• Large Oil Spills - the Gordian Knot for the Risk Taker?

    November 7, 2012 9:49 AM

    Research

    Despite global economic decline, oil prices have remained at a historically high level of roughly USD 100 per barrel , which has supported the economics of many unconventional petroleum projects. However, environmental liabilities and on-going operating costs in projects requiring assumption of greater operational leverage continue to grow, exemplified by clean-ups of marine hydrocarbon spills, water treatment costs in hydraulic fracturing, and tailings remediation in oil sands projects.

    Continue reading Large Oil Spills - the Gordian Knot for the Risk Taker?

  • Uncovering the Hidden Costs of Unconventional Oil & Gas

    November 2, 2011 4:37 PM

    Event

    Despite jitters in the financial markets, the Oil and Gas industry is riding high, with bullish projections for energy prices. The run up in demand means the push for unconventional oil and gas is strong. Companies are racing to develop sources requiring deepwater, oil sands, and shale gas drilling - encroaching on new territories and using techniques that carry high environmental and social risks.

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  • Fukushima Accident Dims Prospects for a Nuclear Revival

    April 20, 2011 5:38 PM

    Research

    The ongoing Fukushima disaster is a major setback for the nuclear power industry. A much-anticipated “nuclear renaissance” will be slowed and likely curtailed, as happened after the Three Mile Island and Chernobyl accidents . Increased regulatory scrutiny and safety precautions will add to the rising costs of this industry, which is already losing ground to cost-competitive alternatives, like natural gas, renewables and investments in energy efficiency.

    Government subsidies will be essential for continued nuclear power expansion. Government support is needed to: defray the high capital costs of building nuclear reactors, decommissioning them, permanently disposing of spent fuel, and indemnifying plant operators from potentially huge insurance liabilities. Growing public recognition of these “hidden” costs may further limit nuclear power expansion.

    Nuclear power will remain a part of the global energy mix. It provides nearly 15 percent of global electricity needs. It is promoted as a carbon-free power source that fights climate change. Its use may grow in nations with limited energy resources, policies to cap carbon emissions, and where public opinion continues to view nuclear power as a comparatively safe and affordable form of electricity. However, even pro-nuclear nations are reassessing their policies in light of the latest nuclear accident at Fukushima.

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    Investment Implications

    Price changes after Japan nuclear disaster

    March 11 

    April 14

    % Change

    Tokyo Electric Power Company

    ¥2121

    ¥510

       -76.0%

    MSCI Japan Electric Utilities Index

    $114.07

    $70.93

    -37.8

    MSCI Global Alternative Energy Index

    $85.74

    $95.24

     10.0

    New safety reviews will add to rising construction and operating costs of nuclear power plants. Added regulatory and investor scrutiny will increase costs in the following areas:

    • Disaster planning and backup power
    • Evacuation zones and community preparedness
    • Storage and protection of spent nuclear fuel
    • Plant financing and capital costs
    • Insurance indemnification

    MSCI ESG Research is factoring these cost considerations into its ongoing research of nuclear-generating electric utilities. Financial effects will vary by company and region. Electric utilities operating in countries with centrally planned generating systems, and which continue to receive substantial government support for nuclear power, will likely continue with their nuclear power expansion plans, albeit at a more tempered pace. Utilities operating in countries with more independent and decentralized regulatory systems, and which have reactors in areas of high seismic activity or in proximity to large population centers, are more vulnerable, and are likely to see a contraction of nuclear plant licensing extensions and new reactor orders.

    MSCI ESG Research on Nuclear Power and Product Offerings

    We take an in-depth and multi-faceted approach to companies involved in nuclear power. Our research addresses an array of client needs in portfolio screening, identification of controversies, and ESG ratings and profiles.

