Thursday, February 25, 2010

"Should energy companies be worried about the SEC's climate change disclosure rule with EPA regulation on the horizon?" (CVX; XOM)

From the Houston Chronicle's NewsWatch: Energy blog:

The Securities & Exchange Commission's new climate change disclosure rule coupled with an impending Environmental Protection Agency cap on greenhouse gas emissions and climate bill could be harmful to some old-school energy companies, according to Energy and Capital contributor Nick Hodge.

Hodge had some interesting thoughts about how the SEC mandate, which requires companies to disclose potential risks from climate change, could alter the way companies calculate market risk. He says some energy companies should expect to lose investors to companies with better clean-energy strategies.

To see how this change will affect public markets, you needn't look any further than the response from managers of some of the biggest pension funds in the country who purchase billions worth of equities each year.

Nancy Kopp manages Maryland's $33 billion fund and called it a "big step forward."

Anne Stausbol, CEO of the $200 billion California Public Employee's Retirement System (CALPERS), said "Ensuring investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely necessary."

She added, "Investors have a fundamental right to know which companies are well positioned for the future and which are not."

They are obviously looking to invest in companies with minimal climate risk. In other words, companies with high climate risk -- high emissions, energy-intensive products, insurance companies -- are less valuable to them....MORE

I had a comment that I couldn't get their system to take, here goes:
Those big public employee pension plans* who lobbied for this decision have a fiduciary duty to do their own due diligence and dump those positions that are at risk.

For example CalPERS largest equity poition as of their last annual report was XOM, around a Billion bucks worth.

The seventh largest position was CVX, $400Mil. or so.

CalPERS was also one of the largest counterparties to Goldman's scam of using their "commercial" standing with the CFTC to go long oil futures and synthetically transfer the positions to their "long only index investors" via swaps. These investors would otherwise had to disclose what were actually speculative positions, a great game.

At least until this, in November '08:
Goldman Backs Off Its Oil ‘Super Spike’ Theory

"That ‘’super spike” in oil prices that Goldman insisted would lift crude to $200 a barrel ….? Turned out to be a dagger that has pierced Goldman itself. It never really turned out to be that prescient: instead of the 50% jump in oil that Goldman anticipated back in May, when it made the call with crude trading at $132, the price of a barrel never got more than 11% higher. And has since, of course, lost fully two-thirds of that price in the intervening four months...."

“…And some traders are furious about it, comparing the maneuver to then-strategist Abby Cohen’s decision to abandon her targets for equity indexes in the fall 2001, citing the uncertainties abounding in the market.

Goldman specifically talked about four trade recommendations it previously issued, and said clients shouldn’t put any stock in them any longer. One particular trade, a Nymex-WTI swap on the 2012 contract, issued in September, when crude already had declined to below $70, suggested that the contract would reflate to a range of $120 to $140. Obviously, that hasn’t happened….”
So yeah, the investment professionals at CalPERS had better do all that Prudent Man/fiduciary stuff that they get paid for.

*Here are the members of CERES' Investors Network on Climate Risk:

Organization Name
AIG Investments
American Federation of State, County and Municipal Employees
As You Sow Foundation
BlackRock Financial
Boston Common Asset Management
British Columbia Investment Management Corporation
Brown University
Bullitt Foundation
California Public Employees' Retirement System
California State Controller's Office
California State Teachers' Retirement System
California State Treasurer's Office
Calvert Group
Christian Brothers Investment Services
Christopher Reynolds Foundation
Climate Change Capital
Connecticut State Treasurer's Office
CWA/ITU Negotiated Pension Plan
Deutsche Asset Management
Domini Social Investments LLC
Doris Duke Charitable Foundation
Equilibrium Capital Group
Ethical Funds Company
Evangelical Lutheran Church in America
Evangelical Lutheran Church in America- Board of Pensions
F&C Asset Management
Florida State Board of Administration
Fred Alger Management
Friends Fiduciary Corporation
Generation Investment Management US LLP
Green Century Funds
Illinois State Board of Investment
Illinois State Treasurer
Impax Asset Management Limited
International Brotherhood of Teamsters, Pension Plan
Kleiner Perkins Caufield & Byers
Kolibri Capital LLC
Laborers' International Union of North America (LIUNA)
Laird Norton Family Foundation
Lemelson Foundation
Local Authority Pension Fund Forum
Maine State Treasurer
Maryland State Treasurer's Office
Massachusetts State Treasurer
MissionPoint Capital Partners
Nathan Cummings Foundation
National Union of Public and General Employees
Needmor Fund
New Jersey Division of Investment