DAILY
What’s happening at COP26 |
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![Tim Quinson's Good Business](https://assets.bwbx.io/images/users/iqjWHBFdfxIU/ipsvEkUoTYy0/v0/-1x-1.png)
Ten years ago, the “cost of
capital” for developing oil and gas as compared to
renewable projects
was pretty much the same, falling consistently between 8% and 10%. But
not anymore.
The threshold of projected return
that can financially justify a new oil project is now at 20% for
long-cycle developments, while for renewables it’s dropped to
somewhere
between 3% and 5%,
according to Michele Della Vigna, a London-based analyst at Goldman
Sachs Group Inc.
“That's an extraordinary
divergence which is leading to an unprecedented shift in
capital allocation,”
Della Vigna said. “This
year will mark the first time in history that renewable power will be
the largest area of energy investment.”
![](images/images_11_09_2021/Graph1.jpg)
Will Hares, an analyst at
Bloomberg Intelligence, said pressure from ESG investors is the best
explanation for the widening difference between dirty and clean.
“Oil companies are finding it
increasingly difficult to raise financing amid rising ESG
and sustainability concerns, while
banks are under
pressure from their own investors to reduce or
eliminate fossil-fuel financing,” Hares said.
This is resulting in more
expensive debt financing (in some cases double-digit coupons), which,
when coupled with depressed equity valuations, leaves most oil
companies facing
higher costs for
capital, Hares said.
![](images/images_11_09_2021/man.jpg)
Mark Carney
at COP26 in Glasgow, Scotland
Photographer: Stefan Rousseau/PA Images/Getty Images
Climate finance has been a hot topic at
the COP26 meetings in
Glasgow, Scotland. Government leaders from less-developed
nations have at times expressed fury that rich countries repeatedly
break promises to mobilize funds to help them decarbonize and adapt to
a warming planet.
More such pledges were made last week—only this time they came from
the financial industry.
Mark Carney, the former central banker turned climate envoy, said more
than 450 financial firms representing $130 trillion of assets have
pledged to bring their lending and investing activities
in line with the goals
of the 2015 Paris agreement. The announcement, however, didn’t mollify
skeptics who are quick to point out that details on how the
industry would actually meet this target were lacking—a hallmark of
the greenwashing scourge.
Goldman Sachs estimated that about $56 trillion, or $1.5 trillion to
$2 trillion a year, will be invested in renewable energy, bioenergy
and other clean-energy infrastructure projects between now and 2050.
Spending is expected to peak between 2035 and 2040, driven largely by
expenditures on power networks, charging networks, building upgrades
and a massive expansion of renewable power sources such as clean
hydrogen, Della Vigna said.
“It's significant that such a large share of the financial sector has
recognized its role in driving the climate crisis and the need to
wind down its financed
emissions,” said Ben Cushing, a campaign manager at the
Sierra Club, an environmental pressure group. “But achieving net zero
by 2050 and staying within 1.5 degrees Celsius of warming means
stopping financing for
fossil-fuel expansion today. That’s the key test for
whether these commitments are aligned with reality.”
It’s
likely that given this backdrop, the spread between oil, gas and coal
and renewable energy will continue to diverge as banks change their
financing habits. Indeed, markets may end up killing off fossil fuels
before governments do.
![](images/images_11_09_2021/scene2.jpg)
Sustainable finance in brief
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![](images/images_11_09_2021/pic%20rocks.jpg)
Ten years ago, the “cost
of capital” for developing oil and gas as compared to
renewable
projects was pretty much the same, falling
consistently between 8% and 10%. But not anymore.
The threshold of
projected return that can financially justify a new oil
project is now at 20% for long-cycle developments, while for
renewables it’s dropped to somewhere
between 3%
and 5%, according to Michele Della Vigna, a
London-based analyst at Goldman Sachs Group Inc.
“That's an extraordinary
divergence which is leading to an unprecedented shift in
capital
allocation,” Della Vigna said. “This
year will mark the first time in history that renewable
power will be the largest area of energy investment.”
Will Hares, an analyst at
Bloomberg Intelligence, said pressure from ESG investors is
the best explanation for the widening difference between
dirty and clean.
“Oil companies are
finding it increasingly difficult to raise financing amid
rising ESG and sustainability concerns, while
banks are
under pressure from their own investors to reduce
or eliminate fossil-fuel financing,” Hares said.
This is resulting in more
expensive debt financing (in some cases double-digit
coupons), which, when coupled with depressed equity
valuations, leaves most oil companies facing
higher costs
for capital, Hares said.
Bloomberg
Green publishes the ESG-focused newsletter every week,
providing unique insights on climate-conscious investing.
As a service to readers, Bloomberg.com will
lift its paywall for climate stories from November 1 through
November 12. Follow our special COP26 coverage here.
Bloomberg Green at COP26:
Bloomberg will convene executives and thought leaders for
events focused on local and tactical solutions. To learn
more about the week of events and join virtually or in
person, click
here. |
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Read more about COP26
U.S. Faces Climate Dilemma Over China Solar
Bans, Says SolarEdge
The crackdown on imports of Chinese solar-power equipment complicates
the U.S.'s climate goals.
![](images/images_11_09_2021/Pic5.png)
Large Methane Plume Spotted
Near China Natural Gas Pipeline
The super potent greenhouse gas was detected in Liaoning.
![](images/images_11_09_2021/pic10.jpg)
Investors Pushed Mining Giants to Quit Coal.
Now It’s Backfiring
There’s growing unease that the divestment campaign could lead to more
coal being produced for longer
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