Tag: oil companies

Why Canada Pension CEO Is Bullish on Energy Assets

oil barrels

Canada Pension Plan Investment Board (CPPIB) CEO Mark Wiseman spoke to a crowd at the World Economic Forum last week about why he is bullish on energy even as oil prices have plunged.

His remarks, according to Bloomberg:

“Part one, the world is consuming about 90 million barrels a day,” said Wiseman, chief executive officer of the Canada Pension Plan Investment Board. “Part two, God isn’t making any more.”

Wiseman said that simple supply and demand perspective all but guarantees oil prices will be higher 10 years down the road, offering investment opportunities now for the C$234 billion ($188 billion) fund.

“I’ll take that bet” on oil’s rebound, he said in an interview Tuesday at Bloomberg’s Toronto office.

Oil slid almost 50 percent last year as U.S. shale production surged while the Organization of Petroleum Exporting Countries resisted calls to cut supply. That’s had a dramatic impact on the value of oil companies around the world as prices fell to a five-year low at about $45 a barrel.

This has Toronto-based Canada Pension looking at a range of investments — from buying equity and partnering on acquisitions to outright takeovers, Wiseman said.

“We see a lot of value in the Western Canadian basin,” he said, noting that oil sands projects are on his radar.

The CPPIB manages $188 billion in assets.

 

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Institutional Investors Push Oil Giants to Disclose Climate Change Risks

windmill farm

A coalition of 150 investors – including pension funds from around the world – are calling on oil giants BP and Shell to provide greater transparency regarding the risks that climate change poses to their business models.

More from Chief Investment Officer:

The coalition, which includes pension funds from the UK, US, and Northern Europe, has submitted a resolution to BP outlining the articles they expect it to reveal. These resolutions can be voted upon by all shareholders in the companies. A similar resolution was submitted to Shell last month.

The resolutions include: Stress-testing their business models against the requirement to limit global warming to 2ºC, as agreed by governments at the UN Climate Change Conference in 2010; Reforming their bonus systems so they no longer reward climate-harming activities; Committing to reduce emissions and invest in renewable energy; Disclosing how their public policy plans align with climate change mitigation and risk.

Catherine Howarth, the CEO of ShareAction that helped to coordinate the demands, welcomed the support from the investors. Some 13 UK public sector pensions committed to the project, with three of the Swedish AP funds joining the campaign.

“Millions of pension savers worldwide will want their pension funds to vote in support, demonstrating true commitment to protecting their members from the risks of climate change,” said Howarth. “These resolutions put the global investment community to the test on climate change.”

The move comes as large international investors are considering the risk climate change poses to their portfolio.

Read more coverage on pension funds’ engagement with fossil fuel companies here.

 

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How Much Are Low Oil Prices Hurting Retirement Accounts?

oil barrels

Americans are thrilled to be saving money at the gas pump. But low oil prices aren’t good news for everyone – namely, oil and gas companies.

And that affects many Americans who are invested in oil and gas companies through their retirement accounts. But how much do low oil prices really hurt retirement funds?

Dan Boyce from Inside Energy explores the question:

Oil was at $55 to $60 a barrel just before Christmas, down from a high of more than $100 per barrel this summer.

Wanting to see just how much stake the average person has in oil and gas, we found that the most direct way to get access to sensitive personal financial information was if we analyzed one of our own retirement accounts. I humbly volunteered my own T. Rowe Price Roth IRA.

It’s a meager account, containing a little more than $4,200 at this point, and analyzing it for my oil and gas holdings revealed how complex the modern retirement portfolio really is.

My $4,200 splits among 19 smaller funds, which are invested in thousands of sources. The list ranges from companies like Tootsie Roll Industries and WD-40 to countries like Norway and even World Wrestling Entertainment.

It turns out a little less than 6 percent of my IRA is directly invested in oil and gas companies, or about $243.

Scott Middleton, who works with investment consulting company Innovest, said this mirrors the national average for retirement investments in energy at somewhere between 5 to 10 percent.

It’s true for IRA accounts like mine, as well as for others like 401(k)s, 403(b)s and pension funds.

The Colorado Public Employees Retirement Association, for example, has about 7 percent of its total portfolio in the energy sector, which in Wall Street-speak basically means just oil and gas. It makes up about 9 percent of the total stock market.

Middleton said as oil prices shrink, so, too, does my $243 in oil and gas investments. And so do most of the other funds invested in the same stocks.

But Boyce offers a few qualifiers that muddy the picture of just how much falling oil prices might hurt retirement savings:

A couple of things to remember, though. For one, I’m betting on my retirement account for the long term. The account is based upon the premise that I won’t start withdrawing from it until 2055.

Short-term fluctuations in price shouldn’t really concern us. Over the long term, the energy sector has been considered a very safe investment, yielding about a 10 percent annual rate of return.

Also, while declining oil prices might be bad for one part of my portfolio, they’re good for other parts. For example, Middleton said chemical producers and transportation companies tend to do well with lower oil prices.

Ultimately, oil and gas is not a critical part of our retirement funds. But, make no mistake, our retirement funds are absolutely critical for the oil and gas industry. The American Petroleum Institute says about 70 percent of U.S. oil company worth is owned by tens of millions of U.S. households through our IRAs, our pensions and our mutual funds.

Read the whole piece here.

 

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Pension Advisory Board: Divesting From Fossil Fuels Will Harm Future Returns

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There have been calls from many corners in recent months and years for pension funds and other institutional investors to begin divesting from fossil fuel-based investments.

But not many institutional investors have heeded that call, choosing instead to use their sway as major shareholders to work with companies.

One of the largest asset holders in the world is taking a similar approach. The board of the $857.1 billion Norway Pension Fund Global has told the fund that divesting from fossil fuels would be an unwise financial decision that would reduce returns.

More from Chief Investment Officer:

The Norway Pension Fund Global should reject calls to dump fossil fuel investments and concentrate instead on working with the worst offenders, according to its advisory board.

The country’s finance ministry asked the board to evaluate whether divesting from coal and petroleum companies was a “more effective strategy for addressing climate issues and promoting future change than the exercise of ownership and exertion of influence.”

The panel of international investment experts concluded that the fund—despite being one of the world’s largest investors—has minimal power over climate change. Becoming a force for environmental causes would mean changing its mandate and fiduciary duty to Norwegian citizens, the board stated in an extensive report published today.

“We do not think that it would be better for the climate—or the fund—if these shares were to be sold to other investors who, in all probability, will have a less ambitious climate-related ownership strategy than the fund,” the advisors said.

[…]

The portfolio is an “inappropriate and ineffective climate change tool,” the report said. “Neither exclusion nor the exercise of ownership can be expected to address or affect climate change in a significant way.”

Furthermore, the board warned that attempting to halt or slow climate change via the $800 billion fund could threaten future returns.

Instead, the board proposed changing its investment guidelines to permit excluding companies that “operate in a way that is severely harmful to the climate.”

Norway’s largest pension fund announced last month plans to divest from coal assets. But it said divesting from other fossil fuels posed a major risk to future returns.

 

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