350.org have started the “Do the math” tour, taking to the road presumably emboldened and relieved by the US Presidential election result. We’d like to wish them luck in bringing the new math(s) of climate change to a United States population which still has fresh images of Super storm Sandy bringing extreme weather events to their shores. The Mayor of New York has made it clear that this shows the impacts of climate change, or as Businessweek kindly surmised: “Its global warming, stupid”.

The math tour draws on Carbon Tracker’s comparison of coal, oil and gas reserves with carbon budgets. We in turn used scenario modelling and methodologies developed by Meinhausen et al. at the Potsdam Institute. This shows the potential of linking scientific research with climate policy and financial markets, and then on to civil society movements. However it is only one potential strand of a network of interactions.

The translation of the Unburnable Carbon analysis into a divestment from coal campaign is only one interpretation of the numbers. It will work with people who hold coal shares, who are convinced by Bill McKibben’s moral argument, and are not restricted in how their portfolio is managed.

But many shares may be held through a pension scheme which invests in funds which track the markets. If so by default the fund have to maintain the same exposure to the coal sector as the benchmark index. As our analysis shows, in London or New York, this will be significant.

For those investors who are constrained by the structure of the investment process, or indeed are not mandated to make ethical investment choices, they need an alternative way of approaching the problem. The majority of institutional investors are likely to fall into these categories, and will therefore need to see a financial case for altering their exposure and be proactive in understanding and managing the risks.

Carbon Tracker has therefore come up with some suggestions for investors who want to consider the issues raised by the numbers, but don’t have divestment on the table as an option:

  • Request sell-side research which analyses the valuation implications for fossil-fuel based companies of constraining carbon-intensive revenues. Read more
  • Engage with extractive companies on their capital expenditure (CAPEX) strategies and challenge incompatibility with the carbon budget to avoid stranded assets. Read more
  • Push for ratings agencies to factor climate risk into ratings methodologies in a systematic way. Read more
  • Engage with regulators to require disclosure of the carbon potential of reserves and monitoring of this systemic risk. Read more

For those that are currently tied into the system and its information flows – they need to start challenging assumptions and changing the system. Please contact us if you would like to discuss how to get involved in some of these options.