Decarbonizing finance never looked smarter

Mark Mann
April 22, 2020

On Monday, I received a strange update from the New York Times in my inbox. The subject line read, “Something bizarre happened in the markets: The price of a barrel of oil went negative.” Bizarre indeed. The economic shutdown coming on top of an OPEC breakdown has flipped the script for some traders, who have been forced to pony up for storage in a flooded market.

The anomaly is looking more like a trend. “There is little to prevent the physical market from the further acute downside path over the near term,” Michael Tran, managing director of global energy strategy at RBC Capital Markets, told Bloomberg, which also reported that crude explorers have shut down 13% of the American drilling fleet.

The market’s nosedive pushed Canada’s benchmark oil price higher than the US for the first time ever, but there’s little cause for rejoicing. Heavy crude from the oilsands remains at a disadvantage compared to American shale oil, because it travels farther. “We are still in the worst shape, anyway you look at it,” Tim Pickering, founder of Auspice Capital Advisors in Calgary, has said.

The question of how and to what extent the oil market will recover obscures a more fundamental question: Even if prices bounce back, are institutional investors willing to take the ride? Reporting this month by Research Money senior correspondent Mark Lowey suggests that, increasingly, they aren’t.

A survey of 17 large Canadian universities found that many are either significantly reducing the carbon footprint in their investment portfolios or fully divesting from fossil fuels. Climate change concerns are partly driving the decarbonization push, but ”it’s the financial argument that’s fuelling the rapid amount of divestment decisions we’re seeing now,” said James Rowe, associate professor of environment studies at the University of Victoria.

Oil’s latest display of volatility is further shifting the financial calculus for investors, for whom renewable projects are starting to look more and more like the safer bet. The moral argument for cleaner energy hasn’t yet proved compelling enough to underwrite the changes we need to limit global temperature rise to below 2 degrees celsius, but the promise of stable returns might do the trick.

Experts disagree about the near-term impact of oil's current price plunge on renewables, but the global transition to clean energy is inevitable. If we can bring ourselves to think as far back as February, before the grip of COVID-19, the Australian bushfires were still raging, consuming an estimated 186,000 square kilometres. 2019 was a drumbeat of droughts, fires, floods, storms, and heatwaves. The novel coronavirus is giving the planet a brief reprieve, but it won't halt global warming. For that, we need large-scale financing of innovative and clean technologies across industries. Thankfully, investors now have the opportunity to match our collective interests with those of their clients and members.


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