Investors risk US$2,3tn of fossil fuel assets

The transition to a low-carbon economy has the potential to leave assets worth US$2,3 trillion stranded by the end of the next decade, according to a new analysis.

Oil, gas and coal reserves, as well as the infrastructure and investments underpinning fossil fuels, may “lose economic viability” before the end of their expected operational lifetimes, according to a report published yesterday by the UK Sustainable Investment and Finance Association together with Transition Risk Exeter.

UKSIF and TREX cite climate policies, technological changes and shifting market conditions as likely causes of the slump in value.

Though vast, those losses are considerably smaller than the economic destruction that would follow if the world abandons its efforts to slash greenhouse gas emissions, the report also said.

The energy transition will result in “a mounting risk of value erosion for fossil fuel assets,” according to UKSIF and TREX.

“Too many oil and gas companies are betting on demand that won’t materialise in a decarbonising world, and the public are at risk of paying the bill,” said James Alexander, chief executive of UKSIF.

“The surest way to offset the risk of losses posed by stranded assets is to invest in industries that will thrive as fossil fuels decline.”

The report’s authors singled out Britain as a country that’s “disproportionately exposed” to stranded fossil fuel assets.

UK fund managers’ financial losses as a result of stranding may reach US$150,5 billion by 2040. And roughly 17 percent, or US$19 billion, of UK retirement savings are at risk of being stranded by 2040, the report said.

To be sure, such assumptions are based on current green transition policies, mid-term action plans to cut emissions and long-term net zero targets. And for now, many jurisdictions are backsliding on their climate ambitions. — Bloomberg.