to produce from coal and £40 from biomass.
Ms Thompson said that Drax would also be unable to proceed with its £2 billion plan for three new biomass power plants unless the Government offered longer-term support. “We do not believe we can create a credible investment case for our shareholders if there is complete regulatory uncertainty. This is a very serious issue because renewable energy through biomass is a key component for delivering the 2020 target.”
The Renewable Energy Association said that plans for more than 50 biomass projects, totalling £13 billion of investment, had been suspended because of uncertainty over policy. Lord Hunt of Kings Heath, the Energy Minister, said this month that the subsidy regime for biomass needed to be reviewed. Wind farm developers are guaranteed fixed subsidies for 20 years, but biomass investors could have the subsidy cut after four years.
Britain’s biggest power station has suspended its plan to replace coal with greener fuel, leaving the Government little chance of meeting its target for renewable energy.
Drax, in North Yorkshire, which produces enough electricity for six million homes, is withdrawing a pledge to cut CO2 emissions by 3.5 million tonnes a year, or 17.5 per cent.
The power station, which is the country’s largest single source of CO2, has invested £80 million in a processing unit for wood, straw and other plant-based fuels, known as biomass. The unit is designed to produce more renewable electricity than 600 wind turbines, but will operate at only a fraction of its capacity because Drax says it is cheaper to continue to burn coal.
Drax is also one of dozens of companies delaying investments in new biomass power stations because of uncertainty over the Government’s policy on long-term subsidies. Hundreds of farmers growing biomass crops may now struggle to sell their produce.
Drax’s decision will make it almost impossible for the Government to meet its commitment to increase the proportion of electricity from renewable sources from 5.5 per cent to 30 per cent by 2020. Renewable energy is a key component of Britain’s legally binding targets to cut overall emissions by 34 per cent by 2020 and 80 per cent by 2050.
In an interview with The Times, Dorothy Thompson, Drax’s chief executive, blamed the Government for failing to give sufficient subsidy to biomass to make it competitive with coal.
Drax has bought two million tonnes of biomass, but Ms Thompson said that it was considering selling it overseas because it no longer made economic sense to burn it in its six boilers.
Ms Thompson said: “We are not confident that the [subsidy] regime for what is one of the cheapest forms of renewable energy will support operat- ing the biomass unit at full load. The UK is missing out massively on the potential for renewable energy from biomass. We want to run in a lowcarbon way but policy is against us.”
She accused the Department of Energy and Climate Change of lacking the skills to develop a successful biomass policy and focusing too heavily on expensive and unreliable wind turbines. “I think they simply have not put enough expertise into biomass. Wind is not a silver bullet; its benefits have been overstated.”
Ms Thompson said that the Government was holding back biomass by offering it only a quarter of the subsidy given to offshore wind farms and capping the amount of crops that can be burnt in coal-fired power stations.
She said that it was cheaper for Drax to pay for emissions permits to burn coal, the most polluting fossil fuel, than to switch to biomass.
Each megawatt hour of electricity costs Drax £31 to produce from coal and £40 from biomass.
Ms Thompson said that Drax would also be unable to proceed with its £2 billion plan for three new biomass power plants unless the Government offered longer-term support. “We do not believe we can create a credible investment case for our shareholders if there is complete regulatory uncertainty. This is a very serious issue because renewable energy through biomass is a key component for delivering the 2020 target.”
The Renewable Energy Association said that plans for more than 50 biomass projects, totalling £13 billion of investment, had been suspended because of uncertainty over policy. Lord Hunt of Kings Heath, the Energy Minister, said this month that the subsidy regime for biomass needed to be reviewed. Wind farm developers are guaranteed fixed subsidies for 20 years, but biomass investors could have the subsidy cut after four years.
CDP sends out carbon questionnaires to 4,500 firms
London, 18 February:
More than 4,500 companies have been sent questionnaires about their greenhouse gas emissions and climate strategies this year by the Carbon Disclosure Project (CDP). This is up from 3,700 companies questioned last year.
The number of institutional investors signed up to this year’s CDP request has also increased, to 534 with $64 trillion in assets under management, from 475 investors in 2009, at that time managing around $55 trillion.
Signing up to the request for information this year for the first time were Wells Fargo, BNY Mellon and the Industrial Bank of Korea, among others.
For 10 years, the CDP has asked constituents of the FT500 – the world’s largest listed companies – to disclose investment-related information about climate change. It has gradually increased its reach.
