Newsweek reports: Global banking giant HSBC has warned investors of the growing risk of their fossil fuel assets becoming useless, in a private report seen by Newsweek.
In the report, titled ‘Stranded assets: what next?’, analysts warn of the growing likelihood that fossil fuel companies may become “economically non-viable”, as people move away from carbon energy and fossil fuels are left in the ground.
Energy innovation measures, including ‘disruptive’ clean technologies and the EU’s success in decoupling energy use from economic growth, are cited as factors that could in the long term cause fossil fuel assets to become devalued, as green energy becomes cheaper and more easily available.
More stringent government regulation on carbon emissions, especially in the run-up to the Paris climate conference in December this year whose aim is to establish a legally binding global climate commitment, are also cited as longer term risks to investments in traditional energy.
However the analysts also warn that in the short term, low energy prices caused by oversupply should be factored into portfolios.
“The speed of the collapse in energy prices over the past three quarters has taken the fossil fuel industry by surprise, in our view,” reads the report. “As rigs are dismantled, capex is cut and operating assets quickly become unprofitable, stranding risks have become much more urgent for investors to address, including shorter term investors.”
The paper proposes three options for investors – divesting completely from fossil fuels; shedding the highest risk investments such as coal and oil; or staying the course and engaging with fossil fuel companies as an investor. The report argues that investors who stay in fossil fuels “may one day be seen to be late movers, on ‘the wrong side of history’”. [Continue reading…]