The Dutch People -v- Royal Dutch Shell

In a landmark ruling yesterday, a Dutch court ruled that Royal Dutch Shell has a legal responsibility to cut its greenhouse gas emissions. This case marks a first for environmental campaigners using the courts successfully to make a major oil company change its strategy and could have very wide-ranging consequences for the fossil fuel industry.

The case was brought by several organisations including Greenpeace and Friends of the Earth Netherlands on behalf of Dutch citizens who claim that the company is compromising their human rights - the right to life and the right to family life - by continuing to invest billions into fossil fuels.

Shell's current strategy was to reduce carbon emissions by 20% by 2030 and only last week the company got 89% of shareholders to back its climate plans at its AGM. However the court said this was not sufficient and ordered a cut in CO2 emissions of 45% by 2030 compared to 2019 levels. The cuts to include scope 3 emissions which is very significant as this covers its supply chain and customers (my article last September). The court said that Shell had a duty of care to reduce carbon emissions and that its plans should be brought into line with the Paris Climate Agreement.

Director of Friends of the Earth Donald Pols said "This is really good news and a gigantic victory for the Earth, our children and for all of us. The judge leaves no doubt about it; Shell is causing dangerous climate change and must now stop it quickly".

This ruling combined with the report from the EIA last week will send shock waves throughout the industry and I suspect we will see the fossil fuel executives moving towards a much more sustainable strategy over the coming year with much greater emphasis on renewable energy. I guess it also opens the door to the possibility of oil executives being brought before the courts on corporate manslaughter charges in the future.

It is likely that Shell will appeal the decision. How this will affect the investment case for Shell and other oil majors is unclear but to me it seems clear that the risks have now increased considerably. Much will depend on just how they respond to the rising tide of global demand for a cleaner, more sustainable future.

What do you think about this case...is it more risky to invest in the likes of Shell, Exxon and BP or do you remain fairly relaxed? Have your say, leave a comment below.

SSE - Full Year Results

SSE (formerly Scottish & Southern Energy) is a FTSE 100 company operating in the energy business across the UK and Ireland. Tackling climate change is at the centre of their operations and their aim is to be a leader in a low carbon world through significant investment in renewable energy.

At the start of this year they announced plans to invest £15bn over the coming decade aiming to become Britain's first global windfarm business. The focus will be on projects in the US, Europe and Japan as well as further expansion in the UK.

SSE are a principal parter of the COP26 climate summit taking place later this year and has joined the Race to Zero campaign pledging net zero emissions by 2050 at the latest and align the business to limit global warming to 1.5C.

SSE Renewables

In late 2019, the company consolidated its renewable energy assets under the single entity of SSE Renewables. The current portfolio has around 4GW of both offshore and onshore wind as well as hydro which includes 300MW of pumped storage and 750MW of flexible hydro. It has the largest offshore wind pipeline of future projects in the UK and Ireland of over 7GW.

SSE in partnership with Equinor are engaged in the construction of the world's largest offshore windfarm in the North Sea which will generate 3.6GW of clean electricity, sufficient to power 4.5m homes and using the world's most powerful turbines, the GE Halidade-X. The windfarms are due to start operations in 2022.

Last year, renewable accounted for almost one half of profits however over the coming decade they plan to at least treble renewable output to 30TWh per year which would be enough to power the whole of Scotland. This was the main reason for adding this company to my green portfolio last year.

Dogger Bank - World's largest offshore wind project

Results

The company have this week released results for the full year to end March 2021 (link via Investegate).

They appear to be making progress in restructuring the business to focus on the core electricity networks and renewable energy. Disposals of non-core assets will bring in £1.5bn with more to come from the sale of SGN.

Despite the Covid pandemic, adjusted profits before tax are up 4% to 1.06bn and adjusted earnings per share up 5% to 87.5p which supports the full year dividend of 81p. A final dividend of 56.6p will be paid in September. They confirm a target of RPI  inflation for the coming year which gives a fwd yield of  5.3% based on the current share price.

It is pleasing to note that profits from the renewables arm increased by 29% to £731m (last year £567m & 2019 £456m) however this is mainly due to disposals of a 51% share in Seagreen and 10% stake in Dogger Bank. This now represents almost half of SSE profits compared to 30% in 2018. Renewables are on track to generate the lion's share of profits in the future with a target of 1GW of renewables assets each year during the second half of the decade.

Commenting on the results Sir John Manzoni, Chair of SSE, said:

"Looking ahead, a strong balance sheet, underpinned by world-class assets, gives us a firm footing from which to capitalise on the considerable future growth opportunities we are creating in the transition to net zero.