The CDP this year wrote for the first time to companies in Turkey, Peru, Morocco, Egypt and Israel.
The largest global companies reporting to the CDP will be given a performance score on actions they have taken to address climate change, such as setting emission reduction targets, achieved and expected reductions, governance structures and getting their data externally verified.
For the first time, the results will be published in a performance leadership index, expected to be released in September this year.
The CDP has also upgraded its system for reporting this year, introducing online tools developed with Accenture, Microsoft and SAP. Henk de Bruin, head of corporate sustainability at electronics firm Philips, which piloted the upgraded tools, said they “enable greater analysis of the CDP data to benchmark against peers and other sectors and geographies”.
More than 4,500 companies have been sent questionnaires about their greenhouse gas emissions and climate strategies this year by the Carbon Disclosure Project (CDP). This is up from 3,700 companies questioned last year.
The number of institutional investors signed up to this year’s CDP request has also increased, to 534 with $64 trillion in assets under management, from 475 investors in 2009, at that time managing around $55 trillion.
Signing up to the request for information this year for the first time were Wells Fargo, BNY Mellon and the Industrial Bank of Korea, among others.
For 10 years, the CDP has asked constituents of the FT500 – the world’s largest listed companies – to disclose investment-related information about climate change. It has gradually increased its reach.
The CDP this year wrote for the first time to companies in Turkey, Peru, Morocco, Egypt and Israel.
The largest global companies reporting to the CDP will be given a performance score on actions they have taken to address climate change, such as setting emission reduction targets, achieved and expected reductions, governance structures and getting their data externally verified.
For the first time, the results will be published in a performance leadership index, expected to be released in September this year.
The CDP has also upgraded its system for reporting this year, introducing online tools developed with Accenture, Microsoft and SAP. Henk de Bruin, head of corporate sustainability at electronics firm Philips, which piloted the upgraded tools, said they “enable greater analysis of the CDP data to benchmark against peers and other sectors and geographies”.
Companies not satisfying thirst for water reporting
London, 18 February:
One hundred water-dependent firms have been chastised by investors for weak disclosure of their exposure to water risks.
The best score in a survey by investor coalition Ceres of global listed companies in water-intensive sectors such as chemicals, electric power and mining was earned by UK drinks firm Diageo – but it managed to garner only 43 out of a possible 100 points.
Eighty of the companies scored less than 30 points.
Ceres’ president Mindy Lubber said: “Most companies provide basic disclosure on overall water use and water scarcity concerns, but their focus and attention so far is not nearly at the level needed given the enormity of this growing global challenge.”
No companies disclosed “comprehensive” data on water use and reporting of water risks in their supply chains was particularly poor, Ceres found, although Danone, SABMiller and Unilever did provide estimates of the water use embedded in their supply chains. “For example, Danone reports the water footprint for its milk and water divisions at each stage of the product lifecycle, including raw material production, processing, packaging and logistics,” Ceres said.
The report chided companies for using “vague, boilerplate language” about water risks in their annual reports or financial filings. “They fail to reference specific at-risk operations or supply chains and lack any attempt to quantify or monetise risk,” it said.
Likewise, Ceres, which published the report with US financial services firm UBS and data provider Bloomberg, found some companies disclosing risks in their sustainability report, but leaving the information out of financial reports, “a finding that indicates an ongoing lack of integration between voluntary reports and regulated financial filings”.
Only 21 of the companies disclosed a quantified goal to reduce their water use, the report found, while only three – Diageo, chemicals firm DuPont and Swiss mining company Xstrata – set reduction targets differentiated by the level of water stress at specific facilities.
Just 14 provided data on water use broken down to regional or site-specific levels. Ceres said: “Because water risk is geographically dependent, this absence of context makes it nearly impossible for investors and analysts to assess corporate exposure to water scarcity, or to understand if corporate actions to mitigate risk are either appropriate or effective.”
“This report makes clear that companies are not providing investors with the kind of information they need to understand the risks and opportunities posed by water scarcity,” said Jack Ehnes, CEO of the California State Teachers Retirement System, the second largest public pension fund in the US with $134 billion under management.
One hundred water-dependent firms have been chastised by investors for weak disclosure of their exposure to water risks.
The best score in a survey by investor coalition Ceres of global listed companies in water-intensive sectors such as chemicals, electric power and mining was earned by UK drinks firm Diageo – but it managed to garner only 43 out of a possible 100 points.
