Think about this, investments need to look to the future, take the long view!

From an Article by Bill McKibben, New Yorker Magazine, April 3, 2021

A report by BlackRock, the world’s largest investment house, shows that those who have divested from fossil-fuels have profited not only morally but also financially.

In a few months, a small British financial think tank will mark the tenth anniversary of the publication of a landmark research report that helped launch the global fossil-fuel-divestment movement. As that celebration takes place, another seminal report — this one obtained under the Freedom of Information Act from the world’s largest investment house — closes the loop on one of the key arguments of that decade-long fight. It definitively shows that the firms that joined that divestment effort have profited not only morally but also financially.

The original report, from the London-based Carbon Tracker Initiative, found something stark: the world’s fossil-fuel companies had five times more carbon in their reserves than scientists thought we could burn and stay within any sane temperature target. The numbers meant that, if those companies carried out their business plans, the planet would overheat. At the time, I discussed the report with Naomi Klein, who, like me, had been a college student when divestment campaigns helped undercut corporate support for apartheid, and to us this seemed a similar fight; indeed, efforts were already under way at a few scattered places like Swarthmore College, in Pennsylvania.

In July, 2012, I published an article in Rolling Stone calling for a broader, large-scale campaign, and, over the next few years, helped organize roadshows here and abroad. Today, portfolios and endowments have committed to divest nearly fifteen trillion dollars; the most recent converts, the University of Michigan and Amherst College, made the pledge in the last week.

No one really pushed back against the core idea behind the campaign— the numbers were clear — but two reasonable questions were asked. One was, would divestment achieve tangible results? The idea was that, at the least, it would tarnish the fossil-fuel industry, and would, eventually, help constrain its ability to raise investment money. That’s been borne out over time: as the stock picker Jim Cramer put it on CNBC a year ago, “I’m done with fossil fuels. . . . They’re just done.” He continued, “You’re seeing divestiture by a lot of different funds. It’s going to be a parade. It’s going to be a parade that says, ‘Look, these are tobacco, and we’re not going to own them.’ ”

The second question was: Would investors lose money? Early proponents such as the investor Tom Steyer argued that, because fossil fuel threatened the planet, it would come under increased regulatory pressure, even as a new generation of engineers would be devising ways to provide cleaner and cheaper energy using wind and sun and batteries.

The fossil-fuel industry fought back — the Independent Petroleum Association of America, for instance, set up a Web site crowded with research papers from a few academics arguing that divestment would be a costly financial mistake. One report claimed that “the loss from divestment is due to the simple fact that a divested portfolio is suboptimally diversified, as it excludes one of the most important sectors of the economy.”

As the decade wore on, and more investors took the divestment plunge, that argument faltered: the philanthropic Rockefeller Brothers Fund said that divestment had not adversely affected their returns, and the investment-fund guru Jeremy Grantham published data showing that excluding any single sector of the economy had no real effect on long-term financial returns. But the Rockefeller Brothers and Grantham were active participants in the fight against global warming, so perhaps, the fossil-fuel industry suggested, motivated reasoning was influencing their conclusions.

The latest findings are making that charge difficult to sustain. For one thing, they come from the research arm of BlackRock, a company that has been under fire from activists for its longtime refusal to do much about climate. (The company’s stance has slowly begun to shift. Last January, Larry Fink, its C.E.O., released a letter to clients saying that climate risk would lead them to “reassess core assumptions about modern finance.”) BlackRock carried out the research over the past year for two major clients, the New York City teachers’ and public employees’ retirement funds, which were considering divestment and wanted to know the financial risk involved.

Bernard Tuchman, a retiree in New York City and a member of Divest NY, a nonprofit advocacy group, used public-records requests to obtain BlackRock’s findings from the city late last month. Tuchman then shared them with the Institute for Energy Economics and Financial Analysis, a nonprofit that studies the energy transition.

In places, BlackRock’s findings are redacted, so as not to show the size of particular holdings, but the conclusions are clear: after examining “divestment actions by hundreds of funds worldwide,” the BlackRock analysts concluded that the portfolios “experienced no negative financial impacts from divesting from fossil fuels. In fact, they found evidence of modest improvement in fund return.” The report’s executive summary states that “no investors found negative performance from divestment; rather, neutral to positive results.” In the conclusion to the report, the BlackRock team used a phrase beloved by investors: divested portfolios “outperformed their benchmarks.”

In a statement, the investment firm downplayed that language, saying, “BlackRock did not make a recommendation for TRS to divest from fossil fuel reserves. The research was meant to help TRS determine a path forward to meet their stated divestment goals.” But Tom Sanzillo — I.E.E.F.A.’s director of financial analysis, and a former New York State first deputy comptroller who oversaw a hundred-and-fifty-billion-dollar pension fund — said in an interview that BlackRock’s findings were clear. “Any investment fund looking to protect itself against losses from coal, oil, and gas companies now has the largest investment house in the world showing them why, how, and when to protect themselves, the economy, and the planet.” In short, the financial debate about divestment is as settled as the ethical one —you shouldn’t try to profit off the end of the world and, in any event, you won’t.

These findings will gradually filter out into the world’s markets, doubtless pushing more investors to divest. But its impact will be more immediate if its author — BlackRock — takes its own findings seriously and acts on them. BlackRock handles more money than any firm in the world, mostly in the form of passive investments — it basically buys some of everything on the index. But, given the climate emergency, it would be awfully useful if, over a few years, BlackRock eliminated the big fossil-fuel companies from those indexes, something they could certainly do. And, given its own research findings, doing so would make more money for their clients — the pensioners whose money they invest.

