Impacts of Investments in the Energy Transition

Due to their central function in the economy and society, financial institutions play a key role in funding a more sustainable planet, especially in financing the energy transition.

The topic addresses a company’s direct funding to the energy sector and how it is contributing or not to a clean energy transition. It should analyse the company’s investments in fossil fuels and clean energy. The note should be comprehensive enough and include loans, underwriting, and bonds. Indirect investments in the form of shares and bondholding should also be included if the company has an investment arm.

Renewable Energy Investments
These investments are directed towards the creation of renewable energy power. They can be made through Green Bonds and regular bonds. The World Bank issued the first bonds of this kind in 2009. They “enable capital-raising and investment for new and existing projects with environmental benefits. The Green Bond Principles (GBP) seek to support issuers in financing environmentally sound and sustainable projects that foster a net-zero emissions economy and protect the environment.”

When looking at a company's green bond issuance, ensure the values directed towards renewable energy specifically are at least $1Bn a year, as green bond proceeds can be directed towards other initiatives unrelated to building renewable energy capacity.

Fossil Fuel Investments
Investments in this sector sponsor and facilitate the expansion of oil, coal, gas, and petroleum, which are all known to have severe effects on the climate.

Direct funding

Funding the company has provided directly to other companies in the form of loans and underwriting

Indirect funding

Investments made by the company in the form of shares or bonds.

Assets Under Management

The total market value of the investments that a person or entity manages on behalf of clients. A company’s AUMs are not its Assets or its Assets Under Administration.

Threshold:

• Investments in fossil fuels or renewables should be at least $1 Bn per year.

• Please make sure to construct your analysis with all the relevant information. If the company has disclosed more information on its renewable energy investments, please make sure to have the complete picture of its fossil fuel investments. This will allow readers to gauge the impact of the company correctly.

Exceptions:

1. If we have partial data on direct investments in coal, and these amount to at least $500Mn a year, we would be able to accept the analysis provided it makes it crystal clear these are partial investments. Please note that this new threshold only applies to direct coal investments.

For the note to be accepted, we request a qualitative analysis that gauges the company’s cumulative fossil fuel investments given that coal investments make a small portion of a company’s total carbon investments. You can use this source to support your analysis and show coal investments are only the tip of the iceberg of the company’s total fossil fuel investments.

“Overall, the overwhelming bulk of fuel supply investment in 2020 went into fossil fuels – 84% to oil and gas and 14.5% to coal (which is a much less capital-intensive sector).”

2. If yearly direct fossil fuel investments reach $800Mn, we would also consider the note. Please note this only applies to direct investments (loans, underwriting) in fossil fuels.

Note: Investments should be expressed in either USD or EUR.