Global stock markets are financing companies which are sitting on three times more coal, oil and gas reserves[1] than can be burned without breaking the 1.5°C Paris climate target, finds a report from the financial think tank Carbon Tracker.

It also reveals that the “embedded emissions” in the fossil fuel reserves of companies listed on global stock exchanges – the amount of CO2 released if they are extracted and burned – has grown by nearly 40% in the last decade despite a growing urgency to tackle climate change risks.

It further warns that 90% of all known fossil fuel reserves and resources held by all companies must stay in the ground as unburnable carbon to limit global warming to 1.5°C . But if more than 40% of reserves are extracted and burned the world will comfortably pass 2°C , with devastating consequences.

Author of the report ,Oil & Gas Analyst at Carbon Tracker, Thom Allen said, “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. This is especially important now as fossil fuel prices and related company stocks soar.”

Unburnable Carbon: Ten Years On follows Carbon Tracker’s seminal Unburnable Carbon report in 2011, which put finance at the heart of the climate debate. It showed for the first time that there were far more fossil fuel reserves around the world than could be burned while meeting global climate goals, with huge implications for financial markets.

The report comes a week after UN Secretary General Antonio Guterres slammed new funding for fossil fuel exploration as “delusional” and called for an end to fossil fuel finance as fuel prices soar and fossil fuel stock indices hugely outperform other asset classes drawing more investment in fresh exploration.  “Nothing could be more clear or present than the danger of fossil fuel expansion. Even in the short term, fossil fuels don’t make political or economic sense,” he told a White House economics forum.

The IEA has previously said that strictly no new oil and gas fields were needed if the world is to meet the 1.5°C Paris climate target and avoid the worst impacts of climate change.

The report shows how stock markets, and the associated industry of banks, insurers, lawyers and financial services providers, are profiting from activities that are at odds with their countries’ climate commitments and that put investors at risk.

Mounting concern about the impact of climate change has seen investors with more than $130 trillion of assets under management commit to achieving net zero emissions by 2050. The report calls on them to actively use their influence to guide companies towards a strategy that supports global climate goals and reduces their exposure to energy transition risks.”

At the start of 2022, only 320 billion tonnes of greenhouse gases (320 GtCO2) can be emitted for a 66% of limiting warming to 1.5°C . At current rates of emissions this will be exhausted in just eight years, by 2030.

But the report reveals that the total embedded emissions of all known fossil fuel reserves is more than 10 times that level at around 3,700 GtCO2. A large share of this is controlled by state-owned or private companies but 1,050 GtCO2 is owned by companies that trade publicly on global stock markets and can be influenced by investors.

The London Stock Exchange for instance holds 47 GtCO2 of embedded emissions – 30 times more than those of the UK’s own fossil fuel reserves (1.5 GtCO2) and ten times more than its 15-year carbon budget from 2023-37 (4.7 GtCO2).

In February 2021 the London Stock Exchange Group became the first exchange to commit to “net zero”, but it only covers the LSE Group itself not the exchange, which continues to list fossil fuel companies whose activities are at odds with global climate goals and the UK’s climate commitments

The report warns that supporting these companies makes the UK’s financial transition to a low carbon economy harder and that even though their fossil fuels may be produced and consumed overseas, it exposes the country’s financial services sector and UK-based investors to risk in the energy transition.

Carbon Tracker’s Allen said, “The UK may claim to be on a path to net zero, but companies headquartered and listed in the UK are investing in, and currently making huge profits from, extracting and selling fossil fuels around the world. As most of these activities occur outside the UK, the emissions are not included in the UK’s carbon budget.”

Financial centres in China, the US, India, Russia and Saudi Arabia have the highest embedded emissions overall. In all but the US, they are dominated by the partial listings of state-owned companies, where minority shareholders have limited influence.

However, a lack of influence over state-owned companies does not absolve investors from a share of responsibility for emissions. Even a partial listing provides an important source of capital, improves credit ratings and lowers the cost of borrowing, allowing for further development of yet more fossil fuel projects. Reserves are often so significant that even the partial listing of a state giant can add significant embedded emissions to the market.

New York is the financial centre with the greatest embedded emissions from freely tradable shares, with 160 GtCO2 listed between the New York Stock Exchange and the NASDAQ, followed by Moscow, Toronto, London and Sydney.

Mike Coffin, Head of Oil, Gas and Mining at Carbon Tracker and co-author, said, “Fossil fuel companies are reliant on equity and debt markets for the financing of capital-intensive projects, both to raise capital to finance new investments, but also to maintain existing production facilities and drill new wells. Financial centres facilitate, and profit from, both the primary equity raising and ongoing finance requirements for these companies, as well as secondary trading activities. As such, financial institutions that continue to enable such activities beyond climate limits, cannot themselves be viewed as Paris-aligned, and are also themselves increasingly exposed to transition risk.

The report warns that fossil fuel demand will peak, as government policies to cut emissions, asset owners’ net zero commitments and the rapid growth of clean energy technologies drive down demand; concerns about energy security are likely to accelerate this trend in the mid-to long-term.

Oversupply will see long-term prices fall, increasing the risk that fossil fuel projects fail to deliver expected returns and become stranded assets. The report says that stock markets are failing to respond adequately to the risks of the global transition to a carbon neutral energy system. This is not only putting investors at risk but also threatens the wider ecosystem of banks, insurers, lawyers and financial service providers in financial centres.

Over $1 trillion of oil and gas assets risk becoming stranded if fossil fuel companies pursue business as usual – including $600bn held by listed companies.

New York is the financial sector least aligned with Paris and at greatest risk from stranded assets. If listed oil & gas companies pursue business as usual, they would spend $700bn in the decade to 2030 – but just 20% on projects compatible with 1.5°C . On 22 February fossil fuel companies had a total market capitalisation of $1.4 trillion accounting for 3% of the value of the NYSE and NASDAQ.

The London Stock Exchange had the second highest market capitalisation of listed fossil fuel companies at $500 billion but they made up 15% of value on the exchange at that date, making it far more exposed. Only around half of the future ‘business as usual’ spending by oil & gas companies listed in London was found to be compatible with 1.5°C .

Sydney is also notable both for having the second-lowest degree of alignment under a 1.5°C scenario, with just 30% of future spending compatible with 1.5°C  and a large share of potential future spending incompatible with even a 2.7°C scenario.

Toronto has the fourth-largest embedded emissions by a freely-tradable share measure (behind New York, Moscow and Shanghai), but companies with fossil fuel reserves make up only 8% of the total market capitalisation. Only 40% of future ‘business as usual’ oil & gas spending is compatible with 1.5°C .  

Once embargo lifts the report can be downloaded here:

[1] We use the term ‘reserves’ to include both reserves and discovered resources of fossil fuels, and acknowledge that these are larger estimates than the strict 1P or 2P reserves classifications required under company disclosure rules.


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