Massive Oil Is a Massive Loser (of Cash, However Additionally Life)

Massive Oil Is a Massive Loser (of Cash, However Additionally Life)

The Fearless Lady statue stands in entrance of the New York Inventory Trade in New York’s Monetary District.
Picture: Mary Altaffer (AP)

In case you’re trying to begin an funding portfolio, you might need to keep away from fossil fuels. A report launched Tuesday from Carbon Tracker, a monetary suppose tank, reveals the losses for oil shares have been piling up.

Over the previous 10 years, the report finds, the share worth of fossil gasoline corporations and corporations tied with their manufacturing dropped by $123 billion. This isn’t simply market volatility, the report says: This sector underperformed a key world monetary index by greater than 50% when in comparison with MSCI All Nation World Index, a key world monetary index. In different phrases, if an investor had purchased solely fossil gasoline shares over the previous decade, they might have gotten 52% much less of a return on their funding than their friends with extra various portfolios.

But based on the report, buyers can’t maintain their mitts off fossil fuels regardless of these corporations being a shedding funding. The fossil gasoline business bought round $640 billion in fairness to world buyers throughout that point, the report finds, together with 2,360 inventory change transactions managed by nearly 450 funding banks. This quantity dwarfs the quantity of renewable vitality investments. Over that very same time interval, there have been solely $56 billion value of issuances made within the renewable vitality sector—lower than a tenth of the funding made in fossil fuels.

Illustration for article titled Big Oil Is a Big Loser (of Money, But Also Life)

Why on Earth do investors keep returning to fossil fuel investments if they are so unprofitable? That’s a “good question with no easy answer,” the report’s lead author, Henrik Jeppesen, told Earther in an email. Fossil fuel stocks have done really well in the past, Jeppesen said—they outperformed the market from 1995 until 2008—and many investors are skittish of missing out on another boom period. Financial FOMO is real apparently.

“I still meet investors who use this argument, and many trustees around have long memories,” Jeppesen said.

Some also think that we may be using fossil fuels for a while—especially with regards to plastics—so they “continue to see potential in the sector,” Jeppesen said.

The flip side of the coin is that investments in renewable energy are making bank. Renewable energy stocks, the report finds, outperformed that same world index by 54% over the same period of time, gaining $77 billion in value. That position has been strengthening over time.

“We have seen a lot [of] big technological developments and breakthroughs across renewable energy and clean technologies in recent years,” Jeppesen said, noting that renewable companies have become even more competitive in the last few years compared to the earlier part of the decade. “In general, renewable energy companies are typically smaller and younger companies focused on technology development, which is a lot less capital intensive [than] companies using expensive extractive equipment to search for [and] produce oil, gas, and coal.”

The world’s financial system seems to be waking up to the fact that the fossil fuel industry is a losing bet. Since 2016, the report finds, an “increasing number” of fossil fuel share transactions have come from investors who already hold those shares—and who are looking to reduce or sell out their investments. “This may be a signal of declining confidence in the outlook for fossil fuels by insiders,” the report notes.

Reforming our financial system is actually a key part of the Paris Agreement, which says that “finance flows” should be “consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” This goal is listed right at the top of the Agreement, along with holding world temperatures “well below” 2 degrees Celsius (3.6 degrees Fahrenheit). But until recently, there’s been little discussion or attention paid to how to reform the global financial system, especially compared to how much we’ve paid attention to the temperature target in the agreement.

The report comes as big banks, investment firms, and other financial institutions are making increasing noise about how they’re working to fix the climate crisis. But just because financial actors are all of a sudden acting concerned about climate doesn’t mean that they’re ready to take their foot off the fossil fuel gas just yet. A separate report released this year from the Rainforest Action Network found that in the last year alone, global banks have provided $750 billion in debt financing to fossil fuel companies. And, as we discussed last week, as a lot of the world’s most powerful financial institutions make promises to reach “net zero” or other kinds of climate commitments, many of those plans are actually pretty toothless if you look closely.

The financial sector is a place where untangling the PR spin on climate from a company’s actions and investments is going to be increasingly important, something the report underscores. BlackRock, for instance, has made a concerted effort making a name for itself as a leader in the “net-zero economy.” But the firm is still the world’s largest shareholder of fossil fuel holdings, the report finds, with $149 billion in shares of these companies as of December. And Wells Fargo, which this month became the latest big bank to make a net zero commitment, was the biggest fossil fuel transaction advisor over the past decade of the 10 big investment banks surveyed. In comparison, only 1% of the transactions in its hands were with renewable companies.

Consumers looking to discern fact from fiction and hold financial actors accountable would do well to “follow the money,” Jeppesen said.

Source link