BlackRock could accomplish even more than that. It is the biggest asset manager on earth, with about eight trillion dollars in its digital vaults. It also leases its Aladdin software system to other big financial organizations; last year, the Financial Times called Aladdin the “technology hub of modern finance.” BlackRock stopped revealing how much money sat on its system in 2017, when the figure topped twenty trillion dollars. Now, with stock prices soaring, the Financial Times reported that public documents from just a third of Aladdin’s clients show assets topping twenty-one trillion.

Casey Harrell, who works with Australia’s Sunrise Project, an N.G.O. that urges asset managers to divest, believes that the BlackRock system likely directs at least twenty-five trillion in assets. “BlackRock’s own research explains the financial rationale for divestment,” Harrell told me. “BlackRock should be bold and proactively offer this as a core piece of its financial advice.”

What would happen if the world’s largest investment firm issued that advice and its clients followed it? Fifteen trillion dollars plus twenty-five trillion is a lot of money. It’s roughly twice the size of the current U.S. economy. It’s almost half the size of the total world economy. It would show that a report issued by a small London think tank a decade ago had turned the financial world’s view of climate upside down.

EQT merged with Rice Energy but the debt problems remain

From an Article by Nick Cunningham, Oil-Price.com, January 14, 2020

The largest natural gas driller in the United States just announced a massive write-down for its assets, offering more evidence that the shale sector faces fundamental problems with profitability.

In a regulatory filing on Monday, Pittsburgh-based EQT took a $1.8 billion impairment for the fourth quarter, as the natural gas market continues to sour. EQT said that the write down comes as a result of the “changes to our development strategy and renewed focus on a refined core operating footprint,” which is a jargon-y way of saying that some of its assets are now worth much less.

EQT also slashed spending for 2020 to between $1.25 and $1.35 billion, down by another $50 million compared to the guidance the company provided in the third quarter of last year.

Although not a household name, EQT is the largest gas producer in the country, and is a giant in the Marcellus shale. EQT purchased Rice Energy in 2017, growing into a huge gas producer and pipeline company, but it has posted disappointing results in the last few years. The poor performance led to an internal battle for control of the company. Toby Rice, who co-founded Rice Energy and maintained small ownership stakes in EQT after the tie up, wrestled control from management, convincing the company’s board that he could right the ship. He became CEO last year.

So far, the company’s problems continue. Natural gas prices slid sharply in 2019, and are at rock-bottom levels, particularly for the time of year. According to the FT, while Henry Hub natural gas prices for February delivery trade at $2.24/MMBtu, they are only trading at around $1.83/MMBtu at the Dominion South hub in Pennsylvania.

EQT itself admits that it can’t succeed in this environment. “Gas prices are down. It has a big impact, the difference between $2.75 gas and $2.50 gas,” Toby Rice said in December “A lot of this development doesn’t work as well at $2.50 gas.”

EQT hopes to cut $1.5 billion in debt by selling assets and boosting cash flow. However, the cash flow part will be hard to pull off with prices stuck in the doldrums.

Moody’s cut EQT’s credit rating on Monday to Ba1 with a negative outlook, moving it into junk territory after the gas giant said it would issue new bonds to refinance debt. “EQT’s significantly weakening cash flow metrics in light of the persistent weak natural gas price environment and the company’s intent to refinance its 2020 maturities in lieu of debt reduction through repayment drives the ratings downgrade,” Moody’s senior analyst Sreedhar Kona said.

The agency also noted the “volatility associated with the cash flow of pure-play natural gas producers necessitate a higher retained cash flow to debt ratio threshold than EQT can deliver over the medium term even with significant debt reduction.”

“Additionally, EQT’s cash flow metrics compare poorly to other Baa3 rated oil producing companies, despite EQT’s size and scale,” Moody’s concluded. EQT’s share price is down by more than half since last spring, and it is also down by more than 75 percent since 2017.

These problems are obviously much larger than EQT. Range Resources recently slashed its dividend in order to pay off debt, while also taking out another $550 million in new debt in order to pay off maturing debt this year. Meanwhile, Chesapeake Energy, the second largest gas producer, is now trading at pennies on the dollar and faces the prospect of being delisted from the New York Stock Exchange.

EQT’s predicament reflects the broader financial questions that have long plagued the shale industry. Fracking can produce lots of oil and gas, but steep decline rates make profits elusive. If the largest gas producer in the country is struggling, and has a credit rating in junk territory, then something is wrong with the business model.

The problems endemic to the shale gas industry are starting to affect production. The decade-long boom in gas production from Appalachia may have finally come to a halt.

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See also: BlackRock makes climate change central to its investment strategy – The Washington Post, January 14, 2020

Over the past year, Pope Francis met with chief executives and board chairs of leading oil and gas companies and financial firms, including CEO Fink of BlackRock, and urged them to take steps to curb climate change. Activists have launched a campaign called “Stop the Money Pipeline.” And investors have flocked increasingly to mutual funds or money managers who screen out shareholdings in fossil fuel companies.

“This is a major, major crack in the dam,” said Bill McKibben, a writer and climate activist who was arrested last week at a protest at a Chase bank in the District. “The financial powers in New York have tried to ignore climate risk, but that’s now impossible; the pressure from activists, and from the climate chaos in the real world, is simply too great.”