Eighty of the companies scored less than 30 points.
Ceres’ president Mindy Lubber said: “Most companies provide basic disclosure on overall water use and water scarcity concerns, but their focus and attention so far is not nearly at the level needed given the enormity of this growing global challenge.”
No companies disclosed “comprehensive” data on water use and reporting of water risks in their supply chains was particularly poor, Ceres found, although Danone, SABMiller and Unilever did provide estimates of the water use embedded in their supply chains. “For example, Danone reports the water footprint for its milk and water divisions at each stage of the product lifecycle, including raw material production, processing, packaging and logistics,” Ceres said.
The report chided companies for using “vague, boilerplate language” about water risks in their annual reports or financial filings. “They fail to reference specific at-risk operations or supply chains and lack any attempt to quantify or monetise risk,” it said.
Likewise, Ceres, which published the report with US financial services firm UBS and data provider Bloomberg, found some companies disclosing risks in their sustainability report, but leaving the information out of financial reports, “a finding that indicates an ongoing lack of integration between voluntary reports and regulated financial filings”.
Only 21 of the companies disclosed a quantified goal to reduce their water use, the report found, while only three – Diageo, chemicals firm DuPont and Swiss mining company Xstrata – set reduction targets differentiated by the level of water stress at specific facilities.
Just 14 provided data on water use broken down to regional or site-specific levels. Ceres said: “Because water risk is geographically dependent, this absence of context makes it nearly impossible for investors and analysts to assess corporate exposure to water scarcity, or to understand if corporate actions to mitigate risk are either appropriate or effective.”
“This report makes clear that companies are not providing investors with the kind of information they need to understand the risks and opportunities posed by water scarcity,” said Jack Ehnes, CEO of the California State Teachers Retirement System, the second largest public pension fund in the US with $134 billion under management.
Europe on course to meet 2020 renewables targets – EWEA
London, 18 February:
The EU is on course to slightly exceed its target of sourcing 20% of its energy from renewables by 2020, according to the European Wind Energy Association (EWEA).
However, a leading renewable energy consultant has suggested that EWEA has been somewhat “quick on the buzzer” and that, while policies may be in place, delivery is less certain.
Brussels-based EWEA has carried out an analysis of all 27 member states’ national renewable energy forecasts documents, submitted to the European Commission.
Twenty-one countries say they are set to meet or exceed their targets, led by Spain, which claims to be on course to reach 22.7% renewables by 2020, three percentage points above its targets (click here for a table).
Six do not expect to meet their targets through domestic action alone, with Italy at the bottom of the league – although none of these six expect to be more than one percentage point adrift.
“Europe has witnessed a sea-change since the 2009 Renewable Energy Directive was agreed as in 2008 many countries were stating that their target would be difficult to meet – now the majority are forecasting that they will meet or exceed their national target,” said Justin Wilkes, Policy Director of EWEA.
Arnaud Bouillé, a London-based director in consultancy Ernst & Young’s energy and environmental infrastructure business, welcomed the development of renewable energy policy shown by the submissions.
“From a policy perspective, its fantastic to see … a large amount of policy leadership. But if you go through the submissions, it’s not as clear cut as it seems.
“There are issues around delivery, and whether the market will be able to react to [the] incentives. It’s yet to be seen,” he said.
Specifically, he noted that offshore wind is expected to make “a significant contribution. Targets are very ambitious and are unlikely to be met.”
Nonetheless, Germany expects to exceed its 18% target by 0.7 percentage points, while Estonia, Greece, Ireland, Poland, Slovakia and Sweden all expect to over-comply.
The six who expect to miss their targets are Belgium, Italy, Luxembourg and Malta, together with Bulgaria and Denmark. However, these last two say they plan to introduce additional policies to meet their goals.
Italy, meanwhile, foresees importing renewable energy from neighbouring non-EU countries (Albania, Croatia, Serbia and Tunisia), EWEA says.
The EU is on course to slightly exceed its target of sourcing 20% of its energy from renewables by 2020, according to the European Wind Energy Association (EWEA).
However, a leading renewable energy consultant has suggested that EWEA has been somewhat “quick on the buzzer” and that, while policies may be in place, delivery is less certain.
Brussels-based EWEA has carried out an analysis of all 27 member states’ national renewable energy forecasts documents, submitted to the European Commission.