    • ESG Manager: We track all publicly traded companies that manufacture or operate nuclear power plants so that concerned investors can screen these companies from their portfolios.
    • Global Compact+: We alert investors to event risks at nuclear plants, including safety issues, questionable or unethical management practices, and regulatory decisions that invite controversy or reduce investor confidence in nuclear utilities.
    • Intangible Value Assessment ratings and profiles: We assess risk exposure and management performance of nuclear plant operators in sector comparisons with other electric utility providers.

    Continue reading Fukushima Accident Dims Prospects for a Nuclear Revival

  • Implications of the Japanese Nuclear Disaster: An ESG Research Perspective

    March 25, 2011 2:53 PM

    Research

    The ongoing nuclear power crisis in Japan will have lasting implications for power generation around the globe. A much-anticipated “nuclear renaissance” could be curtailed as the world absorbs lessons from the worst nuclear accident since the Chernobyl disaster 25 years ago.

    The United States, with 104 operating reactors, and Europe, with 143 reactors in 27 countries, now plan extensive reviews of their nuclear plants and disaster preparedness. China, with 11 operating reactors, has also suspended approval of more than two dozen new reactors.

    This may give a boost to competing low-carbon generating sources, such as natural gas and renewable energy. MSCI’s Global Alternative Energy Index recorded a 10.1 percent gain in the first 10 days after Japan’s nuclear crisis began. This compares with a 22.8 percent loss for the MSCI Japan Electric Utilities Index over the same period. Coal may also get a short-term lift, since nuclear power is its chief rival in providing base-load power generation.

    Stock price changes after Japanese nuclear disasterMarch 11 
    (price at open)
    March 21  
    (price at close)
    % Change
    Tokyo Electric Power Company 25.0016.00-36.0
    MSCI Japan Electric Utilities Index114.0788.05-22.8
    MSCI Global Alternative Energy Index85.7494.3710.1


    Source:  MSCI Sector and Thematic Indices

    Continue reading Implications of the Japanese Nuclear Disaster: An ESG Research Perspective

  • 'Corporate Environmental Management and Credit Risk': Moskowitz Prize Study Finds ESG Impact on Debt Costs

    December 6, 2010 3:09 PM

    Research

    Each year, the winner of the Moskowitz Prize for scholarly research of socially responsible investing (SRI) is announced at the “SRI in the Rockies” conference. The 2010 Prize winner is “Corporate Environmental Management and Credit Risk,” by Rob Bauer and Daniel Hann. Their study found that companies with strong environmental records consistently pay lower costs for debt, while firms with weaker records face higher costs of financing and lower credit ratings.

    SRI strategies have typically been focused on equity investing, but some believe that environmental, social and governance (ESG) metrics could help investors evaluate credit risk and quality. (See this Dec. 1 article from Citywire of the UK, and these 2009 comments from Ran Fuchs of MSCI.) The Bauer/Hann study appears to confirm the utility of ESG research for fixed-income investment.

    Co-authors Bauer (former head of research at Dutch pension fund ABP) and Hann (a PhD candidate at Maastricht University) studied the environmental practices of 582 US firms between 1995 and 2006. Their performance data was drawn from the database of KLD, which is now part of MSCI ESG Research. Along with finding that a company’s environmental performance is associated with its cost of credit, Bauer and Hann also found that this association has grown stronger in recent years – a trend they expect to continue.

    Continue reading 'Corporate Environmental Management and Credit Risk': Moskowitz Prize Study Finds ESG Impact on Debt Costs

  • Coal Industry a Factor in Midterm Elections: Federal Policies Could Literally Reshape West Virginia

    November 2, 2010 1:33 PM

    Research

    The 2010 midterm elections have provided plenty of political theater, and one of the strangest scenes may be West Virginia Governor Joe Manchin firing a rifle at a “cap and trade bill.” An October 27 Boston Globe article explored how Gov. Manchin, a Democrat running for Senate, has positioned himself to the right of his party on many issues. The political logic behind his animus towards climate legislation can be summed up in one word: coal.

