If the world is serious about halting the worst effects of global warming, the renewable energy industry will require $12.1 trillion of investment over the next quarter century, or about 75 percent more than current projections show for its growth.

That’s the conclusion of a report setting out the scale of the challenge facing policymakers as they look for ways to implement the Paris Agreement that in December set a framework for more than 195 nations to rein in greenhouse gases.

The findings from Bloomberg New Energy Finance and Ceres, a Boston-based coalition of investors and environmentalists, show that wind parks, solar farms and other alternatives to fossil fuels are already on course to get $6.9 trillion over the next 25 years through private investment spurred on by government support mechanisms. Another $5.2 trillion is needed to reach the United Nations goal of holding warming to 2 degrees Celsius (3.6 degrees Fahrenheit) set out in the climate agreement.

“The clean energy industry could make a very significant contribution to achieving the lofty ambitions expressed by the Paris Agreement,” said Michael Liebreich, founder of Bloomberg New Energy Finance, a London-based research group. “To do so, investment volume is going to need to more than double, and do so in the next three to five years. That sort of increase will not be delivered by business as usual. Closing the gap is both a challenge and an opportunity for investors.”

The required expenditure averages about $484 billion a year over the period, compared with business-as-usual levels of $276 billion, according to Bloomberg calculations. Renewables attracted a record $329 billion of investment in 2015, BNEF estimates.

While the figures are large, they’re not as eye-watering as the International Energy Agency’s projection that it’ll cost $13.5 trillion between now and 2030 for countries to implement their Paris pledges, and that an extra $3 billion on top of that will help meet the temperature target. Those figures aren’t just limited to renewables: they also include energy efficiency measures.

Envoys from 195 nations sealed the first deal to fight climate change that binds all countries to cut or limit greenhouse gases at a United Nations summit in Paris last month. They agreed to hold temperatures to “well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius.”

“Policymakers worldwide need to provide stable, long-lasting policies that will unleash far bigger capital flows,” said Sue Reid, vice-president of climate and clean energy at Ceres, a nonprofit group. “The Paris agreement sent a powerful signal, creating tremendous momentum for policymakers and investors to take actions to accelerate renewable energy growth at the levels needed.”

Decoding the signal is no easy task. We can deduce, in the very simplest terms, that it originates with top government officials and transmits to companies all over the world, and that it carries both promises and threats. According to Ban, the signal, at its core, says that “the transition to cleaner, low-emissions energy sources is necessary, inevitable, irreversible, and beneficial.” Tom Steyer, a billionaire investor-philanthropist from California who is in Paris this week, noted that the rewards of participating in a low-carbon economy have recently become clear. Batteries, buildings, electric vehicles, and mass-transit systems have grown more efficient, he said, while the price of wind and solar energy has fallen sharply. “Right now, we have in Paris more global leaders in one place at one time than ever before in history,” Steyer told me. “That alone delivers a message to businesses that whoever is doing this, whoever is on the cutting edge in terms of providing the technology and services for this global project—they’re going to be giant. And whoever continues doing business as usual will wither.”

This is where the signal gets a little fuzzy. How long will business as usual continue? Will it end on its own, or will penalties be required to hasten its demise? The climate accord that is being negotiated now revolves around voluntary pledges. More than a hundred and eighty of the world’s hundred and ninety-six countries came to this year’s event having submitted self-crafted proposals known as I.N.D.C.s, or intended nationally determined contributions, which outlined their commitments to greenhouse-gas reductions. The United States, with its I.N.D.C., pledged to cut carbon pollution by as much as twenty-eight per cent below 2005 levels in the next decade—a goal consistent with the strategies that Obama has implemented with his Clean Power Plan, and with hikes in fuel-economy standards for automobiles. China, meanwhile, has promised to reduce its CO2 emissions by up to sixty-five per cent per unit of G.D.P. below 2005 levels. Ernest Moniz, the U.S. Secretary of Energy, told me on Wednesday that “a good fraction of the signal has already been delivered,” owing to the sheer number of countries that presented such plans. “These I.N.D.C.s have a reasonable degree of ambition,” he said. “They also indicate, more broadly, that the ideological undercurrent about denying or ignoring climate change is gone. We’re past that. The arguments against inaction are obsolete.”

But exactly how the goals expressed in the I.N.D.C.s will be achieved remains vague, as does what happens if nations fail to meet them. Achim Steiner, the director of the United Nations Environment Programme, told me that his office had assessed the I.N.D.C. targets and found them wanting. Scientists have determined that, to stave off the most catastrophic impacts of climate change, we must limit warming to no more than two degrees Celsius—or no more than one and a half degrees, if we wish to protect vulnerable low-lying and island nations. “Right now, these targets still take us beyond three degrees Celsius of warming,” Steiner said. For this reason, he and other leaders in the negotiations, including Kerry, have argued that the final agreement should require five-year reviews of each country’s targets, to account for the ever cheaper and cleaner technologies that become available. They have also pushed for a transparent monitoring and reporting process, with verification by the U.N. or another external party, so that each signatory is bound by law to uphold its own commitments.

Early drafts of the agreement show that the basic contours of such a system are in place. The sense in Paris is that the means of adhering to such a framework are more accessible today than they were two decades ago, in Kyoto—or, for that matter, six years ago, at the time of the Copenhagen summit. “Copenhagen happened before the clean-energy economy had hit its stride,” Mindy Lubber, the president of Ceres, a nonprofit that develops climate-smart investment strategies for major firms, told me. “This may be the first conference that’s less about politics than it is about economics.” Lubber argued, furthermore, that the overwhelming presence of business leaders at the Paris summit made it “essentially too big to fail.” She added, “The signal is getting out there loud and clear. The real question is, will it catalyze billions of dollars of investment, or trillions?”

Perhaps the only marketplace signals that would be strong enough to catalyze that level of investment would be eliminating oil and gas subsidies and implementing penalties on CO2 pollution. “We won’t see a significant shift away from fossil fuels in the energy industry until an honest price is imposed on carbon-dioxide emissions,” Marie-José Nadeau, the chair of the World Energy Council, said. Such a price could be imposed either with a tax or with a cap-and-trade system that rewards clean companies. Given how this year’s agreement is structured, though—around individual pledges made voluntarily—there is no chance that it could mandate a single pricing scheme or trading system among all the signatories. Still, a growing number of business leaders worldwide are now throwing their weight behind carbon pricing. At his press briefing last week, Ban Ki-moon announced a coalition of a thousand major international companies that have pledged their support for it. Inherent in this message was perhaps the most hopeful signal of all, said the Secretary-General: “Leading companies are showing that they can address climate change and thrive.”

That is, until Wednesday, when climate-related resolutions received by far their highest level of support on record in the history of Exxon and Chevron.

