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Wall Street Demands Answers From Fossil Fuel Producers on 'Unburnable' Carbon

Groundbreaking initiative is forcing an investor rethink: What's the value of fossil fuel stocks if companies must leave reserves in the ground?

Oct 24, 2013

A well-heeled coalition of investors is asking top fossil fuel companies to calculate the risks of plowing billions into new oil, gas and coal projects. They fear that carbon emission limits and slowing demand will turn them into bad investments that leave investors worse off.

The requests, contained in letters sent to 45 companies last month, are part of an initiative aimed at persuading oil producers and others to rein in their quest to stockpile more carbon energy. They hope to do so by tapping into growing concerns that climate policies and market factors could prevent companies from selling all of their reserves of fossil fuels, which are still growing fast.

Companies with large amounts of such "unburnable" carbon resources could see their stock prices slashed, clobbering the value of investment portfolios that hold the shares. By one estimate, as much as 30 percent of the value of some of the world’s stock exchanges is in proven fossil reserves.

In the letters, the coalition asks the companies to examine and disclose their "exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by 80% by 2050."

The initiative is potentially groundbreaking because it comes at a time when a growing number of large shareholders of energy producers are similarly questioning whether costly projects that are underway or on the drawing board will pay off. That rare alignment of interests could convince company boards to weigh the risks of strict climate policies alongside other factors as they review projects.

"We came to this with the goal of really changing the investment behavior of these companies in the mid- to long-term horizon," said Andrew Logan, director of the oil program at Ceres, a nonprofit that organizes businesses and investors interested in climate change and other issues. 

"We have real optimism because we're operating in a context where there's actually a lot of dissatisfaction with how the fossil fuel industry is being run—and that's really different from four or five years ago, when the companies were seen as sort of bulletproof."

That's what helped the initiative win the backing of 70 institutional investors, representing about $3 trillion in assets. The list includes large pension funds from California and New York, as well as investment firms in Scotland, Great Britain and Australia. Ceres launched the project along with the Carbon Tracker Initiative, a nonprofit that links capital markets to climate issues. The groups announced the initiative Thursday in a press conference.

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