Podcast: Investing, climate risk and energy firms

The transition to the low-carbon economy requires revolutionary change within the energy sector. While previous energy transitions have taken 80 to 100 years, scientists say there are only 30 or so years available to make the changes required to avert catastrophic climate change. Effecting this change will require capital reallocation on a huge scale. Trillions of dollars need to be redirected from one part of the energy system to another.

The International Energy Agency estimates that over $30 trillion of incremental capital investment is required between now and 2050 to effect the transition. With governments worldwide cash-strapped as a result of Covid-19, most of this capital will need to come from the global capital markets. But for capital to flow in a way that facilitates the energy transition, climate risk needs to be priced correctly. However, modelling climate risk is extremely challenging, as there is no historical precedent.

In this podcast, Nick Stansbury and Brooks Preston discuss the role and impact of investors and asset managers on the energy transition. They talk about the challenges of pricing climate risk, and discuss the extent to which investor decisions are facilitating the transition to the low-carbon economy. They also talk about the impact that investor decisions are having on energy firms and projects.

Stansbury is head of commodity research at Legal & General Investment Management, one of Europe’s largest asset managers. Preston is a managing director and senior member of the sustainability team at Macquarie Infrastructure and Real Assets, the world’s largest manager of infrastructure.

Nothing spoken about in this podcast is intended to be financial advice

Index

02.34 Has Covid-19 and the resulting economic woes weakened some of the financial incentive to invest in the low-carbon economy?

07:35 How are you modelling transition risk in your portfolios?

10:55 Nick – how easy is it to get the information you need on companies and assets to put into your models? 

12:15 Nick – whilst modelling at the individual company and asset level, did you select only certain sectors?

13:56 Brooks – at what stage in the investment cycle do you start to consider transition risk?

16:35 Brooks – how do you get the data you need to assess the transition risk of the assets you invest in?

20:50 At this stage, does transitioning to the low-carbon economy require investors to make ethical, rather than purely financial, decisions?

27:48 Nick – is the role of oil and gas majors in investment portfolios being questioned now, particularly since some firms have cut dividends? 

31:36 Brooks – what are energy companies doing well, and what are they doing less well, when it comes to positioning themselves for an effective energy transition?

35:20 To what extent do you see it as the responsibility of asset managers to direct capital towards the low-carbon economy?

Listen to other podcasts in this series here