At Exxon's meeting in Dallas, a resolution that would have required the company to prepare an annual report examining the implications to the company's business if world leaders follow through on their pledges to keep global warming to less than 2 degrees Celsius, or 3.6 degrees Fahrenheit, above preindustrial levels, garnered 38% of the vote.

Meanwhile, in California, a nearly identically worded resolution got 41% of the vote from Chevron's shareholders.

Prior to Wednesday, no climate-related resolution had ever eclipsed 31% of shareholder support at either company.

World leaders reaffirmed the 2-degree target in the Paris Agreement negotiated in December, but Exxon is betting that countries won't enact policies consistent with the pact for at least the next few decades and will instead choose to prioritize economic development.

Wednesday was the first time that such a large group of Exxon's largest shareholders, including the Norwegian Sovereign Wealth Fund and the Church of England, said this is too risky of a business strategy.

“Chairman, the board is losing the confidence of shareholders in its management of the climate issue,” said Edward Mason, the head of responsible investment at the Church Commissioners for England, which helps manage the church's investment funds.

“[Exxon] management will today experience a major shareholder revolt," Mason said.

A separate resolution, calling for Exxon to align its business to the 2-degree scenario, rather than its current plans of more or less continuing to burn as much of its oil and gas as it can for as long as it can, was voted down more resoundingly on a vote of 18.5% to 85.5%.

Exxon forecasts that oil and gas will make up 60% of the world's energy supply in 2040 — about the same share it holds today. Its forecasts paint a rosier picture for the future of oil than many of Exxon's peers do, including the French oil company Total, which on Tuesday decided to align its business strategy with the 2-degree target.

Exxon CEO Rex Tillerson, pictured above, said until there are "technological breakthroughs," the world will still rely mainly on coal, oil and natural gas for energy.

"We've got to have some technological breakthroughs," he said, "but until we achieve those, to just say turn the taps off is not acceptable to humanity," he said.

Exxon is important in this context for three main reasons. First, there is the company's sheer size: It is the biggest American oil company. Second, it has long resisted the need for policies to address human-caused global warming, and instead has funded an elaborate public relations campaign to convince the American public that climate science is unsettled.

The company is currently the subject of multi-pronged investigations by state attorneys general and the U.S. Virgin Islands for embarking on this public pressure campaign after discovering from its own scientists what the dangers of burning fossil fuels such as oil and natural gas actually were.

These inquiries are collectively known as the "ExxonKnew" investigations based on the Twitter hashtag. Protesters placed an ice sculpture with that hashtag outside of the Dallas building where the meeting was held on Wednesday.

Ivan Frishberg, first vice president of sustainability banking at Amalgamated Bank, told Mashable that Exxon has entered new, riskier territory.

"I think the combination of the Paris climate agreement, the pressure building up around the company from the kind of activist community and the ExxonKnew investigations, this has sort of reached a different level of seriousness for the company."

Andrew Logan, who directs oil and gas programs at the nonprofit sustainability advocacy organization Ceres, said the 2-degree stress test resolution, which earned the highest support, constituted a "real rebuke to company management" that had fought the resolution.

"Investors have sent a clear message that meaningful 2-degree stress testing is the new normal, and companies like Exxon and Chevron can no longer act as if nothing has changed," Logan said in a statement.

So when more than 500 investors who hold the strings on the world's biggest purses—the heads of investment banks, insurance companies, pension funds, international development banks—descended on the UN headquaters in New York yesterday for a high-powered summit hosted by the sustainable business* nonprofit Ceres, you'd hope they would be ponying up for climate solutions.

There's just one problem: Investment is on the decline for the second year in a row, according to new statistics released yesterday by Bloomberg New Energy Finance. In 2013, investors worldwide put $254 billion into clean energy technology, 20 percent below 2011's record high.

"The figures this year are not great," BNEF CEO Michael Liebreich told the group, which together represent roughly $20 trillion in assets. "But we are by no means in as bad a place as we could be."

That might sound like damning with faint praise, but in fact analysts here insisted the numbers mask a more optimistic story of growing concern about climate change on Wall Street. One important factor behind the investment decline, Liebreich said, is the falling cost of renewable energy installations, meaning investors get more bang for fewer bucks. Just in the last 18 months, the cost of a typical solar panel system dropped 45 percent; from 2012 through 2013, the total number of installed systems worldwide grew 20 percent.

In other words, the volume of renewables on the grid is growing even though less is being spent on them. And overall, a range of green money analysts at the conference insisted that Google's $3.2 billion purchase this week of energy efficiency startup Nest is just the latest sign that mainstream investors are beginning to see moneymaking opportunities in climate protection.

So how are investors going green? Bank of America's Head of Global Capital Markets, Lisa Carnoy, told Climate Desk the biggest shift in 2014 is likely to be in the market for so-called "green bonds." Companies and governments sell bonds as a way to quickly raise cash. The money they get from issuing a bond to a bank or other investor gets put into a project, which generates profit the company uses to pay back the investor (with interest, of course). Green bonds are those that are dedicated exclusively to funding climate-friendly projects: Renewable energy, energy efficiency, etc. As of last November, clean energy projects worldwide had issued $7 billion in such bonds, according to a report Ceres released yesterday, which projects the market for clean energy bonds to grow to $18-40 billion annually by 2020, a noticeable chip out of the $1 trillion goal.

"This is the simplest, cleanest, most easily understood" way for investors to fight climate change, Carnoy said, "and this is the one that can take off first."

Bonds are typically reserved for stable, mature industries (railroad and water infrastructure, for example), that are guaranteed to turn around a return for whoever buys them. So if Carnoy is right and more investors begin to snap up green bonds as a reliable way to generate income, it will send a strong signal to policymakers that clean tech isn't just a fringe sector for eco wingnuts but a robust, growing industry, according to HSBC head climate analyst Nick Robins.

"So that's a very good signal for the clean economy," Robins said.

The other trend to watch in 2014 is a growing awareness of the threat of "stranded" assets. Investments and companies whose value is based on holdings of fossil fuel reserves could find the rug pulled out from under them if those reserves become worthless following a drop in demand as renewables become more widespread and more countries adopt a price on carbon. There could be as much as $7 trillion worth of fossil fuels that will need to stay in the ground; the Ceres report estimates that stranded assets could account for 10 percent of overall investor portfolio risk over the next 20 years. That could be bad news for, say, pension funds, that rely on steady investment returns to cut checks to retired government employees. Anne Simpson, a senior director of the California state pension fund, said that 70 cents of every dollar in the fund comes from investment returns.

So, she said, "there are serious consequences to getting this wrong."

*An earlier version of this story incorrectly identified Ceres as a "green banking nonprofit".

It won’t be easy. Global investment in renewable energy fell 12 percent in 2013 to $254 billion, according to data released by Bloomberg New Energy Finance (BNEF), casting a shadow over the notion of a “clean trillion.”