    Gov. Manchin is a vocal – and, apparently, armed – supporter of the coal industry’s positions on climate change and mountaintop coal removal (MTR). As a Governor, however, he can only do so much, as key parameters of coal mining’s regulatory framework are set by the US government.

    MSCI ESG Analyst Sam Block researches the coal industry, and as he explains below, federal regulation of coal mining can change drastically depending on which party is in power. If Republicans retake one or both houses of Congress, they could counter the EPA’s anti-MTR efforts under President Obama. Complicating the issue is that other Federal agencies, as well as the courts, also have a say in how the coal industry is regulated.

    Continue reading Coal Industry a Factor in Midterm Elections: Federal Policies Could Literally Reshape West Virginia

  • Oil & Gas Firms Spend Millions on California's 'Prop 23': 80 Percent of S&P 500 Don't Disclose Political Spending

    October 15, 2010 1:16 PM

    Research

    When a business faces new regulations, is shareholder capital best spent on complying with the rules, or on lobbying to overturn them? How companies answer this question will be of growing concern for investors in coming years.

    On Wednesday, the Los Angeles Times reported on a shareholder campaign targeting three large oil and gas companies for their spending on an effort to overturn California’s greenhouse gas (GHG) regulations. The ballot initiative, called “Proposition 23,” would delay or prevent implementation of the 2006 Global Warming Solutions Act, known as “AB32.”

    The fight over Prop 23 highlights two related issues. First, corporations’ political spending – now explicitly protected speech after the Supreme Court's 2010 Citizens United ruling – could give them more influence over laws and regulations that involve their businesses. And second, the oil and gas sector is only the first whose competitive landscape could be redrawn by GHG restrictions, such as the low-carbon fuel standards of AB32. 

    Continue reading Oil & Gas Firms Spend Millions on California's 'Prop 23': 80 Percent of S&P 500 Don't Disclose Political Spending

  • In the Spirit of Apollo, We Need an "Earth Shot" for Climate Change

    September 17, 2010 10:53 AM

    Forty-eight years ago this week, President Kennedy summoned Americans to put a man on the moon. Today we need a new Apollo project to re-launch our economy and protect our planet.

    This 21st century race features the United States against a new rival, China, which recently surpassed Japan as the world’s second-largest economy and the U.S. as the world’s largest carbon emitter. Both countries face a common adversary in global warming, which shows no respect for politics or international borders.

    Continue reading In the Spirit of Apollo, We Need an "Earth Shot" for Climate Change

  • Looking Back at Acid Rain: Lessons for Today's Debates over Climate Change and Coal

    August 27, 2010 1:58 PM

    On August 24, the New York Times celebrated the huge progress made over the past 30 years on acid rain.

    In an editorial, the Times noted regulatory action taken since 1990 has led to reduced toxicity in Adirondack lakes and forests, and they have rebounded. It called for further action, preferably legislative, to improve on these gains.

    It’s worth recalling what a hot-button issue this was amongst eastern environmentalists 30 to 40 years ago, and drawing lessons from it for today.

    Continue reading Looking Back at Acid Rain: Lessons for Today's Debates over Climate Change and Coal

  • BP in the Gulf and Beyond: The Changing Risk Profile of Unconventional Oil & Gas Development

    July 22, 2010 3:00 PM

    Event

    As BP gets closer, hopefully, to permanently containing the spill at the Macondo well in the Gulf of Mexico, the disaster has raised questions about BP’s future, that of its sector peers, and the prospects for further unconventional oil and gas production.

    The Integrated Oil & Gas team of RiskMetrics ESG Analytics, part of MSCI, has considered these issues as part of our recently published annual company and industry reports. (We will present this research in a webcast on September 15th- click here in September to register). This article sums up our perspective on four key questions:

    Continue reading BP in the Gulf and Beyond: The Changing Risk Profile of Unconventional Oil & Gas Development

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