Opinion

Arctic Refuge Drilling Breaches Fiduciary Responsibility

The Trump administration has just taken another step closer to opening the Arctic National Wildlife Refuge to oil and gas drilling. This is discouraging news for one of the world’s most unspoilt locations, as well as an invitation to some of the world’s largest companies to imperil their reputations and finances.

The 19 million-acre Arctic Refuge is one of the last intact ecosystems on the planet.  Lying just north of the Arctic Circle on the border between Canada and the United States, it protects more abundant and diverse wildlife than any other conservation area in the world. It is also home to the Gwich’in people, an Alaska Native tribe that has lived in the region for thousands of years.

This is by no means the first time that energy exploration and the environment have come into conflict, but drilling in the Arctic Refuge is a step too far.

There are good reasons why the Arctic Refuge has remained untouched until now. The introduction of roads, pipelines, drilling rigs and the other trappings of the oil and gas industry would permanently destroy a unique and fragile habitat whose value to humanity is priceless, with the ever-present possibility of oil spills and other disasters looming over the region, as well.

Furthermore, against the international backdrop of joint efforts to maintain global temperature rise to below 2 degrees Celsius, abandoning drilling in the Arctic Refuge makes commercial sense. Capital expenditure on existing and new oil projects will be curbed by the fall in oil demand necessary to meet the global target, rendering more uncertain all those projects that are not highly cost-effective or are in risky areas. We believe corporate investment would be better directed toward adjusting business strategies to a “2 degrees Celsius” scenario, for example, by diversifying holdings to include more low- or zero-carbon energy sources.

We therefore conclude that oil and gas exploration cannot be conducted responsibly within the Arctic Refuge’s boundaries, and we will not invest in any such exploration within our actively managed portfolios.

We make this decision with a firm and clear focus on our duties as fiduciaries of our investors’ assets. We manage or advise on assets totaling €557 billion and have an obligation to deliver long-term returns for our clients, as well as ensuring that we act to protect their interests. We believe that drilling in the Arctic Refuge fails both of these criteria.

The Trump administration’s backpedaling on climate change notwithstanding, it is now clear that the world is headed toward limiting greenhouse gas emissions to a level consistent with a 2 degree Celsius increase in global temperatures. As such, the unrestrained development of fossil fuels is rapidly becoming a thing of the past.

To invest our clients’ assets in new, multi-decade oil and gas exploration would therefore be to gamble that the world will reverse course and embrace rapidly accelerating climate change. That outcome is neither likely nor desirable, as highlighted by the latest report from the Intergovernmental Panel on Climate Change.

Public opinion regarding oil and gas development — particularly in environmentally sensitive places and specifically in the Arctic Refuge — has shifted too, and investors would do well to heed it.

Research commissioned by the Yale Program on Climate Change Communication found that an overwhelming majority of Americans vehemently oppose drilling in the Arctic Refuge, and it is reasonable enough to believe the same of the public in the United Kingdom and across Europe. Investors who support oil and gas companies drilling in the Arctic Refuge will no doubt be criticised for doing so, with attendant harm to their reputations.

Indeed, the ranks of investors opposing risky, irresponsible and destructive fossil fuel development are growing rapidly. Last spring, alongside more than 115 investors representing assets of $2.52 trillion, we issued a call to oil and gas companies and major banks to stay out of the Arctic Refuge. Soon afterward, investors (including ourselves) representing assets of more than $10.4 trillion called on oil companies to be far more transparent about their climate impacts and their plans to shift away from emissions-heavy technologies.

Those who remain committed to supporting drilling in such locations are likely to find themselves at odds with the market, as well as taking an increasingly isolationist stance with regard to public opinion.

We prefer to support those who see a brighter future, in which there is respect for the places that have collectively been declared worthy of protection and the people who depend on them. We see a future in which investors choose to pursue gains that can help sustain the timeless assets we hold in common, rather than favoring the outdated technologies that constrain us.

 

Helena Viñes Fiestas is the head of sustainability research and policy for BNP Paribas Asset Management.

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