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Fossil fuel firms risk destroying investor returns think tank warns

State representatives, NGOs and UN agencies will be meeting in Paris from next Monday (November 30) for the latest global summit aimed at tackling climate change. In the run up to COP-21, new research is being published by a variety of organisations looking at the  key issues facing policymakers as they seek to agree a global climate treaty by the end of the conference on December 11th.

Investors are a key constituency in the debate and, according to a new report by think tank  Carbon Tracker, they need to be aware that companies could be damaging future shareholder value by not reacting fast enough to the regulatory changes taking place that are designed to limit climate change effects.

The report suggests that companies that currently predominantly rely on fossil fuels for their profits risk wasting up to $2.2 trillion in the next decade because of factors such as international action to limit climate change to 2˚C and rapid advances in clean technologies.

The report suggests that no new coal mines will be needed, oil demand will peak around 2020, and growth in gas will disappoint industry expectations. The companies that could pose the biggest risk to the climate and shareholders in the next decade are a mix of state and listed companies, including oil majors Royal Dutch Shell, Pemex, Exxon Mobil, and coal mining companies, Peabody, Coal India, and Glencore. According to the Carbon Tracker Initiative, around 20-25% of oil and gas majors’ potential investment is on projects that will not be needed in a 2˚C scenario, and cancelling them would waste substantial sums of money.

The report looks at production to 2035 and capital investment to 2025. It warns that energy companies must avoid projects that would generate 156 billion tons of carbon dioxide (156Gt CO2), in order to be consistent with the carbon budget in the International Energy Agency’s 450 demand scenario, which sets out an energy pathway with a 50% chance of meeting the UN 2⁰C climate change target.

James Leaton, head of research and co-author of the report, said: “Too few energy companies recognise that they will need to reduce supply of their carbon-intensive products to avoid pushing us beyond the internationally recognised carbon budget. Clean technology and climate policy are already reducing fossil fuel demand – misreading these trends will destroy shareholder value. Companies need to apply 2˚C stress tests to their business models now.”


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