Twenty-one countries say they are set to meet or exceed their targets, led by Spain, which claims to be on course to reach 22.7% renewables by 2020, three percentage points above its targets (click here for a table).
Six do not expect to meet their targets through domestic action alone, with Italy at the bottom of the league – although none of these six expect to be more than one percentage point adrift.
“Europe has witnessed a sea-change since the 2009 Renewable Energy Directive was agreed as in 2008 many countries were stating that their target would be difficult to meet – now the majority are forecasting that they will meet or exceed their national target,” said Justin Wilkes, Policy Director of EWEA.
Arnaud Bouillé, a London-based director in consultancy Ernst & Young’s energy and environmental infrastructure business, welcomed the development of renewable energy policy shown by the submissions.
“From a policy perspective, its fantastic to see … a large amount of policy leadership. But if you go through the submissions, it’s not as clear cut as it seems.
“There are issues around delivery, and whether the market will be able to react to [the] incentives. It’s yet to be seen,” he said.
Specifically, he noted that offshore wind is expected to make “a significant contribution. Targets are very ambitious and are unlikely to be met.”
Nonetheless, Germany expects to exceed its 18% target by 0.7 percentage points, while Estonia, Greece, Ireland, Poland, Slovakia and Sweden all expect to over-comply.
The six who expect to miss their targets are Belgium, Italy, Luxembourg and Malta, together with Bulgaria and Denmark. However, these last two say they plan to introduce additional policies to meet their goals.
Italy, meanwhile, foresees importing renewable energy from neighbouring non-EU countries (Albania, Croatia, Serbia and Tunisia), EWEA says.
Moore Capital seen as key to TEP/Leaf merger
17 February, 2010
The merger of Trading Emissions Plc (TEP) and Leaf Clean Energy was hanging in the balance Wednesday, with management believed to be wooing a key investor in the run-up to Friday’s extraordinary general meeting (EGM).
Last week, two major TEP shareholders announced that they were opposed to the merger – Moore Capital, with 16% of TEP, and Scottish Widows Investment Partnership (SWIP), holding 9.3%.
TEP shareholders representing 75% of those shares that are voted need to support the merger for it to go through. However, despite this apparent blocking minority, the EGM is going ahead – leading to speculation that the terms of the deal could be changed to persuade at least one of the opposing shareholders to support it.
“I haven’t been contacted by management since last week,” Johnny Russell, investment director at SWIP, told Carbon Finance. “If I was key to the deal, the terms would have been presented to me ... What’s interesting is the fact that the EGM is going ahead.”
Moore Capital could not be contacted for comment, and the managements of clean energy private equity investor Leaf Clean Energy and carbon fund manager TEP declined to comment, beyond reiterating their view that the merger has “strategic and financial logic” for the two companies. In December, the boards of the two London-listed companies announced plans to seek an all-share merger, on a “formula asset value basis”. On 13 January, when the scheme document was posted, this valued TEP at 148.9p ($2.34) per share – a considerable premium to TEP’s 94.5p share price – and Leaf Clean Energy at 100.2p.
However, TEP shares subsequently dropped to 82.5p on 9 February. Meanwhile, Leaf shares, which had traded at 96.5p almost all of last year, had fallen as low as 57.5p by late January.
Both shares rallied, somewhat, on news last week of SWIP and Moore Capital’s opposition, to 91p and 62.5p, respectively.
“The major thing throwing this for a six is that Leaf’s share price had gone from £1 to 57p,” said Gus Hochschild, an analyst at Mirabaud Securities. “What they had been offering TEP has sunk by 40p. The pricing of the merger is out of kilter.”
“The advantage always accrued more to Leaf shareholders,” said Andrew Shepherd-Barron, at brokers KBC Peel Hunt. “There are some synergies, but not enough to get the juices flowing.”
SWIP’s concerns, said Russell, were that the relatively transparent assets held by TEP – cash and carbon credits – would be diluted by the “longer-duration, harder-to-value” private equity renewable energy investments made by Leaf.
“If TEP is independent, I can invest at 85p today and get 150p over the three years” to the end of the Kyoto Protocol period, he said. “That’s a very attractive return.”
Meanwhile, Adam Forsyth, an analyst at the Matrix Group, said that “you could argue that the merger is locking in a low value of the carbon price,” given that TEP’s net asset value would rise if carbon prices rallied.
