But the biggest question for concerned investors is how climate policies will unfold. If governments don't implement tough climate laws, then fossil fuel companies could burn through their reserves as planned providing other factors don't intervene. However, if national or global policies require steep cuts in the use of fossil fuels, they could gut the value of those companies that get stuck with unburnable resources they can't cash in.
The outlook for companies laden with coal is particularly troublesome, analysts say. Mackenzie cited a Bernstein & Co. report that noted that coal demand is falling everywhere except China, and that coal demand there will begin to fall by 2017. New efforts to cut worldwide carbon emissions would accelerate that downward shift, since coal can have three times as much embedded carbon than other fuels.
In the United States, a mix of plummeting demand and environmental restrictions on harmful emissions has already stranded coal deposits that can't be burned. That shift caused the share prices of coal companies to fall by two-thirds over the last two years, Mackenzie said.
Predictions for natural gas are far rosier, at least in the short term, since it is replacing the use of coal and oil in many industries.
"These concerns about climate impacts have been around for awhile," said Logan from Ceres. However, he said, the potential climate costs are starting to resonate more broadly with fossil fuel industry investors and the companies themselves. The theory about stranded carbon assets, he added, "has risen from what was seen as a fringe issue a very short time ago, to now firmly being in the mainstream."
What's made the difference is the magnitude of what's at stake, according to Mackenzie of the Scottish Widows Investment Partnership.
"We're talking about trends that are massively significant to share prices," he said. "We're moving to a space where these issues are just much, much more material than they have been."
The Origins of the Debate
Today's debate over the financial impacts of burning fossil fuels recklessly has its roots in a landmark 2009 climate paper by scientists led by Malte Meinshausen, a climatologist at Germany's Potsdam Institute for Climate Impact. The researchers found that at the current rate of fossil fuel use, dangerous warming—surpassing the two degree Celsius limit—could hit the globe in as few as 11 years.
MORE: The Most Influential Climate Science Paper Today Remains Unknown to Most People
The paper included another startling conclusion: That burning all the proven and economically retrievable fossil fuel reserves already claimed by oil, gas and coal companies would add enough carbon to the atmosphere to "vastly exceed the allowable CO2 emission budget for staying below 2C" of warming.
That got the attention of the international financial community, because the values of the world's energy companies are linked to future earnings from selling oil, gas and coal stockpiles that scientists now suggest might have to remain underground.
Since then, the findings have given rise to often-cited reports by the Carbon Tracker group of London. Environmental activist Bill McKibben, founder of the activist group 350.org, also expanded on the 2009 paper's conclusions in a Rolling Stone article and launched a speaking tour around the theory.
Last month, the concept of stranded and unburnable carbon resources gained the endorsement of the United Nations Intergovernmental Panel on Climate Change, or IPCC, the world's largest scientific body on global warming. The latest IPCC report embraced the view that existing reserves of fossil fuels contain more carbon than what can be burned without exceeding 2 degrees of warming.
Building on that and other publicity, the Ceres-led initiative is now taking the issue to the board rooms of BP, ExxonMobil and other top fossil fuel producers.
"We need to understand how the companies think about these risks, how they prepare for them, and how they're taken into account in their capital investment plans," said MacKenzie of the Scottish investment company.
Logan, the director of Ceres' oil program, said the responses have been encouraging so far.
"We've seen very few companies dismiss the issue out of hand," he noted. "Lots of them essentially acknowledge that there is a real tension between their long-term business plans and any attempt to deal with climate change. That, to me, is a constructive place to start."