G20 asks regulators to probe financial risks of ‘unburnable carbon’

The G20 – which was asked last year by Australia to ignore the issue of climate change – has now reportedly commissioned a major investigation to look at the potential financial implications of trillions of dollars of stranded assets.

The call by the G20 to ask the Financial Stability Board in Basel to look at the fall-out faced by the global financial sector comes with the growing realization that climate rules will become much stricter as the world gears up to meet their stated climate goals of limiting global warming to a maximum 2C.

This in turn, will require at least two thirds of carbon reserves to be left in the ground, and unburnt, in turn putting at risk as much as $6 trillion invested in oil, gas and coal in the past eight years by corporates ignoring the growing climate risks.

News of the G20 was broken in the UK’s conservative paper, The Daily Telegraph. It said that all member countries have agreed to co-operate or carry out internal probes, including Australia, the US, China, India, Russia, and Saudi Arabia.

The paper said the investigation is being pushed by France, which is hosting the critical climate talks later this year, and is modelled on a review launched by the Bank of England last year. The BoE report is due in July.

Last year, the Abbott government sought to keep climate change off the agenda for the conference in Brisbane. But according to the Climate Institute, it was here that the probe was agreed.

“This G20 inquiry into the risks of high carbon investments is a powerful acknowledgement of how climate change could affect financial systems,” TCI chief John Connor said in an emailed statement.

“Avoiding two degrees warming will require conventional fossil fuel practices and investments to end.  Almost 200 countries have agreed to keep warming below this level. This sort of risk examination should be a priority and it is entirely appropriate that the Financial Stability Board investigate it at a global level.”

Connor said Australian financial institutions should undertake a similar inquiry, particularly in light of reports that showed 90 per cent of Australia’s coal reserves may need to be left in the ground, and another report that showed that Australian asset managers were ill prepared for the risks of the transition to a low carbon economy.

“Australian and overseas investments in Australian coal rest on a speculative bubble of climate denial, indifference or dreaming,” Connor said.

“Investors, governments and even some coal companies say they take climate change seriously, but this report shows they do not or are taking risky gambles.”

Investment banks such as France’s Kepler Chevreux have pointed out that up to $28 trillion in assets may be at risk by a world that takes its climate targets seriously.

A new report by HSBC said the fossil industry is facing risks from several fronts at once, including ever-cheaper renewables, dramatic advances in battery storage, and much more efficient use of energy. The bank said high-cost fossil projects will be driven out of business by fast-moving technology.

The Telegraph noted that HSBC has offered clients a divestment strategy for “selling down” holdings in the most exposed companies as pension funds, churches, and other investors pull out of the fossil industry altogether, much as an earlier generation pulled out of tobacco.

But energy companies continue to downplay or ignore the issue. Robert Dudley, CEO of BP, suggested that green activist groups were making “much ado about nothing”, despite 98 per cent of its own investors voting for a climate resolution last week ordering the company to disclose more information on the risks.

The Guardian reports that Peabody Coal, meanwhile, had attacked climate science.

“Peabody Energy, the world’s largest private coal company, said on Monday that global warming was “an environmental crisis predicted by flawed computer models”,” the Guardian reported.

It said another coal giant, Glencore Xstrata, argued that governments would fail to implement measures to cut carbon emissions. Oil and gas major ExxonMobil said new reserves in the Arctic and Canadian tar sands must be exploited, moves scientists deem incompatible with tackling global warming.