The overwhelming majority of asset managers believe oil company valuations will fall within the next five years amid a global shift towards a low-carbon economy.
A new report from the UK Sustainable Investment and Finance Association (UKSIF) shows that 89% believe factors such as increased regulation around emission levels will cause valuations to drop by 2023.
That is almost double the 46% that shared this sentiment in 2017 when the Task Force on Climate-related Financial Disclosures (TCFD) published it recommendations to help businesses report the risks of global warming.
“This report shows how fund managers, the experts on whom millions of savers rely, see the climate-related risks to share prices,” UKSIF chief executive, Simon Howard, said.
“Over half of the managers think climate risk is already a factor affecting share prices, and they see more risks crystallising in the short-term.”
The survey involved questioning 30 asset managers on how climate-related risks might impact the valuations of Integrated Oil Companies.
It reveals that 90% expect at least one risk, such as litigation or regulatory change, to “significantly” impact the value of these companies within the next two years.
It was also found that more than half are already witnessing reputational risks negatively impact valuations, with a further quarter expecting this to be the case by 2020.
Despite these fears, the findings show that 41% do not have strategies in place to tackle the issue, and of those that do, few are aligned with their goals.
In response, the UKSIF report recommends that fund managers develop products to manage and mitigate climate-related financial risks, and access opportunities from the transition.
It also urges asset owners to assess the climate risks of investments, review and agree the options to manage these risks, and request new or amended climate-resilient products.
“It is imperative that owners start to act to protect their investments now,” Howard continued. “More needs to be done in sector engagement with companies and product development.”
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