GLOBAL – Fossil fuel reserves already far exceed the carbon budget to avoid global warming of more than 2°C, according to research by the Carbon Tracker Initiative and the Grantham Research Institute on Climate Change and the Environment.
According to the 'Unburnable Carbon: Wasted Capital and Stranded Assets' report, $674bn (€515bn) billion was spent last year finding and developing new potentially stranded assets.
If this continues for the next decade, economies will see more than $6trn in wasted capital.
The analysis shows that 60-80% of coal, oil and gas reserves of publicly listed companies could be classified unburnable if the world is to achieve emission reductions that mean an 80% probability of not exceeding global warming of 2°C.
But company valuation and credit rating methodologies do not typically inform investors whether they have exposure to these stranded assets, meaning markets continue to reward reserves replacement, rather than considering reserves redundancy.
Lord Stern of Brentford, chair of the Grantham Research Institute on Climate Change and the Environment, said: "Smart investors can already see most fossil fuel reserves are essentially unburnable because of the need to reduce emissions in line with the global agreement by governments to avoid global warming of more than 2°C.
"They can see investing in companies that rely solely or heavily on constantly replenishing reserves of fossil fuels is becoming a very risky decision.
"But I hope this report will mean regulators also take note because much of the embedded risk from these potentially toxic carbon assets is not openly recognised through current reporting requirements."
The report can be found here.
In related news, thousands of savers are expected to call on their pension providers to act on climate using a web-tool targeting pension funds.
ShareAction, the shareholder activist NGO, is giving pension savers the opportunity to ask their pension providers about the security of their savings in light of the 'Unburnable Carbon' report.
Catherine Howarth, chief executive at ShareAction, said: "This is a crucial time in the fight against climate change. The systemic risks of an inflating carbon bubble are under-appreciated in the investment sector. This campaign gives savers a chance to protect their savings and the environment."
ShareAction believes the mispricing of carbon assets is leading to a carbon bubble, much like the mispricing of subprime mortgage-backed assets led to a bubble in the run-up to 2008.
The online tool is available here.
Elsewhere, the $255bn California Public Employees' Retirement System (CalPERS) has announced that it has earned an A grade from the Asset Owners Disclosure Project (AODP), one of only 22 organisations to do so.
The pension fund ranked number 15 on the list of the world's 1,000 largest asset owners in the AODP 2012 Global Climate Index survey.
Anne Simpson, CalPERS' senior portfolio manager and director of global governance, said: "Climate change poses both risks and opportunities for a long-term global investor such as CalPERS.
"The issues raised by climate change are complex and challenging. They require time, attention and coordination between investors, companies and policymakers."
AODP's survey comprises approximately 50 multiple-choice questions covering the five main areas of a fund's operations and investments – transparency, low-carbon investment, active ownership, risk management and investment-chain alignment.
Data is sourced from public information as well as disclosures that funds provide through the survey.
The data is analysed, and ratings are applied to all funds.