Fund manager says New York Attorney General's case against Exxon Mobil could mark turning point in financial climate risks
Just as tobacco companies have faced billions of dollars in legal costs for their role in causing health problems, so too could fossil fuel firms one day face fines for failing to admit they were causing climate change, the chief executive of Hermes Investment Management has warned.
Saker Nusseibeh said the recent decision by the New York State Attorney General to launch an investigation against Exxon Mobil over its alleged failure to disclose the potential impacts of climate change on its balance sheet to investors, could mark a sign of things to come for the oil industry.
Coal giant Peabody Energy also last month agreed to change the way it reports the risks posed to investors by climate change, after an eight-year investigation by the New York Attorney General. The company had been accused of issuing misleading statements on the risks it could face from tightening climate change laws.
"Humanity moves by consensus over time," Nusseibeh told BusinessGreen on the sidelines of the Paris climate change talks yesterday. "When I was a kid, smoking was accepted, it was the norm and it was glamorous and we suddenly moved.
"And by the way, then the lawyers attacked the tobacco companies because they said, 'but you knew about the danger' and you didn't disclose' and they ended up paying huge amounts of fines, so it may be the next stage - maybe - that you have attorney generals saying you knew about the [climate] risks and you didn't say."
Nusseibeh said it would be irresponsible for Hermes to ignore climate risks, because it needs to consider the long term impact of its decisions for the pension holders that it works for.
"It is a double insult to people to use their money to invest in a way that makes the environment worse in 30 years' time, so that when they retire they retire in a Gotham City," he said.
Yesterday, former US Vice President Al Gore urged individuals and companies to divest from fossil fuels in order to avoid being left with stranded assets that have been devalued as a result of tighter climate change legislation, carbon markets, and the falling price of renewables and clean technologies.
But Nusseibeh said divesting would not have a major impact on the share prices of fossil fuel companies and said Hermes instead preferred to be an activist investor, leaning on companies to take more responsibility for tackling climate change. "[Divestment] doesn't work because index funds own most of the stock in the world and will continue to own the oil companies," he added. "What we're concerned with is not punishing companies. We're concerned with stopping carbon from heating the earth. That's the purpose.
"We've got to tell oil companies 'change your business model and invest in clean energy and by the way your price isn't what you think it is because not only are your oil reserves not worth what you think they are but probably you might be open to being sued in the future'."
It remains to be seen whether divestment or engagement provides the most effective means of encouraging carbon intensive companies to transform their business models. But on both sides of the debate investors are increasingly aware of the long term risks the fossil fuel industry faces from legislation, new technology, the threat of legal action, or worst of all, the creation of Gotham City.