Unburnable carbon: Avoiding wasted capital and stranded assets

Testimonials

 

The scale of ‘listed’ unburnable carbon revealed in this report is astonishing – between 60 and 80% of current fossil fuel reserves listed on global markets cannot be burned if we are to limit the rise in global temperature to 2 degrees.
This report makes it clear that ‘business-as-usual’ is not a viable option for the fossil fuel industry in the long term. Management should already be looking to new business models that reduce the risk of stranded assets destroying shareholder value, In future, capital allocation should emphasise shareholder returns rather than investing for growth.

Paul Spedding
Oil & Gas Sector Analyst, HSBC

 

The pooled message to regulators is clear. Do your job. Start requiring recognition of stranded carbon-asset risk in capital-markets processes. Start deflating the carbon bubble before it pops. The message to all the players across the financial chain, from ratings agencies through accountants, to actuaries, investment advisors and all the rest, is also obvious. If the regulators won’t do their job, do it for them. Jump, before you are pushed.

Jeremy Leggett
Carbon Tracker

 

Despite its devastating scale, the banking crisis was at its heart an avoidable crisis; the result of irresponsibility and a lax attitude to excessive risk taking by both regulated bodies and individual regulators. The threat of significant carbon write down has the unmistakable characteristics of the same endemic problems. In the wake of 2007/8, the regulator pledged to do more to anticipate future crunches. It is extremely alarming that, in the case of over exposure to carbon intensive assets, little progress has been made despite repeated warnings. On the basis of this research, there is clear responsibility on the regulator to take these risks seriously.

Rt Hon John McFall, Lord McFall of Alcluith
Led the House of Commons Treasury Select Committee inquiries into the banking crisis

 

This report confirms our view about the potential impact of unburnable carbon, but it is still shocking to see the numbers as they are worse than people realise. It is frightening that risk is not properly distributed and this needs to be cleaned up. This research should act as a wakeup call for asset managers like us – there is too much emphasis on the short term when this analysis shows the need to look at the longer term impact of the fossil fuel industry – what could happen by 2050 is frightening. Asset managers who think they have time to adjust have the wrong attitude and our evaluation theory is too short term. They are either naïve and do not see this as an issue, or they know about it but wrongly assume a technology will clean it up, not taking responsibility or seeing this as a risk they have to pay for. The onus should be on asset owners to ask asset managers what they should do with the unburnable carbon and ask for dividends to wake them up. The role of the government as an asset owner is particularly important – regulation will help people to realise the need to price carbon better for reserve discoveries.

Jens Peers
CFA, CIO Sustainable Equities, MIROVA – Responsible Investing

 

Carbon Tracker’s analysis has profound implications for pension funds with exposure to high carbon sectors. Prudent pension funds must assess and actively manage the risks. To mark the publication of Unburnable Carbon 2013, ShareAction has today launched an easy online tool for pension savers to urge their funds to address the dangers of a global carbon bubble.

Catherine Howarth
CEO at ShareAction (formerly Fair Pensions)

The tool is available at www.shareaction.org/carbonbubble

 

It behooves us as investors and as a society to know the true cost of something so that intelligent and constructive public policy and capital investment decisions can be made. Too often the true cost – that is, the full cost – of things such as clean air, clean water, biodiversity and sustainable farming, fishing and forestry practices are not reflected in market dynamics and are, therefore, treated as unquantifiable or even ignored. So, anything that helps increase awareness of, demystifies and encourages debate about these complicated matters, such as the latest Carbon Tracker report on potentially unburnable carbon, is immensely useful.

Steven Oman
CFA, Senior Vice President, Corporate Finance Group, Moody’s

 

The Chairman and Chief Investment Officer of every pension fund need to read this report. They then need to ask themselves have we incorporated climate change and carbon risk into our investment strategy, asset allocation, fund manager selection, and fund performance monitoring? If the answer is no – they need to start to now and not wait to 2050 or beyond. For those funds that do not do this then it is not unreasonable for pension fund members to ask the Chairmen and CIOs why are they not taking action

Howard Pearce
Head of Environmental Finance and Pension Fund Management, Environment Agency

 

Carbon Tracker’s work on Unburnable Carbon should be compulsory reading for anyone in finance. Asset managers, regulators and ratings agencies need to make sure they are not on the wrong side of this issue.

Michael Liebreich
Founder Bloomberg New Energy Finance

 

For years, investors have looked on corporate reserves of coal, oil or gas as an asset, that can only lead to long term profits. Times are changing. Now, the smart money is figuring out that more fossil fuels are a liability, right now.

Steve Kretzman
Executive Director of Oil Change International