Global stock markets ‘listing fossil fuels which would single-handedly make reaching Paris Agreement impossible’

State-owed companies in places including Russia and Saudi Arabia are covered in the analysis, as well as private projects

The think-tank’s new ‘Unburnable Carbon’ report states that the “embedded emissions” of all oil, coal and natural gas reserves listed on global stock markets – the amount of emissions they would generate if extracted and burned – would wipe out any chance of the world keeping to the Paris Agreement’s more ambitious 1.5C pathway. Scientists have repeatedly stated that aiming for 1.5C is necessary to attempt to avoid the worst physical, social and economic impacts of the climate crisis.

The report also emphasises that, despite national commitments to net-zero, the embodied emissions of fossil fuel companies listed on stock exchanges are rising. It states that they are currently 40% higher than 10 years ago.

Carbon Tracker attributes this increase predominantly to China, the USA, Russia, India and Saudi Arabia. With the expection of the USA, the increase has been driven by the partial listings of state-owned companies. Stock indexes in Shanghai, New York, Mumbai and Moscow are named as the four worst in terms of embedded fossil fuel emissions. In Europe, the worst offenders are Paris, Milan, Amsterdam, Athens and Oslo.

As for edie’s home base, the UK, London’s stock exchange holds 47 gigatonnes of embedded fossil fuel emissions – 30 times more than those embedded in the UK’s own fossil fuel reserves. This suggests that, despite the net-zero national goal, the UK could be hampering the low-carbon energy transition overseas.

The report empasises how failing to deliver a rapid and just transition away from fossil fuels, with the involvement of all key stakeholders including stock exchanges, will entail a major risk in terms of stranded assets. Carbon Tracker quantifies the stranded asset risk exposure for the listed oil and gas assets at $600bn by 2050. Risk is concentrated in New York, Moscow, London and Toronto.

“If governments are really serious about climate change they must ensure that the activities of stock exchanges and the financial centres around them are consistent with national climate goals and net-zero commitments or we will lose any chance of meeting the Paris target,” said Carbon Tracker’s oil and gas analyst Thom Allen. “This is especially important now as fossil fuel prices and related company stocks soar.”

The report does note that fossil fuel reserves not listed on stock exchanges are also a cause for concern. It states that at least 60% of all globally known fossil fuel reserves – listed or unlisted – must remain unburned in a 2C scenario. That proportion rises to 90% in a 1.5C scenario, as noted in the most recent report from the Intergovernmental Panel on Climate Change (IPCC).

In terms of stranded asset risks for oil and gas assets that are not listed, Carbon Tracker has quantified this at $400bn by 2050.

Biodiversity risk

In related news, a coalition of researchers at British universities have published what is believed to be the first assessment of the impacts of global biodiversity loss on the world’s sovereign credit ratings.

Published on Thursday (23 June) by the Bennett Institute for Public Policy at the University of Cambridge, the study simulated a partial collapse of key ecosystems which are depended on by industries such as farming, fishing and timber. The scenario spans through to 2050 and was taken from the World Bank.

In this scenario, six in ten nations would face at least one notch of downgrade on their sovereign credit rating. Ratings impact how much governments have to pay to borrow on global capital markets. The research warns that this downgrade could leave several nations bankrupt, including India.

The researchers have emphasised that their forecast is conservative, as it only covers fisheries, timber and pollinators. Other risks, such as soil degradation and water pollution outside of fisheries, would result in additional risks. They are warning that credit ratings agencies should do more to quantify the economic consequences of continuing ecological degradation.

Lead author Dr Matthew Agarwala said: “As nature loss reduces economic performance, it will become harder for countries to service their debt, straining government budgets and forcing them to raise taxes, cut spending, or increase inflation. This will have grim consequences for ordinary people.”

Co-author Dr Matt Burke added: “Economies reliant on ecosystems face a choice: pay now, by investing in nature, or pay later through higher borrowing costs and spiralling debt… The ‘pay now’ option generates long-term returns for people, business and nature. The ‘pay later’ option has significant downside risks, with little or no upside.”

Earlier this week, the UN confirmed that the final leg of the COP15 biodiversity summit has been moved to Montreal this December, in a bid to bring an end to a string of delays relating to the Covid-19 situation in host nation China. An agreement on a post-2020 biodiversity agreement, similar to the Paris Agreement, is being developed at the summit and is now more than two years late. Calls are being made to ensure that governments do not allow financial activities which would undermine the nature conservation and restoration commitments detailed in the agreement.

Also, the EU has tabled this week a new ‘Nature Restoration Law’ – a policy package which will set legally binding conservation and restoration targets for member states. It is backed with a proposed €100bn package of public finance.

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