Last year was the second decline in renewable investments since 2011’s record-high $318 billion. Investors and climate-policy advocates including hedge-fund billionaire Tom Steyer and former U.S. Treasury Secretary Robert Rubin called for changes to financial markets that would boost investment. Financing must double by 2020 and double again to $1 trillion by 2030 in order to avoid global warming of more than 2 degrees Celsius, reports Ceres, the host of yesterday's conference.

These top-line numbers are fuzzy and paint a picture that’s perhaps more bleak than reality. First, the price of solar energy continues to tumble, so more renewable energy is being generated with fewer dollars invested. Second, while BNEF’s clean-energy tally is the most comprehensive for renewable energy, it’s not all-encompassing; it doesn’t include most energy-efficiency measures, fuel-efficiency gains or expanded public transportation.

The full accounting of current investment in clean energy is probably closer to $500 million a year, said Michael Liebreich, the CEO of BNEF, in an interview at the conference. But by that measure, we probably need to get to $2 trillion to prevent the worst affects of global warming, he said. The goal of quadrupling investment from its current state "is the right order of magnitude."

Whether it's one trillion or two, the benchmarks show there’s clearly a long way to go. The will is there, and the price is right, but what’s lagging, according to Ceres, is easy financing. That’s what yesterday’s conference was about.

A few proposals from the Ceres report:

1) Pension funds and other institutional investors should commit to a goal of investing five percent of their portfolios in clean energy. They currently invest less than 1 percent, according to the OECD.

2) Investors should increase scrutiny of companies that are responsible for high levels of emissions of carbon dioxide. Last year was a turning point in that regard. Read: Oil's Future Draws Blood and Gore in Investment Portfolios.

3) Bonds, bonds, bonds and asset-backed securities. Not all investors want to put solar on their roofs or can afford to build a field of panels. Banks need to create simple investment vehicles that help both retail investors and billion-dollar institutional investors access those markets. SolarCity, created by Tesla Founder Elon Musk, announced yesterday that within six months it will introduce an online system for retail investors to buy into rooftop solar projects.

Is the clean-energy story of 2014 going to be the adoption of green bonds? We'll see. In the meantime, you can read all 10 recommendations in the Ceres report here. Details from BNEF’s tally of renewable energy investment can be found here.

At the company’s planned annual meeting on Wednesday in Dallas, shareholders will vote on a resolution to prod Exxon Mobil to disclose the risks of climate change to its business.

Such resolutions have been floated before, and they typically do not pass. But there is a growing chorus of investors, many of them large institutional shareholders, who say they are worried that Exxon Mobil, the largest publicly traded energy company in the world, is not adequately preparing for tighter times if countries start acting on the pledges they made last December as part of the Paris climate change accord.

Exxon Mobil, for example, projects that global demand for oil will keep growing — by just over 13 percent from today, to 109 million barrels of oil a day by 2040.

But the International Energy Agency’s projections include one situation where demand could drop by 22 percent, to 74 million barrels a day by 2040, if measures are put in place to keep global warming at levels that, while still dangerous, could avoid the most devastating consequences.

The shareholder resolution calls for Exxon Mobil to publish an annual assessment of impacts of various climate change policies, including ones that would lead to the steep drops foreseen in the most severe energy agency’s forecast. Another resolution calls for the company to give shareholders a bigger say over governance.

Exxon Mobil previously tried to block the climate change resolution, but the Securities and Exchange Commission ruled in March that shareholders must be allowed to vote.

Alan T. Jeffers, a company spokesman, said last week that Exxon Mobil welcomed a dialogue with shareholders.

“We want them to understand that we see the issue of climate change, we see the risks of climate change and take them seriously, and we are working hard on lower emissions technology,” he said.

Mr. Jeffers added that his company’s projection was not set in stone, and that Exxon Mobil was flexible enough to move in new directions in the future.

But big owners of the stock worry that the optimism of Exxon Mobil’s outlook for oil demand is dangerously misguided.

“Investors can’t afford to have Exxon become the next Kodak,” said Scott M. Stringer, the comptroller of New York City, whose pension fund owns roughly $1 billion worth of Exxon Mobil stock.

"It is impossible for them to do business for the next 100 years as they have the last 100 years," added Mr. Stringer, who supports the risk-disclosure resolution.

Some protesters are exhorting investors to sell all of their fossil-fuel stocks and are conducting campaigns to pressure Exxon Mobil and other companies to “keep it in the ground” — that is, to stop extracting the very fossil fuels that are their lifeblood.

And while some of those activists would consider it a victory to see these companies driven out of business, a growing number of institutional shareholders want to see these companies move profitably into a future in which fossil fuels play a smaller role, while renewable sources like wind and solar play a larger one.

In recent months, Exxon Mobil has been under increasing pressure to move faster, in part because of the efforts of the attorneys general of New York, California and several other states. They are investigating Exxon Mobil over its past funding of publicity that cast doubt on the science of climate change, while Exxon’s own scientists were speaking and writing about the seriousness of global warming.

But many investors are more interested in Exxon Mobil’s plans for the future than what the company did and said decades ago.

“Our concern is about looking forward,” said Anne Simpson, an investment director for California Public Employees’ Retirement System, which is backing the disclosure resolutions. “The critical thing now is the next 25 years.”

Mr. Jeffers noted that shareholders had withdrawn a similar disclosure resolution a few years ago when Exxon Mobil promised to report on the risks it faced because of evolving emissions policies. It concluded that there was no current risk of demand drying up to a degree that the company would have to leave some of its oil reserves in the ground, a problem known as “stranded assets.”

That conclusion did not satisfy Exxon Mobil's critics.

“The world is changing around Exxon,” said Andrew J. Logan, director of oil and gas and insurance programs at the sustainable investing organization Ceres, which backs the resolutions.

He noted that the range of large shareholders promoting the resolutions included New York State, the Church of England and the Norwegian sovereign wealth fund. “The fact that this array of actors lining up against Exxon is so diverse is a powerful demonstration of just how isolated the company is at the moment,” Mr. Logan said.

But many investors said they would be voting with management on the climate resolution.

“Exxon Mobil goes the extra mile to ensure they are fulfilling their role as a good steward of the environment,” said Paul L. Lucas, a Midland, Tex., energy investor. “That’s why it costs Exxon more money to do business because they do business the right way.”

Chevron, which is facing a similar resolution, is having its annual meeting on Wednesday as well. Executives at Chevron say it already carefully assesses various risks to its investments.

Foreign energy companies have been more receptive to such resolutions. Last year, even before the Paris agreement was completed, several large European oil companies, including Royal Dutch Shell, Statoil of Norway and BP accepted resolutions that were similar or virtually the same as those facing Exxon Mobil and Chevron.

Those companies, which are based in countries where the governments and public opinion are demanding new climate change initiatives, have pledged to seek renewable energy opportunities.

