Trillions Invested in Fossil Fuel Could End Up Stranded

Trillions Invested in Fossil Fuel Could End Up Stranded

In 2015, almost every country in the world signed the Paris Agreement, which will inevitably require a global energy transition away from fossil fuels. Still, oil companies continue to invest in new oil projects, taking on financial risk due to future climate policies that will prevent long-term oil extraction. A new study, tracing the ownership of over 43,000 oil and gas investments, found that assets valued at $1.4 trillion dollars are at risk of becoming stranded. Stranded assets are those that suffer from an unanticipated devaluation, resulting in major economic losses for investors.

Al Jazeera: ​​Stranded Assets | Plan It Green, January 16, 2022.

Why This Matters

Unfortunately, the study found that over half of these losses won’t fall back on the oil companies, but rather on private individuals that have invested their savings and pensions into managed funds. Financial firms may be investing in fossil fuel projects on behalf of their clients without their understanding or knowledge and leaving their retirement savings completely exposed. In particular, US shareholders are most at risk of having stranded assets with an estimated $362 billion in potential losses. While fossil fuel companies will remain relatively unscathed by their poor investments, private investors and the financial sector will ultimately bear the economic brunt in the near future.

Our Eden: Your Bank is Funding Climate Change, November 13, 2021.

NBC: Are Major Companies Living Up To Their Net-Zero Pledges To Combat Climate Change?, February 10, 2022.

Shareholders Can Influence Oil Investments

By nature of being a shareholder, investors own part of publicly held companies. Therefore, they hold some level of influence over its activities. To preserve investments, shareholders can (and should) pressure oil and gas companies to switch to renewable energy and divest from new oil projects that will inevitably fail in the near future.

In the recent past, shareholder votes have succeeded in ousting Exxon executives and replacing them with more climate-conscious members. This underlines the fact that private investors can and do influence a company’s decisions.

CNBC: Climate change activists wins against big oil companies like Exxon and Shell, May 26, 2021.

Carbon Tracker Initiative: Stranded assets and the implications of Net Zero 2050 for upstream oil and gas, September 27, 2021.