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BlackRock Sees Growing Market Impact of Climate Change

Even skeptics cannot deny the impact climate change is likely to have on markets moving forward, according to a recent report published by BlackRock Investment Institute.

“You may or may not believe man-made climate change is real or dismiss the science behind it. No matter,” the institute said. “Climate change risk has arrived as an investment issue. Governments are setting targets to curb greenhouse gas emissions. This may pave the way for policy shifts that we could see ripple across industries. The resulting regulatory risks are becoming key drivers of investment returns.”

According to the report, the prospect of new regulations and the implementation of carbon markets has led to increasing analysis of a company’s carbon intensity as part of guiding investment decisions. Many of the biggest producers working in the United States, and most operators worldwide, already use carbon pricing in their operations, including ExxonMobil Corp. and Royal Dutch Shell plc (see Daily GPINov. 3).

In the United States, the Environmental Protection Agency’s (EPA) Clean Power Plan, should it survive a slew of legal challenges, is poised to reshape domestic power generation by setting strict limits on carbon emissions.

According to BlackRock, Canada, Mexico, Brazil, India, Russia, China, Japan, Korea, Australia and the European Union have pledged to reduce carbon emissions beginning in 2020. At the United Nations (UN) Climate Change Conference in Paris, which begins at the end of this month, leaders are expected to discuss a potential framework for global emissions reductions.

The CEOs of European-based BP plc and Shell, as well as Mexico's Petroleos Mexicanos and seven other global exploration chiefs have declared their collective support for the UN to adopt an "effective" climate change agreement (see Daily GPI, Oct. 16). The companies together provide almost 20% of global production and supply almost 10% of the world's energy.

With 17 of the last 18 years the hottest on instrumental record, concerns over risks posed by extreme weather, natural catastrophes and failure of climate change adaptation have “put climate change on the global policy agenda,” BlackRock said.

Climate change has also become a major talking point in American politics, centering around the EPA’s hotly debated carbon emissions reduction proposal and, more broadly, the nation’s reliance on fossil fuels.

This week, U.S. Sen. Bernie Sanders (I-VT) a Democratic presidential candidate, introduced a bill to stop the government from granting any new leases for fossil fuel extraction on federal lands.

Sanders’s bill comes after Republican U.S. Sen. Kelly Ayotte of New Hampshire announced late last month that she supports the Clean Power Plan, which has generally been unpopular among the GOP.

Remarking on his bill, Sanders took aim at the fossil fuels industry and was sharply critical of “Republicans who continue to deny the science on climate change.”

“We are taking on the Koch brothers and some of the most powerful political forces in the world who are more concerned with short-term profits than the future of the planet,” Sanders said.

Louis Finkel, executive vice president of the American Petroleum Institute, had a different take on the proposed bill, calling it “anti-consumer and anti-jobs.”

“Cutting off development of energy resources from federal lands will also deprive the federal government of billions of dollars in tax revenue,” Finkel said. “The false choice is a political stunt by those who are spouting populist rhetoric for political points; they are not being honest with American voters.”

He added, “Our nation has become a global leader in energy production and at the same time is leading the world in reducing carbon emissions, which are down to 27-year lows largely due to the affordable, abundant supply of natural gas.”

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