Report: Coal and oil investors will lose money on 2C planet

Investments in the coal and oil sectors will see annual losses up to 2% over the next 10 years, if the world's governments commit to limiting global warming to 2C at Paris later this year.

By contrast, returns from the renewables sector would be expected to double in the next ten years from 5.3% to 10.4%.

Those stats are from a new report released this week by consultancy firm Mercer. The report warns that investors should consider moving away from fossil fuel sectors, which could see their profitability wiped out by concerted global action against climate change.

Under a 2C pathway, Mercer predicts coal stocks to provide average returns of -2.0% a year for the next 10 years, and oil stocks to return -0.7% a year. Utilities’ returns are also expected to fall from 5.1% a year, to 1.2%.

The report authors added: “While the [2C] scenario may be viewed by most investors as more contentious, it presents a potential risk that is worthy of consideration.

“Those investors that remain unprepared and are exposed to these higher risk sectors (and companies) are most at risk of remaining invested in ‘stranded assets’.”

Risks and opportunities

Global campaign group WWF welcomed the report as a landmark moment for investors.

Ray Dhirani, WWF-UK’s corporate stewardship manager on sustainable finance, said: “While this report highlights the significant portfolio risks from climate change, it also shows that there are opportunities for long term investors in a low carbon world.

“[Climate change] has profound investment implications for all investors. We hope the investment industry and global policy makers take note of these important findings, since we no longer have the luxury of time for inaction.”

Video: WWF explains the Mercer report

Groundswell for change

The global campaign for fossil fuel divestment has been gathering momentum, after news emerged on Friday that the world’s largest sovereign wealth fund planned to sell over £5bn of coal-related stocks.

Late in May, Edinburgh University also made a landmark decision to divest from coal and tar sands within the next six months. By contrast, clean energy investment enjoyed a bumper 2014, according to Bloomberg New Energy Finance, totalling £200bn, the highest amount since 2011 and a year-on-year growth of 16%.

Brad Allen

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