Moore Capital, meanwhile, had supported the merger when it was first proposed by management but, in a statement reported by Bloomberg last week, said: “It is Moore Capital’s current intention not to vote in favour of the merger.”
The use of the word “current” has led to speculation that Moore is seeking more favourable terms. As Carbon Finance went to press on Wednesday afternoon, TEP and Leaf Clean Energy were due to announce the terms of the merger via the London Stock Exchange.
“One of the things we have speculated on is that the managements could offer a distribution of some of the cash in both TEP and Leaf, without damaging their business plans,” said Forsyth. Mirabaud puts the unrestricted cash balances of the two firms at £182.2 million.
Alternatively, management could alter the exchange ratio at which TEP and Leaf shares would be converted into shares in the merged company, more in TEP’s favour.
“The Leaf and TEP boards have some flexibility, but to make it work, they need to offer more to TEP shareholders,” added Forsyth. “The question is, if they do, would they get the support of Leaf shareholders?”
The merger of Trading Emissions Plc (TEP) and Leaf Clean Energy was hanging in the balance Wednesday, with management believed to be wooing a key investor in the run-up to Friday’s extraordinary general meeting (EGM).
Last week, two major TEP shareholders announced that they were opposed to the merger – Moore Capital, with 16% of TEP, and Scottish Widows Investment Partnership (SWIP), holding 9.3%.
TEP shareholders representing 75% of those shares that are voted need to support the merger for it to go through. However, despite this apparent blocking minority, the EGM is going ahead – leading to speculation that the terms of the deal could be changed to persuade at least one of the opposing shareholders to support it.
“I haven’t been contacted by management since last week,” Johnny Russell, investment director at SWIP, told Carbon Finance. “If I was key to the deal, the terms would have been presented to me ... What’s interesting is the fact that the EGM is going ahead.”
Moore Capital could not be contacted for comment, and the managements of clean energy private equity investor Leaf Clean Energy and carbon fund manager TEP declined to comment, beyond reiterating their view that the merger has “strategic and financial logic” for the two companies. In December, the boards of the two London-listed companies announced plans to seek an all-share merger, on a “formula asset value basis”. On 13 January, when the scheme document was posted, this valued TEP at 148.9p ($2.34) per share – a considerable premium to TEP’s 94.5p share price – and Leaf Clean Energy at 100.2p.
However, TEP shares subsequently dropped to 82.5p on 9 February. Meanwhile, Leaf shares, which had traded at 96.5p almost all of last year, had fallen as low as 57.5p by late January.
Both shares rallied, somewhat, on news last week of SWIP and Moore Capital’s opposition, to 91p and 62.5p, respectively.
“The major thing throwing this for a six is that Leaf’s share price had gone from £1 to 57p,” said Gus Hochschild, an analyst at Mirabaud Securities. “What they had been offering TEP has sunk by 40p. The pricing of the merger is out of kilter.”
“The advantage always accrued more to Leaf shareholders,” said Andrew Shepherd-Barron, at brokers KBC Peel Hunt. “There are some synergies, but not enough to get the juices flowing.”
SWIP’s concerns, said Russell, were that the relatively transparent assets held by TEP – cash and carbon credits – would be diluted by the “longer-duration, harder-to-value” private equity renewable energy investments made by Leaf.
“If TEP is independent, I can invest at 85p today and get 150p over the three years” to the end of the Kyoto Protocol period, he said. “That’s a very attractive return.”
Meanwhile, Adam Forsyth, an analyst at the Matrix Group, said that “you could argue that the merger is locking in a low value of the carbon price,” given that TEP’s net asset value would rise if carbon prices rallied.
Moore Capital, meanwhile, had supported the merger when it was first proposed by management but, in a statement reported by Bloomberg last week, said: “It is Moore Capital’s current intention not to vote in favour of the merger.”
The use of the word “current” has led to speculation that Moore is seeking more favourable terms. As Carbon Finance went to press on Wednesday afternoon, TEP and Leaf Clean Energy were due to announce the terms of the merger via the London Stock Exchange.
“One of the things we have speculated on is that the managements could offer a distribution of some of the cash in both TEP and Leaf, without damaging their business plans,” said Forsyth. Mirabaud puts the unrestricted cash balances of the two firms at £182.2 million.
Alternatively, management could alter the exchange ratio at which TEP and Leaf shares would be converted into shares in the merged company, more in TEP’s favour.
