Investing in ‘unprepared’ energy companies a big gamble

The report, ‘Recognising Risk Perpetuating Uncertainty’, is the latest in a series by the Carbon Tracker Initiative which is trying to alert the global markets to the dangers of investing in companies which are not prepared for a future in which trying to keep temperature rises to a maximum of 2°C may be a requirement. It has made this point in reports published earlier this year, but this latest one focuses specifically on the fossil fuel industry.

 

The research suggests most fossil fuel companies recognise the risks of climate change and the corresponding likelihood that they will face climate-related regulation. But it finds very few are ‘connecting the dots’ by saying what they will do if the world’s governments set limits on greenhouse gases in order to tackle climate change.

 

The report says the fossil fuel industry is ‘unprepared to respond in depth to how the clean energy transition will affect business viability’. It therefore warns investors that it could be very risky to buy shares in companies that do not make clear how they will respond to new rules that would limit the demand for fossil fuels. It says such investments could amount to ‘wasting capital in stranded assets’.

 

The 81 companies that responded account for just 24% of those asked to fill in the survey. Requirements for companies to report on how they would tackle environmental challenges are ‘woefully inadequate’, according to Carbon Tracker, and are therefore failing to encourage the development of ‘climate-literate capital markets’.