Investing in a cleaner energy society

06-06-2011 | Climate change and the world’s energy crisis must remain at the centre of public debate. A clean and low-carbon energy society is critical to combatting both issues. This means coal-fired power and mining of tar sands are not the way to go.

A low carbon economy is possible

Access to energy in the developing world, scarcity of fossil fuels, related geopolitical tensions, energy security and fighting climate change are key challenges for the future. From a technological point of view, mitigating climate change by a swift transition towards a low carbon energy economy seems possible within just a few decades. Innovative technologies are available and are quickly evolving. The transition will require a concerted effort from various stakeholders, and the financial sector can and should play an instrumental role.

Two major change-preventing factors

The first major factor that prevents change in achieving a clean and low-carbon energy society is extraction from tar sands. With conventional oil reserves drying up, the energy sector has found new resources in tar sands, oil shale, or very deep reserves that were previously technically out of reach. These non-conventional oil-reserves are difficult to extract and come at a higher cost, financially as well as environmentally. Tar sands extraction is heavily intensive, causing high CO2 emissions and it creates enormous environmental damage with large areas of boreal forest and other undisturbed landscape being destroyed. Furthermore, the process demands enormous quantities of water, which after use have to be stored in large tailing ponds that, contaminated with heavy metals and other toxins, will be an environmental hazard for decades.

The second major factor preventing change is the use of coal-fired power plants to generate electricity. Through the production of electricity in coal-fired plants, enormous quantities of coal is burned. Currently some 30% of all electricity produced is from coal-fired plants. This 30% is responsible for 80% of CO2 emissions related to the production of electricity. Coal mining also has serious negative health impacts on the miners who extract it, with thousands dying each year.

Triodos Bank policy

Triodos Bank invests in stock-exchange listed companies that lead in energy saving, the use or production of renewable energy, and the phasing out of high-carbon energies. Financing companies involved in tar sands or with substantial coal-fired capacity does not align with the bank’s vision on energy. We recently introduced new thresholds – 0% for involvement in tar sand operations and 5% for revenues from coal-fired power.

The change to our tar sands threshold has no immediate consequence for the investment universe, as none of the selected companies is active in tar sands. With production from tar sands expected to increase significantly, and more companies inevitably becoming involved, the chance of new oil and gas companies being found eligible for investment is greatly reduced.

With this new 5% threshold on coal-fired power, Triodos Bank will only invest in listed power producers that have chosen for cleaner energies such as natural gas and renewable energy sources. Canadian company Transalta and Drax from the UK, both with large coal-fired capacity, were removed from the investment universe due to lack of climate change policies and targets to reduce their coal-fired capacity.

Note: The issues explored in this article are relevant for sustainable investments on the stock market. Triodos Bank believes that our socially responsible investments are a powerful means of promoting our values and working for greater sustainability, while enabling us to offer a complete range of attractive investment options to customers who choose to invest on the stock market.