‘Carbon bubble’ risk reinforces the case for fossil fuel divestment

Two new reports have strengthened the case for fossil fuel divestment, arguing that polluting energy assets fuel a ‘carbon bubble’ in Europe and that moving away from fossil fuels does not harm investment portfolios.

One study by the Greens-European Free Alliance (EFA) analyses carbon exposure of the top 43 European banks and pension funds.

It found out that in order to limit the risks posed by the ‘carbon bubble’ – a term that refers to the overvaluation of fossil fuels assets, given the need to tackle climate change – countries should quickly shift towards a clean, low-carbon economy.

According to the report, UK pension funds are among the financial institutions at highest risk. The findings follow another report by UK MPs that warned of the risks posed by fossil fuel assets to the stock market.

Reinhard Bütikofer, spokesperson for the Greens-EFA in the European parliament, said, “With over €1 trillion in high-carbon assets, we have identified that the carbon bubble is a significant risk particularly for a number of EU member states and EU financial institutions.

“Investments in fossil fuel companies could therefore quickly turn into fool’s gold. The EU’s business-as-usual strategy entails greater risks and costs to our financial system.”

A second report, published by the Australia Institute and called Climate proofing your investments: Moving funds out of fossil fuels, explores the risks of investing in coal, oil and gas companies.

The report suggests that investors that move funds away from these firms do not risk lower returns, because most of the reserves the companies rely on are in fact “unburnable”, as they are incompatible with global climate agreements.

Bill McKibben, from divestment pressure group 350.org, commented on the findings, saying, “These fossil fuel corporations are rogue corporations, operating not just against the laws of nations or the EU, but also against the laws of physics — an even more severe offence.

“They are setting us up for what is probably the greatest financial bubble of all time.” 

Further reading:

Investors warned of ‘stranded’ carbon assets and working condition risks

Al Gore: world risks creating carbon bubble akin to financial crisis

Report says investing in fossil fuels is a ‘very risky decision’

Majority of Britons unaware of ‘carbon bubble’ investment risks

MPs issue stark ‘carbon bubble’ warning to investors and finance world