Shares in major oil and gas companies are expected to plunge in value in the next three to five years because of climate change-related financial risks, meaning more investors will spurn fossil fuels. This is the verdict of British asset managers who control billions of pounds of investments in stock markets.
It could have serious consequences for many thousands of people whose pension funds have invested in these companies, as well as many institutions and charities which rely on dividends for their income, according to a report by the Climate Change Collaboration (CCC), a group of four UK charitable trusts.
They compiled the report from a survey of thirteen of the world’s largest asset managers, who were asked what effect climate change would have on fossil fuel stocks and what alternative investments were available for customers who wanted to avoid them.
The Collaboration is running a campaign to try to get individuals and large institutions like universities and local authorities to divest from the fossil fuel industry because of the damage oil majors are doing to the climate.
It carried out the survey to see what effect the campaign is having on the people managing the largest amounts of money invested in the sector.
In order to gauge whether investors had got the message, fund managers were asked whether their clients had asked about fossil fuel-free investments. Every manager replied that many of their clients had mentioned the issue, and many were concerned about it.
Among the risks identified as likely to depress fossil fuel shares were:
- government regulation which affected businesses;
- the risk of litigation from environment groups;
- the stigma of being associated with fossil fuels; and
- the fear of stranded assets, oil and gas that has to be left in the ground to avoid worsening climate change.
Of these risks, government regulation was seen as the greatest, with 77 per cent of fund managers saying it would hit the price of shares within five years.
The Collaboration is closely involved in DivestInvest, a campaign to get investors to exclude fossil fuels from their share portfolios and instead invest in renewables, energy and water efficiency.
So far 700 organisations with $5.5 trillion invested have joined the movement, and have already either moved their money or adopted a policy to do so.
One of the problems they face, however, is that there are not enough share portfolios being offered that are fossil fuel-free. The investment managers surveyed said that as a result they were under pressure from clients to include a fossil-free option among their funds, and some were preparing to offer more of these.
The report concludes: “The revelatory finding of this survey is that most of the asset managers consider that climate change-related financial risks will significantly impact the valuations of oil and gas majors in a very short timeframe.
“This is an immediate and a significant risk for investors invested in passive funds – including pension savers and many charities, including universities.
“There is an urgent need for new passive investment products that manage the climate change-related financial risks associated with fossil fuels and provide income and capital growth for investors as we transition to a zero-carbon economy.”
This story was published with permission from Climate News Network.