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Transparent pricing, ESG metrics helping move energy transition forward: experts


TCFD supporters represent over $20 trillion in market cap

Tipping point reached in power sector

  • Author
  • Jared Anderson
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  • Debiprasad Nayak
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  • Coronavirus and Commodities Energy Transition Environment and Sustainability

Investors remain focused on the energy transition despite coronavirus pandemic related market disruptions, and while there is a long way to go toward decarbonizing society, transparent commodity pricing, clear ESG metrics and continued corporate action can help, experts across S&P Global said Sept. 22.

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"COVID is leaving its mark on the world and it is impacting the energy transition," Roman Kramarchuk, head of energy scenarios, policy & technology analytics at S&P Global Platts Analytics, said during a New York City Climate Week event called "Transitioning to a Low Carbon Economy."

The pandemic has reduced global oil demand by about 2.58 million b/d and while that has reduced carbon dioxide emissions it has also resulted in lower oil prices that make electric vehicles less competitive, Kramarchuk said.

However, the growth outlook for renewable energy remains intact even if some projects have been delayed, he said.

One key step toward transitioning to a lower carbon economy that has been really valuable has been creating the Task Force of Climate Related Financial Disclosure (TCFD) which has "galvanized action" and made clear what steps are needed by every kind of company, said Lauren Smart, managing director and global head of ESG commercial at S&P Global Market Intelligence.

There are now over 1,000 organizations that support the effort, and they represent over $20 trillion in market capitalization "which is huge ... and shows this is a global initiative involving all sectors of the economy," Smart said.

Manjit Jus, managing director and global head of ESG research & data at S&P Global, said that he has seen improvements in terms of the information available on environmentally related topics.

There are still areas that are under-reported such as corporate supply chains where improvements can be made, but there has been tremendous progress over the past decade, Jus said.

In the US, with an absence of clear federal climate policy, over 85% of companies are served by a utility that has committed to cutting carbon emissions, said Susan Grey, global head of sustainable finance, business and innovation at S&P Global Ratings.

"From a capital markets perspective, there is still a lot of room to grow" toward the energy transition, said Reid Steadman, managing director and global head of ESG at S&P Dow Jones Indices.

There have been indices with carbon data for over a decade but investors have used them as niche allocations from their portfolios putting 2% or 3% of their assets into these strategies, "but we have recently seen those allocations move more to the core of portfolios," Steadman said.

However, a key indicator of ESG-related indices moving more to the mainstream will be when more retail investors begin using them, he said.

Timing and strategies

Asked about the timeframe for reaching meaningful global greenhouse gas emissions reductions, Kramarchuk said his team looks for tipping points. For example in the power sector, wind and solar power and energy storage are "incredibly cheaper" than a decade ago to the point where utilities and power developers now have low-cost options that are also low carbon.

Power sector investments are being led by renewables in terms of what is being built on a capacity basis so it appears we have reached a tipping point in the power sector, but not yet in others like transportation, commercial/residential and industrial which still rely heavily on fossil fuels, he said.

Asked about how hydrogen can be part of a climate solution, Kramarchuk said about 98% of hydrogen is currently produced with fossil fuels, so it is really more of a problem that could be a solution. He noted that Platts recently launched a hydrogen price assessment to bring transparency to the growing market.

"We are working on price assessments and thinking about where the commodity markets need to better reflect metrics beyond just cost, calories and BTUs, but to address metrics like carbon and responsibility," Kramarchuk said.

Smart said she is "very optimistic" about transitioning the energy system and economy toward a low-carbon future and innovations around data and metrics that can help include "more asset-level data, combining that with supply chain data, more conventional private company data ... and integration with financial analysis and financial modeling."