A Bonding Experience

Jay Owen Green Prosperity, SRI/ESG News

Bond risk

Our thinking about the role of future environmental politics on capital markets has extended to another asset class – fixed income. Carbon Tracker recently collaborated with global credit-ratings agency Standard & Poors to publish ‘What a carbon-constrained future could mean for oil companies’ creditworthiness’.  This report assesses the fact that lower emissions levels will affect the price and demand for oil operators such that they run the risk of being downgraded. In particular, companies focused on the oilsands saw their ability to maintain dividends and capital investment impaired. Perhaps most significantly the scenario saw the fundamental business model of these companies called into question. The uncertainty regarding the economic viability of future production meant further CAPEX was no longer justifiable. You can also view a video of Standard & Poors analysts discussing the analysis on its Credit Matters website.

Equity analysis

On the equity side, HSBC conducted research looking at the impact of an emissions ceiling on European oil and gas majors. Applying the IEA’s 450ppm scenario negated the need for some production. However the larger impact was from the knock-on effect of reduced demand to lower prices. This scenario would result in a 40-60% drop in market capitalisation for these companies.

Carbon Tracker and the IEA presented at a recent IIGCC roundtable for investors and analysts to identify useful future research around climate change risk. This demonstrated the increasing investor demand for properly integrated sell-side analysis, as well as the willingness of analysts to engage with alternative future energy scenarios.

Getting around

Interpretations of the carbon bubble thesis continue to develop, reaching different geographies and audiences. Building on discussions in the US, South Africa and Norway, new coverage from China and Australia, as well as additional efforts in the US, have truly put the concept of unburnable carbon on the map.

        An article entitled ‘Bursting the carbon bubble’ published in The Age, in Melbourne, and the Sydney Morning Herald attracted sustained online attention on the issue in Australia

        In the US, Carbon Tracker have assisted the justification of a precedent setting shareholder resolution from Boston Common Asset Management to the US bank PNC Financial, requesting them to assess the scale of greenhouse gas emissions enabled through its lending portfolio, as well as its exposure to climate change risk in its lending

        At a time when the cost of air pollution in China is attracting significant media attention, Carbon Tracker’s article for China Dialogue, ‘Sizing the carbon bubble’, came as a timely reminder of the possible drive towards cleaner energy in China.

        Carbon Tracker’s thinking is also making an impact in corporate reporting as presented by the Climate Disclosure Standards Board in South Africa using the Unburnable Carbon report to emphasise the risk climate change presents to companies dependent on particular value chains.



Mark Campanale, Carbon Tracker’s Founding Director, and Jeremy Leggett, our chairman, recently contributed to Investment and Pensions Europe presenting the unburnable carbon analysis thus far and commenting on how institutional investors should interpret it.


The concept of ‘stranded assets’, which is central to our work, has continued to gather speed. The Smith School at the University of Oxford has launched a four-year programme backed by HSBC, Aviva, WWF-UK and Climate Change Capital, to help investors identify assets that could be left stranded by actions taken to drive a low-carbon future in light of climate change risk.


A new report from The Actuarial Profession and Anglia Ruskin University looking into the impact limited availability of resources could have on economic growth over the upcoming decades, utilised our Unburnable Carbon analysis to illustrate leading thinking of the potential ramifications of climate change on continued growth. They suggested that:

‘If society decides to limit carbon emissions the confidence of those in the abundance of reserves as a basis for optimism with regards to wealth creation, and in technology to fix the gaps, are called into severe questioning.’


Treasury Minister Sajid Javid MP confirmed to Parliament in January that the Bank of England was included climate change as a risk it considers:

The Financial Policy Committee (FPC) considers a diverse spectrum of risks to the financial system as part of its deliberations, and is presented with a broad array of data and market intelligence. Should the FPC conclude, at any point, that climate change does pose a systemic risk to the financial system, they will report and explain that risk in their six-monthly Financial Stability Report.

Further work needs to be done to ensure the regulators of the world’s major financial markets have the right information to enable them to track this risk. This is why Carbon Tracker has proposed companies should report the greenhouse gas potential of the coal, oil and gas reserves they have an interest in.

More please

If you want to find out more about our work please visit our new Prezi which captures the activities that have been catalysed by our analysis:

We welcome ideas of how to develop these activities further. This blog is also available at http://www.carbontracker.org/blog-march-2013

Cheers, James and the team