About Carbon Tracker
The Carbon Tracker initiative is a new way of looking at the carbon emissions
problem. It is focused on the fossil fuel reserves held by publically listed
companies and the way they are valued and assessed by markets. Currently
financial markets have an unlimited capacity to treat fossil fuel reserves
as assets. As governments move to control carbon emissions, this market
failure is creating systemic risks for institutional investors, notably the
threat of fossil fuel assets becoming stranded as the shift to a low-carbon
economy accelerates.
In the past decade investors have suffered considerable value destruction following the mispricing exhibited
in the dot.com boom and the more recent credit crunch. The carbon bubble could be equally serious for
institutional investors – including pension beneficiaries - and the value lost would be permanent.
We believe that today’s financial architecture is not fit for purpose to manage the transition to a low-carbon
economy and serious reforms are required to key aspects of financial regulation and practice firstly to acknowledge
the carbon risks inherent in fossil fuel assets and then take action to reduce these risks on the timeline needed
to avoid catastrophic climate change.
Carbon Tracker’s goal is to prevent a carbon crash by:
- • Working with capital market regulators and investors to assess systemic climate change risks and propose practical measures to minimise these risks to market stability and the operation of an orderly market.
- • Revisiting the way fossil fuel companies are valued including the accounting treatment of fossil fuel-based reserves to ensure that carbon limits are fully integrated;
- • Evaluating the concentration risk facing key global markets which are currently over-weight fossil fuels (such as the UK), and how indices, benchmarks and tracking products can be reformed to protect investors
- • Improving the quality and utility of disclosures required by regulators and listings authorities to ensure that future carbon risks associated with fossil fuel reserves are fully dealt with to enable investors to make informed decisions;
- • Updating the way fossil fuel companies are brought to the capital markets by investment banks;
We believe the regulatory regimes covering the capital markets need realigning to provide transparency for investors on the assumptions behind valuing unburnable carbon. With the global economy following the fortunes of the financial sector, it is essential to create capital markets which are robust enough to deliver an economy which can prevent dangerous climate change. Unless a more long-term approach is required by regulators, the shift in investment required to deliver a low carbon future will not occur.
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