"Our ESG credentials continue to grow and, as a Principal Partner of COP26, we are focused on creating value for shareholders and society. We are reducing emissions, investing in a green recovery, creating over a thousand new jobs, making a major contribution to GDP and, financially, continuing to remunerate shareholders through delivery of our dividend plan to 2023."  

Covid has obviously had an impact on over the year with profits taking a hit of £170m (13p per share) which was at the lower end of estimates. However, the management are fully aware that the consequences of failing to tackle climate change will be far greater than those of the coronavirus.

Conclude

The IEA have recently set out their new global pathway to net zero which calls for no new oil, gas or coal from 2021 and a huge investment into renewable energy over the coming decade and beyond. This will inform the debates at the COP 26 gathering later this year. 

The UK Government are leading the way on plans to reach net zero emissions with its recent announcement to reduce emissions by 78% by 2035, phase out the sale of new petrol and diesel vehicles by 2030 and have pledged to increase the UK's offshore wind capacity from 8.5GW to 40GW over the coming decade. This is a very significant shift in our approach to energy as we move away from fossil fuels and should give confidence to the renewables industry and provide profitable opportunities for the established operators such as SSE and Orsted.

SSE Share Price past 3 years

SSE confirm their pledge to invest £7.5bn in new and upgraded infrastructure by 2025, and indeed most of this is already contracted. 90% of this will be allocated to the core business of renewables and electricity network. Spend on renewables infrastructure projects include Seagreen, Dogger Bank and the new 443MW Viking onshore wind farm in Shetland - the largest in the UK. They have increased the target for cuts in carbon emissions from 50% to 60% by 2030.

It is clear SSE will play a significant part in the UK's transition to a net zero emissions economy and I am hoping the ever increasing share of the core business moving to SSE renewables will provide value for its shareholders. It also offers some new opportunities for expanding the renewable energy business in Europe, N America and Japan

The shares were added to my ISA in two tranches last year at an average price of £15.00 and currently stands at £15.40. They make up around 2% of my green portfolio.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

No New Oil, Gas or Coal says IEA

Starting today...No...New...Coal...Oil...or...Gas

The International Energy Agency (IEA) has just published a landmark report setting out it's roadmap to net zero carbon emissions and which pretty well signals the death knell for the fossil fuel industry (link to pdf report). They say the world needs a radical shift to renewable energy to reach net zero carbon emissions by 2050 and limit warming to 1.5C. We are currently at 1.2C compared to pre-industrial levels. The IEA have been regarded as captive to the oil and gas industry so this report is all the more significant and probably one of the strongest signals yet that the transition to a cleaner sustainable energy future is well underway.

The IEA is the world's most influential energy modelling agency. so when it calls for an immediate end to licensing and financing of all new fossil fuel extraction worldwide and instead a massive investment in clean energy, it is very BIG NEWS.

IEA pathway to net zero

The energy sector is responsible for 75% of global greenhouse gas emissions and therefore holds the key to tackling climate change "perhaps the greatest challenge humankind has faced". The number of countries that have pledged to reach net zero has increased significantly over the past year and now covers around 70% of emissions but sadly these pledges are not yet matched by near-term policies and measures. Therefore all countries must significantly strengthen and then implement their energy and climate policies. Further delays in action will push net zero by 2050 out of reach.

The future is dominated by renewables 
(red line is renewables)

To achieve net zero by 2050, the report sets out 400 steps in it's roadmap. Here are some of the main points:

• From today, no new coal mines and an end to new oil or gas exploration
• No new gas-fired boilers after 2025 globally
• Sale of new petrol & diesel vehicles to end by 2035 globally
• EVs to increase from currently 5% of global sales to 60% by 2030
• Charging points for EVs to increase from 1 million today to 40m by 2030
• Hydrogen to become one of the 'pillars of decarbonisation'
• Wind and solar to overtake coal, oil and gas by 2030
• Renewables will drive the transition and increase from 29% now to 90% by 2050 

“IEA analysis has been used to prop up the fossil fuel system,” said Kingsmill Bond, an energy strategist at Carbon Tracker, a London-based think tank that studies the financial impact of climate change. “The fact the IEA specifically has come out with this analysis suggesting that change is possible is extremely significant.”