Statoil even acknowledged that it may, in fact, end up leaving some fossil fuels in the ground. ”Probably there will be assets stranded, yes, because the costs of CO₂ doesn’t make them attractive,” said Bjorn Otto Sverdrup, Statoil’s senior vice president for sustainability.

By contrast, the political environment around climate change remains polarized in the United States. For example, Representative Lamar Smith, a Republican who is chairman of the House Committee on Science, Space, and Technology, has accused the Obama administration and federal researchers of manipulating global warming research to pursue the administration's "suspect climate agenda."

Last week, Mr. Smith also sent a letter to the New York attorney general, Eric T. Schneiderman, demanding all communications since 2012 between Mr. Schneiderman’s office and climate change activist organizations. Mr. Smith said state attorneys general were doing the bidding of environmental activists who set out to make pariahs of Exxon Mobil in pursuit of policies to limit climate change.

Analysts sympathetic to companies like Exxon Mobil and Chevron say that some of the activists, especially divestment groups on college campuses, are trying to lower the equity values of oil companies and choke off capital for exploration.

That, these analysts say, would keep the benefits of cheap energy out of the hands of the poor and emerging middle classes in the developing world.

But proponents of the resolutions say transparency about climate risks can help shareholders better assess their investment and prod Exxon Mobil and other companies to take part in a more sustainable future.

Proponents point to a recent paper, for example, by Chatham House, a research organization based in London, that said Exxon Mobil, Chevron and Shell “are faced with the choice of managing a gentle decline by downsizing or risking a rapid collapse by trying to carry on business as usual.”

A month after world leaders came together to sign the historic Paris Agreement, cementing a promise to keep the Earth from warming more than 2 degrees Celsius, a record number of shareholder groups have backed proposals that would require Exxon Mobil and Chevron to say how they would adjust to that reality.

To date, America’s largest two energy companies by market share have given the cold shoulder to demands that they outline potential business impacts of policies designed to stave off catastrophic global warming, such as carbon taxes and emissions caps.

“The board is confident that the company’s robust planning and investment processes adequately contemplate and address climate change related risks,” Exxon told shareholders in a letter advising them to vote against the proposal there.

“Such a report is unnecessary in light of the safeguards and oversight in place through Chevron’s business and project planning and enterprise risk management tools and processes,” Chevron wrote, adding that disclosure could put the company at a competitive disadvantage.

But a growing number of investors are warming to the idea that oil majors should be disclosing the full range of risks to their businesses posed by climate change and efforts to mitigate it. “The times are changing,” said Shanna Cleveland, senior manager of the Carbon Asset Risk Initiative at the nonprofit sustainability organization Ceres based in Boston. “Investors are really seeing climate change as a material financial risk now.”

The biggest risk is that a combination of regulations aimed at reducing carbon pollution and competition from renewable energy sources render oil companies’ extensive reserves unprofitable to develop, particularly high-risk, low-margin projects like deep-sea drilling.

Publicly backing the campaigns at Exxon Mobil and Chevron are dozens of money managers overseeing more than $10 trillion, according to Ceres. Among the supporters are the Church of England, major public pension funds in California and New York, multinational banks like BNP Paribas, and investment firms such as Amundi and Natixis.

The two leading shareholder advisory groups, Glass Lewis and Institutional Shareholder Services, have also come out in favor of the proposal at Exxon Mobil. Meanwhile, both Exxon and Chevron have advised investors to vote against the measures, arguing they have provided adequate guidance.

espite unprecedented support for the proposals, the list of money managers publicly backing them lacks some conspicuous names: U.S. investment companies that control billions of dollars in Exxon Mobil and Chevron stock.

The firms remaining silent — including BlackRock, State Street and the Vanguard Group — control enough shares to sway the outcome of the votes. The top 10 Exxon shareholders control 21 percent of its equity, and the top 10 Chevron owners control 26 percent of its stock.

Unlike many European money managers, few American investment companies disclose their proxy positions in advance of voting. Reached Monday, almost all of the top 10 shareholders in Exxon Mobil and Chevron declined to comment on the votes to be held this week.

Norway’s sovereign wealth fund, the eighth-largest holder of Exxon and Chevron stock combined, indicated its support for the proposals at Exxon and Chevron this month.

“We encourage companies to consider the sensitivity of their long-term business strategy and profitability to different future regulatory and physical climate scenarios,” Norges Bank Investment Management, which manages Norway's wealth fund, said in a statement on the Exxon vote. “We encourage companies to outline their position on specific climate change regulation relevant to their business profitability and outlook.”

Despite the fact that American money managers have held their cards close to the chest, some of the largest industry players have newfound interest in climate-risk disclosures in their portfolios, as evidenced by a spate of new guidelines and reports they have published in recent months.

For example, State Street, with almost $27 billion combined in Exxon and Chevron stock, responded to queries by pointing to a report issued in March outlining the bank’s approach to climate change risk. In a post-Paris world, the report indicated that when it comes to proxy votes, investment managers should “review shareholder proposals that the company receives and evaluate the spirit of proposals in the context of the business risk.”

It’s not a full-throated endorsement of the types of proposals currently facing Exxon Mobil and Chevron, but it demonstrates a level of concern over climate risk not yet seen at many major investment companies.

State Street isn’t the only money manager taking a hard look at climate risks. Neither BlackRock, the world’s largest money manager, nor Capital Group, the parent of American Funds, comments on specific votes, but both pointed to newly released new guidance on climate risks in advance of the 2016 proxy season.

Environmental issues “have real and quantifiable financial impacts,” BlackRock CEO Larry Fink said in an annual letter this year. “For too long, companies have not considered them core to their business — even when the world’s political leaders are increasingly focused on them, as demonstrated by the Paris Climate Accord.”

It’s difficult to tell how the largest money managers will vote. But the momentum appears to be in the direction of disclosure. “There has been a building of pressure over several years,” said James Leaton, research director at the nonprofit Carbon Tracker Initiative, headquartered in London. “Now the investors are getting rather impatient to see some movement in the companies.”

2 Degrees

The shareholder proposals at Exxon Mobil and Chevron revolve around the concept of the 2-degree scenario, a hypothetical future global economy where world leaders have made good on the Paris Agreement and sharply curtailed consumption of fossil fuels.

According to Carbon Tracker, more than $2 trillion in potentially “stranded” energy assets — from coal mines to untapped oil claimed by drilling companies — must be abandoned if humanity is to avert pushing global temperatures beyond the limit of 2 degrees Celsius (3.6 degrees Fahrenheit) that scientists have deemed relatively safe.

To put it another way, oil companies are sitting on more fossil fuels than the atmosphere can safely hold.

The ramifications for business are severe. “In the longer term, if companies find no viable alternative business model, the consequences could be extreme,” the business consulting firm Accenture noted in a recent report. “They would cease to exist, and the remaining net asset value would be given back to investors.”

