Where are the big bets being placed today? - 23 september 2013

Last Friday we attended a seminar organised by SEI/Nordea and Haga Initiativet. The topic was Corporate Choices in a Changing Climate and one question we were asked to consider was this: ”what is needed for business to place big bets on going green?” Many excellent ideas were put forward but the question was put in perspective during a later panel discussion.

According to the report ”Unburnable carbon 2013: wasted capital and stranded assets” (Carbon Tracker & Grantham Research Institute) between 60% and 80% of the coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C. This should send a clear message to those that finance business, that the big bets ought not to be on fossil fuels. But it seems that this message is not being received.

A quick review of the capital investment budgets of the top 20 oil companies suggests that together they expect to invest $400 bn per year in prospecting and plants. Yet global investment in renewable energy in 2012 was only $244 billion. So why are the big bets still on fossil fuels?

Perhaps because a re-evaluation would be felt by us all. Since the stocks of oil companies make up something like 20% of the total value of stock exchanges around the world, and states have investments in those companies, as well as businesses and individuals, the impact of a 60-80% devaluation of those assets would be dramatic. For instance, pension funds would be hit.

In the end the question might come down to this: if a shift away from fossil fuels and towards going green is likely to result in lower standards of living in developed countries, when will the shift really get underway?

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