“The Leaf and TEP boards have some flexibility, but to make it work, they need to offer more to TEP shareholders,” added Forsyth. “The question is, if they do, would they get the support of Leaf shareholders?”
Fortis eyeing new investors for $1.2 billion China green fund
London, 18 February:
Fortis Investments is considering broadening access to its China environmental mandate, into which around $1.2 billion has been raised since its launch in December.
The vehicle was set up at the request of one of Fortis’ clients – understood to be Japan’s Nomura – which has raised the money from retail investors.
One third of the assets are invested directly into environmental technology companies listed on the mainland, with the remainder via their offshore listings, in Hong Kong or New York, for example.
Speaking at a press briefing today, François Perrin, Fortis Investments’ Frankfurt-based head of Asian sustainability strategies, said “there’s very strong demand from clients” for sustainable investments in the region.
“It’s relatively obvious that we’ll continue to propose that type of investment to our clients,” he said when asked whether other institutional investors will be able to participate in the vehicle, which is structured as a fund-of-funds.
He added, however, that “questions of capacity” would be likely to limit the size of the fund: “It’s not a question of the capacity of environmental names [that is, the market capitalisation of appropriate stocks] but more a question of capacity of access,” noting that overseas investors are limited in how much of the Renminbi – China’s currency – they can convert to use to buy Mainland-listed stocks.
Perrin declined to comment on the name of the client, or of the country from which the funds had been raised.
The Fortis fund is by a long way the largest environmental investment fund dedicated to investing in Chinese stocks.
Fortis Investments is considering broadening access to its China environmental mandate, into which around $1.2 billion has been raised since its launch in December.
The vehicle was set up at the request of one of Fortis’ clients – understood to be Japan’s Nomura – which has raised the money from retail investors.
One third of the assets are invested directly into environmental technology companies listed on the mainland, with the remainder via their offshore listings, in Hong Kong or New York, for example.
Speaking at a press briefing today, François Perrin, Fortis Investments’ Frankfurt-based head of Asian sustainability strategies, said “there’s very strong demand from clients” for sustainable investments in the region.
“It’s relatively obvious that we’ll continue to propose that type of investment to our clients,” he said when asked whether other institutional investors will be able to participate in the vehicle, which is structured as a fund-of-funds.
He added, however, that “questions of capacity” would be likely to limit the size of the fund: “It’s not a question of the capacity of environmental names [that is, the market capitalisation of appropriate stocks] but more a question of capacity of access,” noting that overseas investors are limited in how much of the Renminbi – China’s currency – they can convert to use to buy Mainland-listed stocks.
Perrin declined to comment on the name of the client, or of the country from which the funds had been raised.
The Fortis fund is by a long way the largest environmental investment fund dedicated to investing in Chinese stocks.
Foreign developers shut out of China’s offshore wind boom
Kunming, 18 February: China has opened the door to domestic wind power companies to begin developing the country’s offshore resources – but has effectively shut it on international operators – with the release of regulations governing approval and ownership of offshore wind projects.
China has repeatedly dashed past its targets in installing onshore wind power capacity, and is expected to have the second-most installed capacity in the world by 2011. But its offshore resources, with estimated potential of between 100 and 200 GW (assuming 10-20% coastline utilisation), have yet to be exploited.
Planning for the first round of concession bidding began in early February, with national targets likely sometime this year.
But Liming Qiao, policy director at the Global Wind Energy Council, said the offshore regulation, announced last week, will prevent overseas firms from being involved: “The regulation rules out foreign developers in the offshore business. This is a bit shocking, as we all know that for the onshore development the government didn’t explicitly exclude international developers.”
In effect, however, there has been relatively little international participation in the onshore wind sector due to policy barriers such as low tariff levels and a regulation requiring majority Chinese ownership to qualify for revenue from the Clean Development Mechanism (CDM), the UN-administered system for rewarding projects that reduce greenhouse gas emissions with carbon credits. Consequently, the majority of China’s 25 GW of installed onshore capacity has been developed by the ‘big five’ state-owned utilities.
The new offshore regulation does not overtly prohibit foreign involvement in project development. But it does require foreign companies to enter into a Chinese-controlled joint venture and it limits equity ownership to less than 50%. “In reality, most of the international developers cannot, or are not willing to, do a joint venture with [a] Chinese partner,” Qiao said.
