Dutch fund manager presses for change in energy sector

NN Investment Partners has outlined a new engagement programme for investments in energy companies

Dutch fund management group NN Investment Partners has set out a range of engagement targets focussed on energy stocks exposed to the associated risks of climate change.

The targets cover issues relating to governance, scenario analysis, transparency and disclosure, and engagement with public policy makers.

They were created following analysis of 49 companies in the oil and gas sector globally, carried out by NNIP.

It found 40 of these companies publish an annual climate or sustainability report with policies on climate change, but with significant variety in the level of detail disclosed.

Faryda Lindeman, senior corporate governance specialist at NN IP, said: “As the world moves towards a low carbon economy and transitions from fossil fuels to greater use of renewable energy, the demand for their core products will inevitably decline.”

Lindeman said: “Supplies of fossil fuels must dwindle to a point when it becomes unprofitable to extract them while oil & gas companies face the risks of regulatory actions because of environmental damage and carbon taxes.”

Only eight of the 49 companies had conducted any form of stress-testing of their businesses relating to potential disruptions resulting from climate change.

Additionally, the analysis found that research and development into new technologies such as Carbon Capture Storage and acquisitions or investments into the renewable sector varied in ambition and scope, depending on the size of the company and location, with a clear divide between Europeans and the rest of the world.

Lindeman said oil and gas companies had a duty to explain to their shareholders how they planned to evolve in the 21st Century.

NNIP’s engagement targets try to encourage these companies to carve out transition plans but the inconsistencies in declarations between companies in the sector does make this difficult, Lindeman said.

The fund manager found European companies were far more transparent about the integration of climate-related risk into their models than their American counterparts. Those in emerging markets appear even more reluctant to publish details.