Report: Investors ditching fossil fuel stocks as value drops by billions of dollars

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The value of share offerings in fossil fuel firms has plummeted by $123bn since 2012, a new report has revealed.

The report shows how fossil fuel investments have begun to underperform, while renewable energy investments increasingly outperform

And, taking note of these trends, investors have been less keen to bank on high-carbon energy, with share issuance having fallen by $70bn within the same time period, the report claims.

The report, entitled ‘A Tale of Two Shares’, was published today (31) by London-based think-tank Carbon Tracker. It assesses activity in clean energy and fossil fuel finance for publicly traded businesses on a global basis. Businesses that are purely or heavily involved in these sectors are analysed, as well as those with what Carbon Tracker describes as “related activities”.

According to the report, the financial returns from fossil fuels had been in decline well before Covid-19 restrictions led to a slump in oil demand and, by extension, a drop in prices. It states that the $640bn in equity purchased from fossil fuel firms since 2012 lost $123bn in value between 2012 and 2020 – meaning that the sector underperformed the MSCI ACWI Index by 52%.

The report states that many investors are “shying away” from further fossil fuel investments as a result of this trend. Fossil furl issuance was $70bn in 2012 but just $10bn in 2020, it reveals, with many big names outlining divestment processes.

Carbon Tracker contrasts these trends to the fact that the business case for renewable energy investment is rapidly improving. The report reveals that share issuances in renewables totalled $56bn in issuances between 2012 and 2020 and that investors have gained $77bn in value to date. This means that the sector outperformed the MSCI ACWI Index by 54%.

Clean energy firms raised a record $11bn through shares in 2020, Carbon Tracker states, with one of the biggest winners being Orsted. But the report warns that this is not enough to align the global energy sector with the Paris Agreement. It cites the Intergovernmental Panel on Climate Change’s (IPCC) statement that annual global investments in clean energy infrastructure will need to be $3trn-$3.5trn to give the world the best chance of adhering to 1.5C.

“It’s astonishing that exchanges are still listing new fossil fuel companies intent on expanding production or developing new reserves in direct contravention of the Paris temperature goals,” Carbon Tracker founder and executive director Mark Campanale said.

“But what this shows is that confidence is really beginning to evaporate as incumbents struggle to access historically strong flows of finance.”

The analysis from Carbon Tracker follows hot on the heels of a separate report from the  Imperial College Business School and the International Energy Agency, which revealed that publicly-traded power portfolios outperformed fossil fuel portfolios with both higher returns and lower volatility over the past decade.

The report states that renewable energy investments have seen a 367% greater total return than fossil fuels since 2010. Returns were highest in what the report calls “advanced markets”, where technologies and infrastructure are mature and sectors are scaling quickly.

Investors are taking note, the report argues, with renewable energy now accounting for almost one-fifth of global energy investment, when public and private sector activity is accounted for. But, like the Carbon Tracker report, it warns that investment must scale further if international climate targets are to be met for the energy sector.

National banks ‘lagging on climate action’

In other green finance news, a new study regarding the climate ambitions and actions of 20 central banks has found that most are not implementing strong monetary and financial policies to align their activities with the Paris Agreement.

The study, conducted by Positive Money and endorsed by dozens of research institutes and NFOs, looked at central banks for the G20 in terms of their sustainability-related research and advocacy, monetary policy, financial policy and engagement with policymakers.

While 14 of the banks scored top marks on research and advocacy, scores across the board were poor in all other areas – particularly for the Bank of England, Banque de France and European Central Bank. Positive money claims that this shows how banks are “very slow in implementing concrete steps” to turn their overarching climate visions into action. Positive Money was keen to highlight that no bank scored better than a ‘C’ grade overall.

The Bank of England, for example, has repeatedly spoken in support of the UK’s net-zero target. But is has been accused of undertaking corporate bond purchasing in high-carbon sectors with few or no environmental conditions. Critics claim that this trend will continue unless it alters its Monetary Policy.

Positive Money has timed the report ahead of a meeting of G20 finance ministers and central bankers on 7 and 8 April. Attendees will discuss a new shared action plan that will cover measures to tackle shared global challenges including climate change and nature loss.

“While it’s positive that central bankers are ‘talking the talk’ by featuring climate more prominently in speeches and research, there has been a widespread failure to ‘walk the walk’ by turning these words into concrete policy action,” lead report author David Barmes said,

“The 2008 crash showed financial markets cannot be left to self-regulate in the face of systemic risk, but by failing to confront the climate crisis we are repeating the same mistakes on an even bigger scale. Global finance will continue to generate instability and environmental breakdown until central banks and supervisors reshape the financial system to better serve people and the planet.”

Sarah George