Only 7% of coal, oil and gas companies have checked their projects are consistent with limiting dangerous global warming
By Megan Darby
Nearly all fossil fuel companies recognise climate change poses a threat to their business, a study has found.
Out of 81 coal, oil and gas companies to complete a survey by the Carbon Disclosure Project, 80 foresaw green regulations could curb their profits.
But just 7% are adequately managing this risk in their project spending, according to analysis by the Carbon Tracker Institute (CTI).
Bank of England governor Mark Carney has become the latest to warn that these companies could end up with a product they can’t sell.
Last Friday, he said at a World Bank seminar: “The vast majority of reserves are unburnable” – if the world is to effectively tackle climate change.
If global temperature rise is to be limited to 2C, the politically agreed threshold, most known reserves need to stay in the ground.
The latest CTI analysis, which was presented to financial regulators in New York last month, suggests fossil fuel companies have not yet got the message.
While none of the energy companies denied climate change was happening, only 7% had checked their project plans would still pay off in a 2C scenario.
The other 83% were making a collective gamble on the failure of efforts to move to a low carbon economy.
Mark Campanale, executive director of the CTI, called on financial regulators to make these companies disclose information on how they are managing climate risk.
“With the IEA forecasting that $23 trillion will be invested in expanding the fossil fuel sector up to 2035, putting this amount of capital at risk doesn’t leave much room for complacency in how climate risks are disclosed,” he said.
CTI recommends companies be made to disclose the amount of carbon embedded in their reserves – information that is not required under existing accounting rules.
This matters to institutional investors such as pension funds and insurers, which hold big stakes in fossil fuel assets.
There is a “vast gulf” between what investors are looking for and the information energy companies provide, according to Mindy Lubber, director of the Investor Network on Climate Risk.
“Investors should step up their calls to companies to better explain these huge expenditures.”
The concern is that these assets may be systematically overvalued, creating a “carbon bubble” in the market.
If the bubble bursts, people’s pensions will be hit.
“Stranded assets present a material risk to the global economy which has parallels with the risks that precipitated the financial crisis in 2008,” said Paul Simpson, chief executive of the CDP.
“Institutional investors need better disclosure from fossil fuel companies on the potential of their reserves to be stranded and details of how they intend to respond to this risk.”