The International Energy Association (IEA) has produced several scenarios mapping out how demand for fossil fuels would change in a world committed to a sustainable climate. But Exxon Mobil and Chevron have yet to fully account for the evolution of their oil-producing business activities in such a world.

“What does that mean for their business, what does that mean for their capital investment moving forward?” Carbon Tracker’s Leaton asked. “I don’t think they’ve really gotten to that level.”

Exxon has pinned its plans for climate-related adaptation to a scenario that sees demand for oil reaching 105 million barrels a day by 2040, a level 42 percent higher than the IEA’s 450 Scenario, considered by the international policymaking community to be one of the more stringent guides for future energy use.

In its 2016 Outlook, Exxon projected total carbon emissions twice those allowed by the 450 Scenario.

Chevron’s climate change policy outlook also hinges on a course less demanding than the 450 Scenario, building on a middle-of-the-road IEA estimate promulgated in2013 that sees 37 billion tons of energy-related carbon emissions in 2035 — again, roughly twice what a scenario consistent with 2 degrees Celsius of warming might allow.

Chevron disputes that even a stricter carbon reduction regime would necessarily crimp its business. “We believe this proposal is based upon the flawed premise that a global agreement to limit warming to 2 degrees Celsius requires each individual fossil fuel producer to curtail development of resources proportionately,” the company said in its shareholder letter. “A decrease in overall fossil fuel emissions, however, is not inconsistent with continued or increased fossil fuel production by the most efficient producers.”

Even before Exxon Mobil and Chevron told shareholders that the proposals were unnecessary, the companies appealed to the U.S. Securities and Exchange Commission for permission to discard the measures at the annual meeting, arguing that they had already made adequate disclosures.

The SEC disagreed. “It does not appear that Exxon Mobil’s public disclosures compare favorably with the guidelines of the proposal,” the commission’s attorneys wrote in a filing requiring that Exxon put the proposal to a vote.

“This is not a fringe issue,” Ceres’ Cleveland said. “It’s a mainstream issue that not only investors but economic regulators are concerned about.”

Exxon and Chevron wouldn’t be the first oil giants to provide their investors with 2-degree scenarios. Amid increasing regulatory attention on the financial risksstranded assets might pose, the Australian BHP Billiton, the American ConocoPhillips and the Norwegian Statoil have all published low-carbon outlooks. Royal Dutch Shell has promised to follow suit.

“It’s important just to get the 2-degree scenario recognized and become a more commonplace discussion in the boards of these companies,” Carbon Tracker’s Leaton said. “This is a real test as to whether investors think they’ve responded adequately or whether they need to start ramping up the pressure even more.”

Talk of potential risk to humanity is not new. And we've seen more recently the actual devastation of record weather events like Hurricane Sandy and Typhoon Haiyan. But neither the scientific warnings nor the extreme storms have prompted enough action. However, now the risk we're talking about is financial, which, along with the enormous economic upside of taking action, may finally get the investment community moving.

The day before the stark story in the Times appeared, I attended a related conference, the Investor Summit on Climate Risk, held at the UN and run by the NGO Ceres. Hundreds of financial executives gathered, including some heavy-hitters, from state comptrollers to executives from large pension funds to former U.S. treasury secretary Robert Rubin, who declared, "climate change is an existential risk."

The conference was focused on the release of Ceres' new report, "Investing in the Clean Trillion." Created in conjunction with Carbon Tracker, the study lays out a plan for mobilizing much more capital toward building the clean economy. The trillion-dollar number is not random: The International Energy Agency (IEA) has estimated that the world needs to pour $36 trillion of investment into the clean economy between now and 2050 in order to keep the planet below the critical warming threshold of 3.6 degrees Fahrenheit (2^oC). That's $1 trillion per year.

A key target for Ceres' work, and the main audience at the conference, is the group of institutional investors who manage tens of trillions of dollars in assets for long-term performance. The core argument to compel institutional investors to change how they influence companies and where they invest their money is simple: as the world pivots away from carbon-based energy to avoid devastating climate change, fossil fuel assets, like coal plants or off-shore oil rigs, will be "stranded" -- a wonky term for "worthless." The value of the companies owning and managing those assets, the logic goes, will plummet. As Nick Robins from the bank HSBC described to the audience, in a scenario of global peak fossil fuel use by 2020 "implies a 44% reduction in discounted cash flow value of fossil fuel companies" -- or in simpler terms, a decline in share price of 40 to 60 percent.

In another Ceres meeting last fall on this topic of stranded assets, Craig Mackenzie from the Scottish Widows Investment Partnership ($200 billion in assets) spoke about the "wake-up call" investors had gotten from recent shifts in the U.S. coal market. The 20 percent drop in coal demand was driven mainly by the incredible increase in natural gas production due to fracking technology, not from any concern over greenhouse gases. But the rapid shift demonstrated to Mackenzie and his firm the dangers of overexposure to a class of assets. So, he says, the fund "reduced exposure to pure play coal companies to nearly zero."

It's easy to point out a big flaw with the stranded assets discussion: uncertainty. I spoke with executives at a few big banks who said the big question for them is when will the assets be stranded. Nobody wants to leave profitable investments too early that gets you fired. But trying to time a bubble bursting is a dangerous game. How many investors got the timing right on the implosion of mortgage-backed security assets in 2008? Nearly none, and that systemic failure of vision contributed mightily to a global financial collapse.

Given what's at stake now -- not just financial system stability, but planetary, human-supporting system stability - it's more than prudent to avoid the game of timing the market perfectly. The investment community should be much more proactive about using its weight to a) pressure fossil fuel companies to quickly migrate their own portfolios to new forms of energy; and b) dedicate significant funds to investing directly in new technologies.

With the chilling, "it's going to be very costly" message of Gillis' article, and the warnings of trillions of stranded assets in the Ceres report, it's easy to miss the very big silver lining running underneath all the dire warnings: we have the technologies today to make the shift and do it profitably.

The Clean Trillion report cites the uplifting flip side of the IEA's calculations -- the $36 trillion of investment we need will yield $100 trillion in fuel savings between now and 2050. That's a lot of money to leave on the table, and a very good investment.

This post first appeared on the Harvard Business Review blog network.

If the world is to meet the climate goals set in the Paris agreement in 2015, there will need to be an estimated $1 trillion in clean energy investments per year in the coming decades. In the United States, much of that money will need to come from electric utilities that deliver power to our homes.>

But on that front there are wide disparities in renewable adoption, according to a new report from Ceres, a nonprofit that focuses on sustainable business and investing.

The group looked at clean energy use of 30 largest investor-owned utility holding companies in the United States, which together account for nearly 60% of total U.S. electricity sales in 2014. It finds that some utilities are adopting clean energy much faster than others.

Compare Sempra Energy, which gets 36% of its retail electricity from renewables and is the top-ranked utility, with one at the bottom: American Electric Power, where renewable use is at less than 1%.

