What does the energy transition mean for faith investors?
Carbon Tracker founder Mark Campanale discusses the radical changes that could occur in shifting away from fossil fuels – and how they could alter the balance of power and alter global politics
The fragile international agreement secured at the recent COP26 climate talks included the determination to 'phase-down' coal. It didn't go nearly far enough, activists said, but it is the first time fossil fuels have been mentioned in a UN climate conference agreement – and signals the start of the energy transition needed to tackle the climate crisis.
Earlier this year, the Carbon Tracker Initiative's Petrostates report explored the impact of the energy transition on the 40 countries with the greatest fiscal dependence on oil and gas revenues, mostly found in the Middle East, North and West Africa and South America.
FaithInvest spoke to Carbon Tracker Initiative founder Mark Campanale about the wider economic, humanitarian and political implications of this transition and what it means for faith investors.
'Major oil producing countries are at risk of great losses from the energy transition – the move towards cleaner energy – and the faster they can diversify away from a dependence on fossil fuel revenues, the better.' – Mark Campanale
FaithInvest: Carbon Tracker’s Beyond Petrostates report highlights the vulnerability of populations to falling government oil and gas revenues. Is this bad news from a humanitarian perspective?
Mark: Well, as I said to the Carbon Tracker team when we were briefing them on the report, it really just tells one side of the story – crucial though this is!
The key message is, of course, that major oil producing countries are at risk of great losses from the energy transition – the move towards cleaner energy – and the faster they can diversify away from a dependence on fossil fuel revenues, the better. But there is another way of looking at this. Most of the world’s population live in emerging markets countries that rely on importing, rather than exporting, fossil fuels.
This import dependence accounts for around 2% of GDP. India, for example, imports over 80% of its oil. As renewables take over, and India and other emerging markets develop their own energy supplies, they will be liberated from their dependence on imports.
FaithInvest: Does this mean a brighter future for countries that currently rely on buying in fossil fuels?
Mark: It should do, yes. Something else we talk about at Carbon Tracker is the idea of an emerging market energy ‘leapfrog’ – when, rather than developing their own coal, oil or gas capacity, countries move straight to cheaper and more efficient green technologies.
The cost of energy imports for an electric vehicle, for example, are at least 90% less than for an internal combustion engine. Because they are no longer spending dollars importing energy, emerging markets will have more money for other essentials, such as pharmaceuticals and vaccines. This means that switching to renewables should help with poverty alleviation.
FaithInvest: That sounds encouraging. Does this mean the energy transition has the potential to reduce global wealth inequalities?
Mark: It certainly could. Many parts of the global south are rich in renewable energy – mainly sun. The wonderful thing about sun, and, of course, wind, is that they are free and available to everyone. Whereas fossils fuels are scarce and in hands of a few, the reverse is true for renewables.
The cost of generating energy from solar and wind has fallen dramatically in the past decade - solar equipment is about 90% cheaper than it was in 2010. This means that many countries in the tropics could have cheap renewable energy very quicky.
Businesses tend to locate energy-intense production facilities in areas where energy is inexpensive and plentiful - for a long time this has been in Asia where coal is cheap. Going forwards we could see the likes of data centres and car manufacturing plants moving to the tropics to access solar energy, with a knock-on positive effect on regional economies.
FaithInvest: But where will this leave the Petrostates?
Mark: Petrostates need to act now to transition away from a dependence on fossil fuel revenues by diversifying their economies and building up renewable energy capacity. The earlier they recognise this, the more time they will have to develop other industries that are resilient to the energy transition, such as tourism, and the more they will reduce the risk of fiscal crises.
The shift away from fossil fuels has major political implications too. Some of the Petrostates, such as Libya, Iraq and Kazakhstan have oppressive or volatile regimes, and in others, such as Saudi Arabia, there is a huge concentration of wealth in the hands of just a few families.
Whereas coal, oil and gas extraction requires significant upfront capital that only those with substantial funds can access, household-level solar is cheap, easy to install and empowers individuals to become owners, users and providers of energy. The potential for this to transform the way these societies operate is enormous.
FaithInvest: In light of all this, how should faith investors approach the energy transition?
Mark: Faith groups should see the chance to protect the planet as an opportunity to think about a lot more than just a cleaner and greener economy. The energy transition has the potential to lead to all kinds of transformations in terms of democracy, decentralization and community.
There is a long-running debate among investors about whether to engage with, or divest from, fossil fuel companies. Faith investors choosing to engage really need to ask themselves what they are trying to achieve – and what this means practically. If it means they are still participating in fossil fuel IPOs, or buying shares in the market, they are not really encouraging the energy transition, just supporting the status quo.
Many faith groups are already divesting from fossil fuels. The Church of England Pensions Board, for example, are well known for their strong stance on climate issues, and they and others – Catholics, Muslims, Methodists and many more – are members of movements like DivestInvest and have committed to divest.
FaithInvest: What else should faith investors be talking about when it comes to the energy transition?
Mark: Things have come a long way in the last few years. ESG (environmental, social and governance) is the now the norm but despite this, the way the stock market works and the types of companies we find listed are basically the same. So, we need to think bigger. We need to think at a systems level. Are the market frameworks we have in place today really reflective of the goals of sustainability? As long as fossil fuel companies are allowed to list and operate, people will still buy shares.
While the Petrostates report showed the scale and depth of some of the problems connected to the energy transition, we must place equal, if not greater, emphasis on the size of the opportunity from the clean energy leapfrog. The potential to liberate countries from energy import and export dependency, use energy more efficiently, redistribute wealth and build more equitable societies is huge.
Read Carbon Tracker's Petrostates report
Dozens of faiths announce fossil fuel divestment at COP26
One of the major happenings to occur at COP26 this year came when some 72 faith institutions from six continents, with more than $4.2 billion of combined assets under management, announced they were divesting from fossil fuels.
The institutions involved included the Catholic Bishops’ Conference of Scotland; the Central Finance Board of the Methodist Church in the UK; the Presbyterian Church of Wales; the Presbyterian Church in Ireland; Catholic universities in the United States and the UK; the Sisters of Charity of Australia; Caritas Nepal; 15 Catholic dioceses in England, Scotland and Ireland; two Church of England dioceses; 19 churches in the Greek Catholic Church in Ukraine; and the Buddhist religious movement Soka Gakkai International – UK. You can see the full list of organisations here.
FaithInvest Director of Movement Building Lorna Gold is also chair of the Laudato Si' Movement – one of five groups involved in organising the announcement, alongside Operation Noah, World Council of Churches, Green Anglicans and GreenFaith. She said faiths are playing a leadership role in moving their investments out of fossil fuels.
'People of faith are divesting at scale from from coal, oil and gas... there is no future for fossil fuel finance,' she said.
Read more about the declaration here.