Firms are still approving billions of dollars of investment in major projects which are inconsistent with 1.5C, the report by financial thinktank Carbon Tracker, published today (9 September), found.
It revealed even those with net-zero commitments continue to explore for new oil and gas.
Carbon Tracker’s head of oil, gas and mining and report co-author Mike Coffin warned that these companies are “betting against the success of global efforts to tackle climate change”.
“If they continue with business-as-usual investment they risk wasting more than a trillion dollars on projects which will not be competitive in a low-carbon world,” he added.
‘Adapt to Survive’ is Carbon Tracker’s fifth annual analysis of the risk of investing in oil and gas producers.
It warned investors that companies have not woken up to the “seismic implications” of the International Energy Agency’s finding that no investment in new oil and gas production is needed if the world aims to limit global warming to 1.5C.
This would mean production at 20 of the world’s 40 largest listed companies would shrink by at least 50% by the 2030s as existing projects run down with no replacements, the report found.
Most large shale oil companies would experience a production drop of more than 80%.
Carbon Tracker’s associate analyst and report co-author Axel Dalman said: “In general, no new projects and a rapid decline in production could deliver a serious shock to company valuations, as new project options are rendered effectively worthless and future cashflows are reduced. Lower equity valuations would in turn increase the cost of capital and insolvency risk.
“It is crucial for companies to have a strong transition plan, winding down oil and gas activities in an orderly manner and either diversifying into low-carbon businesses or returning capital to shareholders.”
The report also warned that if firms continue to invest in projects expecting a business-as-usual future of stable or rising demand, they risk being left with stranded assets that are uneconomic in a low-carbon world.
National climate policies and rapid growth of clean technologies will reduce demand, drive down prices and lead to significantly lower revenues, the report said.
Even amid the Covid-19 pandemic, as oil prices collapsed and boards cut dividends, companies continued to make investments that bet against the 1.5C target.
Investors are increasing pressure on fossil fuel companies to align with the Paris target, as awareness of the environmental and financial risks of pursuing business-as-usual grows.
Carbon Tracker’s research gives them ammunition to challenge companies over their plans for the energy transition.
It is used by Climate Action 100+ – backed by investors managing more than $55trn in assets – which presses companies to take action on climate change and cut emissions.
edie Staff