Climate Change
The Carbon Bubble

Jeremy Leggett ... The Guardian Sustainable Business Awards. April 29th 2015.

Burgess COMMENTARY

Peter Burgess

The Guardian Sustainable Business Awards. April 29th 2015.

In the latest edited extract from his book, Jeremy Leggett looks at the fast-emerging traction of the carbon-bubble argument in the run up to the Paris climate summit.

The ceremony is held in a lecture theatre that can seat hundreds. Guardian Deputy Editor, Jo Confino takes the stage as master of ceremonies. Last year, he tells his captive audience, you were not well behaved. This year we thought you ought to be seated.

Jo is well loved by all sectors involved in sustainability. Our confinement, and the temporary absence of alcoholic beverages, is taken in good heart.

The first award of the many Guardian Sustainable Business awards, to be announced in the hour that follows, is for Innovation in Communicating Sustainability. Carbon Tracker wins it. CEO, Anthony Hobley and founder-director, Mark Campanale are called to the stage to shake Jo’s hand.

In the last fortnight, the remarkable reach of the team they lead has stretched to new horizons. The small but prolific group of analysts has moved beyond the basic carbon-bubble argument that the vast majority of fossil-fuel reserves can’t be burned if the world is to stay below the danger ceiling of two degrees Celsius of global warming, and that the unburnable majority is therefore in danger of ending up as stranded assets. Carbon Tracker has released a new report, the first in a series we label “Blueprint”, as in a blueprint for companies seeking a sustainable transition from carbon-based energy to clean energy. Based on this, HSBC has written a private report warning clients of the growing likelihood that fossil fuel companies may become “economically non-viable”, as they put it.

The report, inevitably leaked and covered in the press, recommends one of three approaches: divesting completely from fossil fuels; shedding the highest risk investments such as coal and oil; or staying invested and engaging with companies on their capital discipline (as in, checking to see that fossil fuel companies are not investing in high-cost projects where investors’ money is in especial danger of ending up wasted). Investors who stay in fossil fuels, HSBC observes, 'may one day be seen to be late movers, on ‘the wrong side of history’.'

Anthony Hobley tells Newsweek “it's incredibly important that a mainstream financial institution is effectively taking our narrative on the carbon bubble, analysing it and then producing a research report that reinforces our conclusions. I think we are at the beginning of a very important reframing of this issue, and of climate risk being understood by the mainstream financial markets.'

It seems increasingly likely this is the case with every passing week now.

Image from gettyimages

But we do still have a long way to go. The Asset Owners’ Disclosure Project (AODP) has found that 85 per cent of the world’s largest 500 asset owners – the majority of them pension funds – are still doing nothing on climate risk. They say they are engaging, but they aren’t really, beyond convivial lunches with energy-incumbency companies. If they continue to be inactive, AODP says they will face a new danger: that of being sued. AODP itself, acting with the activist lawyers’ group Client Earth, threatens to lead the process.

Meanwhile, in the fast-spreading divestment campaign, SOAS becomes the first London University to divest from fossil fuels. It will pull out of them all within three years. A Financial Times survey of the rising tide, shows Price Charles and Richard Branson shunning fossil fuel investments and the National Trust and Church of England among those reviewing their options.

On the same day that Carbon Tracker team accepts its award, a major new development unfolds. It emerges that the G20 powers are investigating carbon-bubble risk. The G20 has asked the Financial Stability Board in Basel to convene a public-private inquiry into the fall-out of stranded-assets risk, modelled on the Bank of England’s enquiry in the UK. The Bank of England has been conducting an internal enquiry, since last December, into whether or not the routine operations of the carbon-fuel industries pose a systemic threat to the stability of the global capital markets. All member countries have agreed to co-operate or carry out their own internal probes now.

When I read this, I experienced another of the many “pinch me” moments that I have experienced of late – a pinch-me moment is one where I feel the need to be pinched to check that I am not still asleep and dreaming.

France championed the idea, so the Telegraph reports. The hosts of the Paris climate summit are obviously coming to see finance as a critical lever for successful delivery of a treaty in December. Among the nations who have agreed to the review are the United States, China, India, Russia, Australia, and Saudi Arabia: major carbon-fuel producers and/or consumers all.

Now this will be a drama to follow closely in the months ahead.

- Jeremy Leggett is a writer, campaigner, and social entrepreneur.