Fossil heavy FTSE 100 threatens UK economic stability – report

Government should press for more disclosure on risks faced by oil, gas and mining companies says centre-right think tank

(Pic: FTSE 100)

(Pic: FTSE 100)

By Ed King

The UK’s FTSE 100 stock market index is exposing investors to unacceptable levels of risk due to the high level of listed fossil fuel companies.

That’s the warning in a report published by the centre-right think tank Bright Blue, which says there is a “strong case” for disclosing more of the investment risks associated with the blue chip index.

Just over a fifth of the listed companies on the £1.77 trillion FTSE 100 are energy or mining companies, exposed to significant political, water, energy and climate policy risks.

“Many of the investments that FTSE 100 investors are exposed to are very risky, environmentally destructive, and have embedded carbon emissions well beyond what can be reasonably combusted to keep climate change within manageable bounds,” it says.

The report’s author Ben Caldecott, associate fellow at the think tank, told RTCC there needs to be a “fundamental reassessment” of the purpose of the flagship index.

“The City of London should still be the world’s leading international financial centre – but our current blasé approach to the composition of the main index exposes ordinary savers to a huge number of non-trivial risks, deprives UK firms of capital, and is simply not fit for purpose,” he said.

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Serious thought should be given to the creation of a new and sustainable blue chip index, he said, protecting UK savers and allowing companies to raise domestic capital.

Frequently described as a “bellwether” for the UK economy, the FTSE 100 is increasingly dominated by overseas companies, and can be affected heavily by trade in Africa and South America.

The index suffered its worst monthly performance in three years with a 6.6% fall in June, despite the British economy growing 0.4%.

Writing in the report’s foreword, former Conservative party leader Lord Howard said the proposal was “interesting” and merited consideration.

Caldecott also called on the government to close the UK’s nine remaining coal fired power plants by 2020. That would be affordable and end reliance on Russia for imported fuel, he said.

The end of coal would send a message to China, India, Indonesia and South Africa that the UK was committed to a UN climate deal and exploring cleaner energy options.

“The world’s climate future really does depend on what these countries do with their much larger fleets of coal-fired power stations,” he said.

“Delayed closure in these emerging countries, due to inaction in advanced economies, could be the thing that scuppers global climate change mitigation efforts  –  regardless of whether we have a new international climate agreement.”

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