New analysis from Carbon Tracker endorsed by WWF shows how the growing number of coal mining companies listing in London exposes the financial market to a significant systemic risk. Investors tracking the FTSE AllShare Index are facing increasing efforts across the world to regulate the carbon dioxide (CO2) emissions from coal-fired power generation, most recently in Australia.
Carbon Tracker estimates that coal reserves equivalent to 44.56 GtCO2 are held by companies listed on the London Stock Exchange. This is equivalent to 400 years of emissions from coal power stations in the UK, which currently stand at around 0.1Gt CO2 per annum.
Where are the reserves?
A third of coal listed in the UK is actually located in Australia, where the government has recently agreed to deliver a carbon tax and emissions trading scheme. So “UK” investors are potentially exposed to climate change regulatory risk in Australia. However, Australia and Indonesia export around three-quarters of their coal production. So, in fact, around half of the coal owned by UK-listed companies is supplying developing economies in China, Russia, India and South Africa.
A financial system fit for purpose
Many asset owners and fund managers representing $20trillion of capital reiterated their call for the Durban climate negotiations at the end of November to deliver a 2°C policy framework. Now is the time for them to also ask financial regulators to deliver a 2°C degree capital market system.
- The FSA needs to address the systemic risks of reserves concentrating on the London Stock Exchange and monitor the levels of fossil fuels listed in London.
- Asset owners investing in the UK market should request that the FSA introduces limits to the levels of overseas fossil fuel reserves.
- Accountants and analysts should review which reserves are lower quality due to risk of climate regulation, and climate change, and discount their value accordingly.
A coalition of groups have written to the Financial Policy Committee, which is the body within the Bank of England charged with ensuring financial stability. The signatories – which include fund managers, Members of Parliament and NGOs – have requested the Committee reviews the potential for the high concentration of fossil fuels on the London Stock Exchange to cause a systemic risk. Read the BoE letter (230)
Read the BoE response (114) from the Bank of England