"State and regional policies play a really significant role," says Dan Bakal, Ceres’ electric power director. "That’s not really surprising, but the report really highlights that.

It’s unsurprising that utilities that operate in states like California, New York, Oregon, and Vermont more renewables and have made bigger commitments. These states have renewable electricity targets that eventually ramp up to anywhere from 50% of the power supply to even 100%. By comparison, states in the U.S. southeast have had comparatively few policies to encourage renewable adoption. Some are actively discouraging it—for example, Nevada recently passed controversial rules that reduce the financial incentives for homeowners to put solar panels on their roofs. All but four states in the U.S. made some sort of solar policy decision in 2015.

Solar and wind capacity is growing at a quick clip—at rates of 27% and 11% respectively in 2015. Overall, the 30 companies in the report provided 13% more renewable energy and 9% more energy efficiency savings from 2013 to 2014 (the year that company-level data was considered). The top four ranked of these companies in terms of renewable energy sales—Sempra Energy, PG&E, Edison International and Xcel Energy—together accounted for more than 50% of all renewable electricity sales.

Even in the states that are lagging in renewable adoption policies, says Bakal, one positive trend is the growing corporate demand for renewable energy. "This seems to be growing very rapidly and that’s happening in all states," he says. The number of corporate renewable deals increased by three times in 2015. President Obama’s Clean Power Plan—should the policy make it through lawsuits—could also level the state-by-state playing field.

Here are the top three performers and the three biggest laggards — plus a deeper look at how plunging renewable energy costs are fueling a transition to low-carbon alternatives.

Best in Class

• Sempra Energy (NYSE:SRE): The San Diego holding company got 36.5 percent of its total retail electricity sales from renewables in 2014, Ceres said. Sempra produced more than 6 million megawatt-hours of renewables. (Ceres does not count utility-scale hydroelectric or nuclear power in its survey of 30 major investor-owned utilities.)
• PG&E Corp. (NYSE:PCG): The San Francisco holding company produced nearly 19.5 million megawatt-hours of renewable electricity, about a fourth of the company’s retail sales.
• Edison International (NYSE:EIX): The parent company of Southern California Edison, based in Rosemead, generated 17.5 million megawatt-hours of clean power, or 23 percent of its retail sales.

The Laggards

• Florida Power & Light Co.: The Juno Beach subsidiary of NextEra Energy produced just 177,000 megawatt-hours of renewables in 2014, or about 0.17 percent of its total retail electricity sales.
• American Electric Power Co. Inc. (NYSE:AEP): The holding company is the nation’s largest owner of coal-fired power plants. The Columbus, Ohio, utility produced about 1 million megawatt-hours of clean power, but given the company’s size, that amounted to only 0.89 percent of its retail sales.
• Consolidated Edison Inc. (NYSE:ED): The New York City holding company generated nearly 209,000 megawatt-hours in renewable energy, about 0.94 percent of total retail sales.

Solar panels are shown on top of a rooftop in National City, California, Nov. 19, 2015. PHOTO: MIKE BLAKE/REUTERS

Notice a pattern among the best performers? The utilities are all based in California, the state with the most aggressive renewables mandate. The Golden State requires power companies to get at least 25 percent of sales from renewables by the end of 2016 and 50 percent by 2030. Utilities that get a smaller percentage of their retail sales from renewables tend to reside in states with weaker portfolio standards or incentives programs.

In both camps, however, utility stock prices are higher than they were this time last year. Shares of Sempra are up 10.75 percent, and shares in PG&E and Edison are up 25.5 percent and about 34 percent, respectively. Shares of AEP are up nearly 29 percent, and ConEd is up about 35.7 percent, compared with June 29, 2015. Florida Power & Light is not listed, but its parent company, NextEra Energy Inc. (NYSE:NEE), a major clean energy developer, is trading about 30 percent higher.

Aside from state renewables requirements, plunging clean energy costs are another key reason why utilities are adding increasing amounts of low-carbon resources to their conventional mix of coal, natural gas or nuclear power.

“Renewable energy has really become remarkably competitive over the last few years,” said Frank Prager, vice president of policy and federal affairs for Xcel Energy Inc. (NYSE:XEL). The Minneapolis-based utility, the No. 1 provider of U.S. wind energy, had the fourth-highest share of renewable sales on Ceres’ list. About 21 percent of Xcel’s 2014 retail sales — or nearly 18.5 million megawatt-hours — were from wind and other clean sources.

Significant advancements in wind turbine and solar panel technologies, combined with federal tax credit programs for wind and solar developers, have helped bring the costs of renewables closer to those of fossil fuels in many places. “Those two things together have resulted in a very competitive product,” Prager added.

Turbines spin on a wind farm in the San Gorgonio Pass area near Palm Springs, California, April 22, 2016. PHOTO: DAVID MCNEW/AFP/GETTY IMAGES

In Michigan, for instance, the combined costs of meeting the state’s renewable energy and energy efficiency mandates is about $37.43 per megawatt-hour — far less than the cost of building a new coal- or natural gas-fired power plant, Michigan utility regulators found in February.

Clean energy is projected to get even cheaper as technology improves and more projects are installed in the U.S. and globally. Producing power from solar photovoltaics could cost nearly 60 percent less in 2025 than in 2015, the International Renewable Energy Agency, a United Nations-backed organization, said in a June 22 report. Offshore and onshore wind costs could fall 35 percent and 26 percent, respectively.

To hit those numbers, policymakers and companies will need to work harder to reduce “balance of system” costs: the time and money spent navigating red tape; operations and maintenance expenses; the price of cabling, wires and mounting systems; and higher financing costs from banks that still consider renewables to be risky. “It’s making sure the policies are optimized so that there’s sufficient competition and not too many regulatory or administrative barriers,” Michael Taylor, a senior analyst at the U.N. agency, said by phone from Germany.

In the United States, clean energy advocates say a more coherent, nationwide strategy is needed to ensure that all utilities — not just a progressive few — are producing more low-carbon electricity. The Obama administration’s Clean Power Plan would do that by forcing states to lower their total carbon emissions by up to 32 percent by 2030, from 2005 levels. The Environmental Protection Agency finalized the plan last summer, but a slew of lawsuits and a U.S. Supreme Court decision to stay the policy’s implementation may threaten its final adoption.

Prager said that despite confusion at the federal level, Xcel Energy will continue to work with the states where it operates to reduce carbon dioxide emissions and install more wind and solar projects. “We are strong believers that we have done it the right way, and we’re going to continue to do it, no matter what happens with that regulation,” he said.

"Water use for hydraulic fracturing will continue to grow, triggering unprecedented county water demands," the report warns. Continued drought conditions and a population surge in areas where drilling is most prevalent are also key factors.

Ceres, a Boston-based analysis firm and sustainability advocacy group, analyzed tens of thousands of reports submitted by drilling companies to the FracFocus government database from 2011 to mid-2013. Of all the shale plays it analyzed nationwide, Ceres found that the county where water use was highest for fracking was Dimmit County, in the heart of the Eagle Ford Shale.