The Chinese press, quoting a National Energy Administration official, reported that the requirement was put in place to prevent sensitive oceanic and ocean current data leaking to the outside world.
International equipment providers, however, will see new opportunities along China’s coastline. With proven products already installed in Europe, wind turbine manufacturers such as Vestas and Siemens will have a technical head start in the new market.
Meanwhile, Chinese turbine companies, who have taken over the top three spots in domestic market share from internationals over the past two years, may not be far behind. Sinovel has a small number of 3 MW turbines off the coast near Shanghai, and market-leading Goldwind plans to start volume production of a 5MW offshore machine in the second half of this year.
Development of the offshore sector will likely take off quickly, as power grid deficiencies, which have resulted in more than 20% of installed onshore capacity remaining thus far unconnected, will not be a factor along China’s industrial east coast. The big five utilities are already in talks with provincial authorities to secure prime locations, and Qiao said that since the offshore sector is effectively new, CDM registration at the UN, where a number of onshore projects have been controversially rejected in recent months, should not be an issue.
International investors have been keen on the booming but inaccessible Chinese wind sector for some time, and jumped on the chance to take a position in the industry via China Longyuan’s Hong Kong initial public offering last December.
China has repeatedly dashed past its targets in installing onshore wind power capacity, and is expected to have the second-most installed capacity in the world by 2011. But its offshore resources, with estimated potential of between 100 and 200 GW (assuming 10-20% coastline utilisation), have yet to be exploited.
Planning for the first round of concession bidding began in early February, with national targets likely sometime this year.
But Liming Qiao, policy director at the Global Wind Energy Council, said the offshore regulation, announced last week, will prevent overseas firms from being involved: “The regulation rules out foreign developers in the offshore business. This is a bit shocking, as we all know that for the onshore development the government didn’t explicitly exclude international developers.”
In effect, however, there has been relatively little international participation in the onshore wind sector due to policy barriers such as low tariff levels and a regulation requiring majority Chinese ownership to qualify for revenue from the Clean Development Mechanism (CDM), the UN-administered system for rewarding projects that reduce greenhouse gas emissions with carbon credits. Consequently, the majority of China’s 25 GW of installed onshore capacity has been developed by the ‘big five’ state-owned utilities.
The new offshore regulation does not overtly prohibit foreign involvement in project development. But it does require foreign companies to enter into a Chinese-controlled joint venture and it limits equity ownership to less than 50%. “In reality, most of the international developers cannot, or are not willing to, do a joint venture with [a] Chinese partner,” Qiao said.
The Chinese press, quoting a National Energy Administration official, reported that the requirement was put in place to prevent sensitive oceanic and ocean current data leaking to the outside world.
International equipment providers, however, will see new opportunities along China’s coastline. With proven products already installed in Europe, wind turbine manufacturers such as Vestas and Siemens will have a technical head start in the new market.
Meanwhile, Chinese turbine companies, who have taken over the top three spots in domestic market share from internationals over the past two years, may not be far behind. Sinovel has a small number of 3 MW turbines off the coast near Shanghai, and market-leading Goldwind plans to start volume production of a 5MW offshore machine in the second half of this year.
Development of the offshore sector will likely take off quickly, as power grid deficiencies, which have resulted in more than 20% of installed onshore capacity remaining thus far unconnected, will not be a factor along China’s industrial east coast. The big five utilities are already in talks with provincial authorities to secure prime locations, and Qiao said that since the offshore sector is effectively new, CDM registration at the UN, where a number of onshore projects have been controversially rejected in recent months, should not be an issue.
International investors have been keen on the booming but inaccessible Chinese wind sector for some time, and jumped on the chance to take a position in the industry via China Longyuan’s Hong Kong initial public offering last December.
UN climate chief quits to join consultancy group
London, 18 February:
UN climate chief Yvo de Boer is to leave his post in July, two months ahead of his contract expiring, to join KPMG as an advisor on climate and sustainability.
It also comes two months after de Boer told a meeting of business leaders “I’d love to be your salesman”, at the international talks in Copenhagen.
He has been executive secretary of the UN Framework Convention on Climate Change (UNFCCC) – the body overseeing international negotiations on climate change – since September 2006, having previously been deputy director general of the Dutch environment ministry.
When asked on 26 January if a new executive secretary would be appointed this year, a UNFCCC spokeswoman told Environmental Finance: “Yvo’s contract is through September of this year and, as far as I know, there is every expectation it will be continued.”
