Major investors endorse new Carbon Tracker research querying oil investment viability

Introducing the ‘Carbon supply cost curve’

Major institutional investors such as the California Public Employees Retirement System (CalPERS) and Norway’s Storebrand have endorsed new research that questions both the financial and environmental viability of many oil projects given current price assumptions.

The findings come from the Carbon Tracker Initiative, the UK-based group whose work on unburnable carbon (2011) and stranded assets (2013) has done much to help frame the debate about fossil fuel investment.

The latest research introduces the concept of ‘Carbon Supply Cost Curves’, which show potential oil supply in terms of production and lifecycle CO2 emissions, and suggests that $1.1trn of potential capital expenditure out to 2025 is dependent on an oil price of more than $95 per barrel.

It recommends that investors should “engage with companies to discuss the risk of capital being wasted on carbon intensive projects that are not certain to generate value, and are not consistent with the coming carbon constrained world”.

The research was put together with Energy Transition Advisors, the firm run by former Deutsche Bank Climate Advisors’ Head of Research Mark Fulton and former HSBC analyst Paul Spedding. It is called “Carbon Supply Cost Curves: Evaluating Financial Risk to Oil Capital Expenditures” and is available here.

“Investors need to get ahead of the carbon supply cost curve to ensure capital is not being wasted,” said the group’s Research Director James Leaton.

“This report will be useful to investors engaging oil companies on whether they are using shareholder capital prudently as we transition to a lower-carbon future,” said CalPERS’ Chief Executive Anne Stausboll.She is co-Chair of US advocacy group Ceres which, with Carbon Tracker, is spearheading a 70-investor campaign to get 40 oil, gas and coal companies to review their exposure to carbon asset risk and outline their plans for managing them.

“Investors need to get ahead of the carbon supply cost curve”

Stausboll’s view was echoed by Christine Tørklep Meisingset, Portfolio Manager and Head of ESG Research at Storebrand, the insurance and asset management firm.

“As a pension provider and long term investor, understanding climate risks and opportunities is a prerequisite for securing long term returns,” she said. The new report, she added, improves Storebrand’s ability to understand the risk exposure of potential investment targets – “as well as adding to our evidence that sustainability research is highly relevant to financial performance today and perhaps even more so in the future”.

“The carbon cost curves report enhances the ability of investors to hedge against risks and capture rewards in a carbon constrained world,” commented Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change.

The report comes as Stanford University in the US has become the latest investor to enter the fossil fuel divestment debate. The board of trustees of Stanford’s $18.7bn endowment won’t make any more direct investments in coal mining companies – and sell off its existing holdings.