Obviously I was pleased to see the report gives a big thumbs-up for hydrogen as I have quite a large proportion of my investments in this sector. The proportion of low carbon hydrogen will increase from 10% currently to 70% by 2030 and around half of this will be green hydrogen from electrolysis. Stored hydrogen will be used to balance fluctuating electricity demand. During the coming decade there will be a huge increase in the installation of end-use equipment for hydrogen including 15 million fuel-cell vehicles on the road by 2030. By 2050, hydrogen will account for one third of  global fuel use in trucks and 60% of fuel used in shipping.

The IEA roadmap will be an important document to inform the COP 26 gathering of world climate leaders in Glasgow in November (postponed from 2020 due to Covid). The modelling assumes a huge increase in the investment into clean energy to $5 trillion per annum by 2030.

40 million charging points by 2030

These are critical times and the report shows that the energy landscape will need to change dramatically over the coming decade. Inevitably this will mean capital markets will also shift away from fossil fuel to renewables as the risks from continuing to finance and insure oil, gas and coal will become unacceptable.

However influential, it must be remembered that the publication of this report is merely a warning to global governments and big business. It outlines what is needed over the coming decade and beyond to limit global warming but does not predict what will actually happen. It will not stop the big oil majors drilling new fields or governments issuing licences for fossil fuel exploration and extraction. But it will be very influential in the court of public opinion and upon which the industry and governments are very dependent.

So, last orders have been called and the 10 minute drink-up bell sounded for big oil and coal...it's time to leave the saloon. The industry must quickly embrace the new world order of clean energy, reinvent itself and stop compromising the future for our children and grandchildren.

Shell, BP, Exxon...over to you.

Feel free to leave a comment below if you have any thoughts on this new report. How will it change the way you invest, if at all?

A Fossil-Free Option from Vanguard...At Last!

Vanguard are one of the world's largest fund managers with assets under management of $7 trillion, however they have been late to the ESG party. But better late than never I suppose, Vanguard UK have finally come around to offering funds which should be more acceptable to investors who prefer to avoid fossil fuel companies...something I have been pressing them to do for some time now.

The ESG Global All Cap (V3AM) is a passive index exchange traded fund (ETF) launched on the UK market in March 2021. The fund tracks the FTSE Global All Cap Choice Index which is basically the Global All Cap index which is then screened to exclude those companies which do not meet certain environmental, social or governance criteria (ESG). The index will therefore exclude:

1. Companies which do not meet standards on human rights, the environment and anti-corruption;

2. Non-renewable energy - basically companies involved in coal, oil and gas;

3. Vice products such as adult entertainment, alcohol, tobacco and gambling;

4. Weapons and landmines

Fund charges are 0.24% and platform charges to hold with Vanguard Investor are an additional 0.15%.

The fund has just under 5,000 holdings - large, medium and small from all around the globe. Unsurprisingly, US-listed companies account for 60% of the fund, Japan 7%, China 6% and the whole UK-listed shares less than Apple... just 3.2%.

Some top holdings include Apple (3.4%), Microsoft (3.1%), Amazon (2.4%), Google (2.3%), Facebook (1.3%), Tesla (0.9%) and JP Morgan Chase (0.8%).

Dividends will be paid quarterly.

I disposed of my Vanguard Lifestrategy funds in 2019 as I started to expand my green portfolio. In 2020 I added the iShares World SRI ETF as a partial replacement for the global equity element provided by the Lifestrategy funds. So I am pleased to see Vanguard introducing this climate-friendlier option for investors who are concerned about climate change and wish to avoid fossil fuel companies.

Having said that, ESG funds are a drop in the ocean compared to Vanguards massive traditional index funds. Current assets for this ETF fund are just $31m compared to $8bn for their All World ETF (VWRL). Vanguard therefore remain under fire from environmental organisations... they are the world's largest investor in the coal industry for example with holdings in over 200 coal operations worth a combined $86bn according to Reclaim Finance.

Last year CEO of Blackrock, Larry Fink said "Climate change has become a defining factor in companies' long-term prospects … But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance. In the near future — and sooner than most anticipate — there will be a significant reallocation of capital"

The large pension funds, local authorities and institutional investors are increasingly realising that they can no longer remain passive when it comes to addressing the existential threat of climate change. They demand the choice of avoiding fossil fuel companies and it looks like Vanguard have finally got the message.

I will consider adding this Vanguard fund to my list of future possibilities to sit alongside my iShares fund. Now we just need an ESG version of the Lifestrategy fund...I'm not holding my breath!

It will be interesting to see how these ESG funds attract investors money compared to the more traditional index funds. Would you consider exchanging your VWRL for V3AM?