For the two-and-a-half year period examined, drillers used 3.9 billion gallons of water for hydraulic fracturing in Dimmit County, the report says. According to state data, the entire county used that much water in 2011. In the 10 South Texas counties that make up the Eagle Ford Shale, close to 20 billion gallons of water were used for fracking between 2011 and mid-2013, the report said, and the majority of the water is used in Dimmit, La Salle, and Karnes counties — where the majority of drilling activity is occurring.

The report warns investors in energy companies that they should pay attention to water availability for drillers before they decide where to invest their money.

“It’s good for investors to ask their portfolio companies, ‘How are they addressing this issue?’” said Steven Heim, managing director for the investment management firm Boston Common Asset Management, who wasn't involved in the study. “It’s a limiting factor.” While some of the water used may be brackish water that is unfit to drink, or recycled water, it is likely that the vast majority of it is freshwater underground, the report says.

Ceres also used data from the U.S. Geological Survey and other sources to determine that South Texas groundwater is in high demand, leading the report to call the area “water stressed” — no surprise to a number of landowners and groundwater regulation districts in the region who have voiced concerns about seeing low water levels in their own wells in recent years. Scientists at the Southwest Research Institute estimate that fracking uses up as much as a third of the overall water demand in some South Texas companies.

Oil and gas companies say they are ramping up their use of water recycling technologies, as well as drilling farther into the ground for poorer quality water that they can use in lieu of precious freshwater. But such practices are taking off mostly in West Texas' oil-rich Permian Basin, where Ceres found water use to be far less than in the Eagle Ford Shale. The water use there is still significant, however; between 2011 and mid-2013, close to 1.2 billion gallons of water was used for fracking in Irion County, home to the town of Barnhart, which famously ran out of water last year. The county used a total of 1.05 billion gallons for municipal, agricultural and all other activities in 2011.

Part of the reason less water is used in the Permian Basin is because that region is more in demand for its oil, which usually needs less water to extract via fracking, Ceres' analysis said. But oil and gas companies have also said that water-saving techniques like recycling are more difficult in the Eagle Ford Shale, where they are more needed. That’s in part due to the geology of the South Texas shale play, the Ceres report said: When drillers send billions of gallons rushing down a well to be fracked, far less water comes back to them than in the Permian Basin.

“The use of brackish water as an alternative to freshwater is gaining popularity,” analysts wrote, but added that even brackish water is important for the surrounding community. “Some brackish supplies may be needed in the future to meet local drinking water needs, so this water source should be carefully assessed.”

Heim said that investors need to consider water availability for fracking a serious risk because the Eagle Ford Shale will be a region of drilling interest for a long time. Unlike other Texas oil booms, this one is due in large part to technology that will allow production of oil and gas to continue for decades.

“You’ll just need more and more wells being drilled and more fracking needed, because they’ll need to do it to keep up with the production,” Heim said. “So at some point [water is] something they’re going to have to work out.”

The data is some of the most comprehensive to be collected on water use for fracking in Texas. Previous studies from the University of Texas at Austin suggested that drillers used 25 billion gallons of water for fracking in in 2012, and estimates they may need 40 billion gallons by 2020. That would still be less than 1 percent of the state’s total projected water need, but because the demand is concentrated in certain local areas, it could make up a large portion of those areas’ water needs.

The unlinking of economic growth and emissions increases was a key takeaway in the report, said Dan Bakal, director of electric power with business sustainability group Ceres, which helped craft the annual study. So too were overall emissions declines in regions that have criticized regulations such as the proposed Environmental Protection Agency rule that would set carbon limits for power plants.

"You see some pretty consistent declines in areas like the Southeast and the Midwest," Bakal told the Washington Examiner. "It makes the case that more is achievable."

While the report demonstrates that electric utilities and states are already pursuing emissions reductions on their own, their pace is not aggressive enough to avoid locking in some of the effects of climate change, which most climate scientists say is largely caused by burning greenhouse gas-emitting fossil fuels.

The report, which was led by M.J. Bradley & Associates with assistance from Ceres, Bank of America, electric utility Calpine, the Natural Resources Defense Council and others, surveyed the top 100 electric utilities by generation, which covered 85 percent of the nation's electric power and 87 percent of the industry's emissions. It comes as the Tennessee Valley Authority, the government-run utility and sixth-largest emitter, announced a long-term plan Monday to add more renewable energy and natural gas by 2033.

While overall carbon emissions are above 1990 levels, a combination of the recession, falling natural gas and renewable energy prices and environmental regulations have pushed emissions downward in recent years. Between 2008 and 2013, power plant emissions fell 12 percent. Bakal said lower electricity demand accounted for about half of the initial carbon emissions drop in the first two years after the recession, but the other factors have kept emissions levels basically flat for the past two years even as the economy has grown, the report said.

"Even while we've seen some pretty solid economic growth for a while now, emissions have continued to decline," Bakal said.

Emissions levels in recent years have fluctuated based on how much power plants use coal, which is twice as carbon dense as natural gas. As natural gas prices trended rose in 2013, more utilities turned to coal and emissions rose 2 percent between 2012 and 2013, according to the EPA.

Although carbon emissions have increased from 1990, emissions of mercury, with a 74 percent drop, and sulfur dioxide (80 percent drop) are lower. And the emissions rate of utilities — pounds of carbon dioxide emitted per megawatt-hour of electricity produced — has decreased since 2000 as companies have shifted away from coal and boosted energy efficiency.

That has significant implications for the EPA's Clean Power Plan. The proposed rule sets targets for states to reduce their electric fleet's emissions intensity, which the agency says can be accomplished by improving power plant efficiency, shifting from coal to natural gas, adding renewable power and bolstering customer-side energy efficiency.

Duke Energy, the largest electric power company in terms of generation, underscores the development of utilities becoming more efficient.

The company uses the second-most coal in the country and produces the most carbon emissions from coal than any other utility — its carbon emissions "increased dramatically" since 2000 because of its mergers with coal-heavy Cinergy in 2006 and Progress Energy in 2012, the latter of which boosted the company's total generation by 60 percent.

Yet the company's carbon emissions intensity has risen just 10 percent, which the report partially attributed to "an increase in low- and non-emitting generation."

While Duke's emissions rate has increased, the bump is far less than the relative size of coal-fired generation it added to its fleet. At the same time, other coal-heavy stalwarts have shaved emissions. Southern, which at one point was almost synonymous with coal, has slashed its emissions rate 31 percent since 2000 as it shifted toward natural gas. Similarly, NextEra's emissions rate has plummeted 46 percent.

But it's not all rosy for utilities looking to slash carbon to comply with the power plant rule, which is due for finalization next month. Bigger utilities are large enough to make improvements to their fleets, and the state utility regulators who govern rate increases needed to pay for new investments might be forced to approve projects so states can meet the EPA rule.

