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Climate change is one of the greatest threats facing
the planet today. Global warming caused by the burning
of carbon-based fuels could lead to flooding of coastal
regions; increased disease;
and prolonged heat waves leading to severe drought.
Carbon pollution is the largest contributor to human
induced climate change. BP Amoco is one of the largest
carbon producers in the world.
Two hard realities threaten the future profitability
of the company. First, the world will likely begin to
run out of oil in the coming decades. The company’s
profits depend on investments that take decades to mature.
Shareholders need management provide a road map providing
a strategy for shifting BP’s profit center from hydrocarbon
extraction to sustainable forms of energy.
Second, restrictions on carbon emissions responsible
for climate change will limit the future market for
carbon-based fuels. The United Kingdom, Germany, Denmark,
France, Sweden, and Holland have passed domestic measures
to force down greenhouse gas emissions. Automakers are
planning transportation that will soon be powered by
hydrogen and electricity, not petroleum.
Because the potential impact on company profitability
is so high, shareholders deserve a
detailed report on how BP intends to transition away
from a core business based on profits derived from fossil
fuels and towards one based on sustainable energy sources.
Shareholders ask that the report should provide details
on:
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Reductions in aggregate greenhouse gas emissions;
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Investment in renewable energy as a proportion
of overall group investment;
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Changes in the composition of BP’s energy production
to reduce and eventually phase out its production
and sale of carbon-based fuels.
A report analyzing BP’s exposure to increased risk
because of climate change by financial analysts Innovest
Strategic Value Advisors confirmed the importance of
the proposal to the company’s future. The report concluded
that "BP's plans to expand upstream oil
and gas production may serve to heighten the firm's
exposure to climate change-related risks to the extent
that carbon constraints disrupt demand for fossil fuels.
As such, shareholders would be justified in seeking
clarification of the company's risk mitigation strategy."
To review, the entire study, go to Innovest
BP Study.
Conclusion: Shareholders can reduce their long-term
exposure to risk and uncertainty posed by global warming
and a reducd demand for petroleum products by received
details on the company’s strategy for moving to develop
sustainable forms of energy.
For a more detailed discussion of the resolution, click
on Issue
Analysis.
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