Financial policy makers urged to act on stranded fossil fuel assets

7th November 2014

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Jill Westra

Fossil fuel companies should be forced to disclose future CO2 emissions embedded in their fossil fuels, according to sustainable finance experts.

The call came from financial think-tank the Carbon Tracker Initiative (CTI) and the UK Sustainable Investment and Finance Association (UKSIF), which has 250 members including pension funds, asset managers and banks.

At a meeting of the All Party Parliamentary Climate Change Group yesterday, the two organisations told MPs that the government and regulatory authorities should consider how to align capital markets and investment more effectively with the realities of climate change.

CTI and UKSIF argue that investment in fossil fuel companies is becoming more risky. This is due to a number of factors, such as demand falling as the cost of renewable energy reduces and countries introducing policies to decarbonise their energy sectors, they argue.

They suggested that this could be done through:

- a revision to the mandatory UK greenhouse gas emissions reporting requirements;

- the Bank of England Prudential Regulation Authority and the UK Listing Authority ensuring that fossil fuel companies provide transparent descriptions of their assessment of climate-related risks;

- the EU directive on non-financial reporting, through which regulators can give clear interpretative guidance on climate risk; and

- an independent commission, including regulators from other countries, examining the scope for what can be done on financial regulation and guidance.

Anthony Hobley, CEO of CTI, said that only a very high oil price will allow some fossil fuel production projects to break even.

“That is a pure financial risk for investors and a major political risk for politicians. Policy makers have the responsibility to create the conditions for financial and climate risk disclosure to create transparency, allowing investors to correctly price the fossil fuel risk premium,” he said.

Chair of the APPGCC Joan Walley MP, said: “Both policymakers and businesses must take action to ensure that there is full transparency about exposure to carbon risks so that investors can take account of this when making investment decisions.”

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