Mark Carney set for new ‘stranded assets’ intervention

Bank of England governor to front debate on carbon bubble threat with UN climate chief one month before Paris summit



By Ed King

Bank of England governor Mark Carney is set to make a new intervention on the financial security of fossil fuel assets in late October, RTCC understands.

Organised by a group of leading philanthropic foundations, the event Carney is to speak at will be focused on the danger that billions of dollars of oil, gas and coal investments will be stranded as countries try and limit greenhouse gas emissions.

UN climate chief Christiana Figueres, who is steering 195 countries towards a global carbon cutting pact to be finalised in December, will also attend the London meeting.

The timing is significant, coming two weeks before the G20 meets in Turkey and a month before the Paris climate conference officially opens.

The Financial Stability Board, which Carney chairs, is due to report to G20 leaders in November on how banks can avoid a shock to the financial system from a potentially drastic revaluing of fossil fuel assets.

The United States, China, India, Russia, Australia, and Saudi Arabia are among the countries who have carried out internal investigations to contribute to the study.

Last December, Carney launched a separate Bank of England enquiry into the threat of a crisis similar to the subprime mortgage crash.

In March 2015, he branded rising temperatures one of the “top risks” facing the financial services sector, rejecting claims from former UK chancellor Lord Lawson he was talking “green claptrap”.

Growing fears

Some financial advisors have already started to warn investors to steer clear of carbon-intensive fuels.

In April, HSBC released a research note that said the risks linked to oil, gas and coal investments were “growing”, while in June consultancy Mercer said coal companies, utilities and countries wedded to high carbon energy faced potentially severe losses over the next 35 years.

Last week, Aviva Investors announced they were putting 40 coal companies on notice and could join a growing divestment campaign unless they saw signs they were investing in a lower carbon future.

This analysis is not shared by top oil majors BP and Shell, who have both published future energy scenarios this year predicting strong growth in fossil fuel demand over the next three decades.

Their bullish predictions have led to a “cold war” in London’s square mile, according to Mark Campanale, former fund manager turned founder of the UK-based Carbon Tracker Initiative, speaking at a divestment briefing held by the Sainsbury Family Charitable Trusts on Tuesday.

On the one side, some analysts and institutions maintain the current downturn in oil and coal is a cyclical event rather than signs of structural weakness in that sector, he said.

Risky business?

Shell chief executive Ben van Beurden assured 40 investors and analysts invited to a briefing at this year’s Wimbledon tennis championships the company’s plans would pay off despite crashed oil prices and the prospect of a Paris deal.

Future investments include a £55 billion takeover of BG Group and £10 billion sunk into plans to explore for oil and gas in the Arctic.

Shell – which releases its quarterly results on Thursday – has argued these are safe investments, assuming there will be a 30% growth in demand for hydrocarbons in the coming decades.

Countries like the US and China who have signed up to contain their use of fossil fuels over the coming 15 years evidently disagree, said Campanale.

“Pension funds need to be listening to this [stranded assets analysis],” he said, pointing to recent evidence oil majors shelved $200bn of projects this year due to low oil prices.

“If they don’t, as we’ve read recently, they go to Wimbledon, they watch a great game of tennis, they get an hour from the CEO of oil majors like Shell who say that ‘we don’t recognise this low demand scenario’.

“Their message is you investors must keep supporting our growth strategy, that the game is still on. It’s the noise that’s coming out of Paris that will be key… that the game is up, not the game is on.”

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