Electric cooperatives, though, are a different story — and they're in a precarious position, as the report showed. Of the nine utilities with the highest carbon emissions intensity, seven are electric co-ops. Co-ops are small utilities that are owned, financed and operated by communities and exist largely in the West and in rural locations.

Co-ops have a difficult time paying for upgrades and have largely resisted the proposed power plant rule. Its trade group, the National Rural Electric Cooperative Association, is advising its members to tell states to submit a compliance plan to the EPA that would seek emissions cuts only through improving power plant efficiency. The group contends that is the only measure under which the EPA has authority to require cuts.

Bakal said that reducing the emissions rate at co-ops would be challenging. However, they're not large producers of electricity, as the biggest emitter was ranked 38th for overall emissions. That means states might be able to craft compliance plans that inflict less pain on them.

"There's still a lot of different options there. So some states will encourage increased energy efficiency and some will encourage solar or community solar ... they may look at options for trading either within or between states," Bakal said of states with a large presence of co-ops. "In some cases it could mean decreasing the utilization of some plants."

The target agreed to by some 195 countries is to hold the global average temperature to below 2°C, with a commitment to pursue efforts to limit the temperature increase to 1.5 °C. Achieving this goal will require dramatic reductions in greenhouse gas emissions (GHGs) through greater fuel efficiency, renewable energy resources (like wind and solar), and methods for capturing carbon that is already in the air (e.g. carbon capture and storage).

A frequently noted consequence of this is so-called stranded assets, fossil fuels in the ground that must remain there to meet this goal. Ben Caldecott, Director of the Stranded Assets Programme at Oxford University’s Smith School of Enterprise and the Environment, noted at a conference on stranded assets that “The scale of potential asset stranding from a 2°C degree carbon budget constraint is significant, not just for upstream resources like oil, gas, and coal, but also for downstream energy infrastructure like power stations. Significant net dismantling of fossil fuel assets prior to the end of their working lives is implicit in any 1.5 °C or 2°C degree target.”

According to the International Energy Agency (IEA), 80% of the world’s global energy consumption comes from fossil fuels (oil, gas, and coal). The IEA has also calculated that about $300 billion in investments in fossil fuels could be stranded. As explained by CarbonBrief, this follows from the fact that we have already used up two-thirds of our carbon budget of 800 billion tons. The Global Carbon Project is a good source for details on this.

When put in these stark terms and being realistic about the effectiveness of multilateral agreements like COP21 (previous meetings, such as the ones in Kyoto and Copenhagen had little impact), one could understandably reach the conclusion that it is hopeless and that we should just focus on mitigation and prepare for disaster. But that would be wrong for a very simple reason. The sources of where most of the carbon comes from are relatively few and practical steps can be taken to address each of them. This is not to say it will be easy. Each one will require tough decisions in both the public and private sector, with new strategies and business models, technological innovation, and the courage to take the risk of being a leader and trying things that haven’t been done before.

Michael Bloomberg is on the warpath. In his sights: corporations who fail to disclose the risks climate change poses their business model.

The billionaire founder of media giant Bloomberg LP, UN climate envoy and former mayor of New York is heading a taskforce to boost the quality of climate reporting.

Set up on the sidelines of the COP21 Paris talks last December, the Financial Stability Board-backed initiative met for the first time this week. In just over a month, it releases its initial findings.

In an interview with the Financial Times on Monday, Bloomberg said momentum behind the taskforce came from major institutional investors.

They worry how “acceptable that company is to the people they work for,” he said. Environmental awareness was a “competitive advantage,” he added.

Recent analysis suggests most corporates are ignoring the potential consequences of global warming, deliberately or otherwise.

Last year the Asset Owners Disclosure Project revealed just 7% of the world’s 500 largest funds – collectively worth over $40 trillion – could calculate greenhouse gas emissions in their portfolios.

Only 1.4% had reduced their emissions intensity from 2014, while a paltry 2% had a target for 2016. Few knew how exposure to future extreme weather events could affect their investments.

This has to change – and fast – according to Steve Waygood, chief responsible investment officer at Aviva Investors and a newly appointed member of the taskforce.

The goal of making finance flows consistent with a low carbon pathway is explicitly laid out in Article 2 of the Paris climate agreement, he told Climate Home at an event in London outlining the initiative’s ambitions.

“If policymakers don’t deliver on COP21 we will have potentially catastrophic climate change,” he said.

“This is about creating a market in information that enables investors and individuals to understand where their money is invested and how it’s supporting the transition to a low carbon economy.”

It’s a position some leading funds are coming round to. Last week Larry Fink, CEO of the world’s largest asset manager Blackrock, said environmental risk had now become a key indicator for his company.

What are the risks?

It depends on your business. For oil and gas companies, the main issue is that climate policies will slash fossil fuel demand. That means investment in finding more hydrocarbons may be wasted. For agricultural businesses, changing weather patterns could hit crop yields. For banks and other financial institutions, it’s about limiting exposure to these risks in their portfolios.

The guidelines released by the taskforce will be voluntary, but supporters hope peer pressure will create a snowball effect after they are released.

“We need clear, honest and reliable data,” said Mary Schapiro, chair of the US Securities and Exchange Commission from 2009-2012 and now vice president at the Sustainability Accounting Standards Board.

“After Paris no responsible company can ignore the requirement to stress test their business against goals to limit warming to 1.5C and 2C,” said Mindy Lubber from Ceres, a US sustainability group.

Clarity on climate risk is essential for investors to make wise choices, added Mike Wilkins, global head of environmental research at credit ratings agency Standard & Poor’s.

“Climate risk comes in many forms. Carbon exposure, regulatory liability are probably the best in terms of data availability,” he told Climate Home.

“But when it comes to exposure to extreme weather – that’s very poorly assessed and disclosed on. It’s a bit of a mystery how big corporates will be affected by extreme weather impacts.”

A report commissioned by Aviva last year revealed climate change is expected to knock US$4.2 trillion off global asset values by 2100, based on current prices. 6C of warming could triple that figure.

Coal companies Aviva has stakes in have been put on notice: clean up or we’ll ditch our holdings. It also plans to invest up to $3.9 billion in renewables.

But it’s still an anomaly in a world where fossil fuels rule. Paris has made little impact on Exxon, BP and Shell, who plan to increase their oil production 25-30% in the next decade.

Reports from oil, gas and coal companies “offer almost nothing about climate risk,” said Lubber.

And it’s a strategy that doesn’t add up in a world aiming to limit warming to 2C, said Mark Campanale, head of the Carbon Action Tracker think tank.

“They don’t recognise a low demand scenario for their products,” he said.

But a new reporting code mandating tougher carbon disclosure could allow investors to work out if those reserves are viable: “Fossil fuel companies should recognise that 2C is an international default position.”