Accountants KPMG said de Boer will be advising business, governments and other organisations on sustainability issues. A KPMG spokesman said he would be based in Amsterdam and the role was not full time as “he will also work with universities and academia”.
Though now an international business, KPMG has its roots in Dutch accounting firm Klynveld Kraayenhof & Co. The consultancy has 350 people working in sustainability across at least 20 countries.
De Boer’s departure comes two months after a disappointing conclusion to the climate talks in Copenhagen. Two years previously, countries had set a goal of establishing a binding post-2012 treaty to reduce greenhouse gas emissions in the Danish capital – an objective that they failed to achieve. However, some have argued that the meeting signalled a new era of cooperation between major emitters.
“Copenhagen did not provide us with a clear agreement in legal terms, but the political commitment and sense of direction toward a low-emissions world are overwhelming. This calls for new partnerships with the business sector and I now have the chance to help make this happen,” de Boer said.
He may have hinted at his next move during the Copenhagen talks, telling business executives at the World Business Council for Sustainable Development meeting on 11 December, in the context of their involvement in the talks, “I’d love to go out and be your salesman, but I need to know what I’m selling.”
Greenpeace hailed his leadership of the UNFCCC. In a statement, the environmental group said: “Yvo de Boer injected much-needed dynamism and straight-talking into the role of executive secretary to the UN Climate Convention. He has been a passionate and sometimes emotional advocate for a global deal to avert climate chaos, and has set the bar for what leading the UNFCCC is about.”
UK’s Energy and Climate Change Secretary Ed Miliband said: “Yvo de Boer's patient work helped produce the Copenhagen Accord which contains commitments covering 80% of global emissions, something never previously achieved.”
He added: “We must quickly find a suitable successor, who can oversee the negotiations and reform the UNFCCC to ensure it is up to the massive task of dealing with what are some of the most complex negotiations ever.”
UN climate chief Yvo de Boer is to leave his post in July, two months ahead of his contract expiring, to join KPMG as an advisor on climate and sustainability.
It also comes two months after de Boer told a meeting of business leaders “I’d love to be your salesman”, at the international talks in Copenhagen.
He has been executive secretary of the UN Framework Convention on Climate Change (UNFCCC) – the body overseeing international negotiations on climate change – since September 2006, having previously been deputy director general of the Dutch environment ministry.
When asked on 26 January if a new executive secretary would be appointed this year, a UNFCCC spokeswoman told Environmental Finance: “Yvo’s contract is through September of this year and, as far as I know, there is every expectation it will be continued.”
Accountants KPMG said de Boer will be advising business, governments and other organisations on sustainability issues. A KPMG spokesman said he would be based in Amsterdam and the role was not full time as “he will also work with universities and academia”.
Though now an international business, KPMG has its roots in Dutch accounting firm Klynveld Kraayenhof & Co. The consultancy has 350 people working in sustainability across at least 20 countries.
De Boer’s departure comes two months after a disappointing conclusion to the climate talks in Copenhagen. Two years previously, countries had set a goal of establishing a binding post-2012 treaty to reduce greenhouse gas emissions in the Danish capital – an objective that they failed to achieve. However, some have argued that the meeting signalled a new era of cooperation between major emitters.
“Copenhagen did not provide us with a clear agreement in legal terms, but the political commitment and sense of direction toward a low-emissions world are overwhelming. This calls for new partnerships with the business sector and I now have the chance to help make this happen,” de Boer said.
He may have hinted at his next move during the Copenhagen talks, telling business executives at the World Business Council for Sustainable Development meeting on 11 December, in the context of their involvement in the talks, “I’d love to go out and be your salesman, but I need to know what I’m selling.”
Greenpeace hailed his leadership of the UNFCCC. In a statement, the environmental group said: “Yvo de Boer injected much-needed dynamism and straight-talking into the role of executive secretary to the UN Climate Convention. He has been a passionate and sometimes emotional advocate for a global deal to avert climate chaos, and has set the bar for what leading the UNFCCC is about.”
UK’s Energy and Climate Change Secretary Ed Miliband said: “Yvo de Boer's patient work helped produce the Copenhagen Accord which contains commitments covering 80% of global emissions, something never previously achieved.”
He added: “We must quickly find a suitable successor, who can oversee the negotiations and reform the UNFCCC to ensure it is up to the massive task of dealing with what are some of the most complex negotiations ever.”
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