Bloomberg launches tool to evaluate ‘unburnable’ carbon risks

Investors are now able to assess how climate policy and risks can affect their shares in fossil fuel companies and have consequences on earnings and stock prices.

A carbon risk evaluation tool, designed by Bloomberg, can be used by investors and companies whose high-carbon assets, such as coal, oil or gas, may be subject to environmental and climate policies in the future.

The tool provides a range of different scenarios in which various risks appear on assets that may become ‘stranded’ by carbon emission reduction targets. Research by the UK-based thinktank Carbon Tracker suggests as much as 80% of current known fossil fuel reserves could be classified as “unburnable” if the world begins to take tackling climate change seriously.

Using the Bloomberg tool, investors are able to test the vulnerability and financial performance of companies through assumptions about future prices of oil, coal and natural gas.

The platform has been welcomed by sustainability organisation Ceres. Senior manager of the oil and gas programme at Ceres, Ryan Salmon, said, “It demonstrates that there’s demand for the information – more and more investors are interested in these issues.”

According to Bloomberg, some analysts have started to see future threats to fossil fuels companies, as policies to tackle climate change gain momentum. Governments may eventually decide to ask companies to leave fossil fuels reserves in the ground.

This possibility is “one of several potential developments that could strand those assets and permanently erase their value”, according to the financial firm.

Bloomberg said it was partly inspired to create the tool by Carbon Tracker’s research, conducted alongside the London School of Economics’ Grantham Research Institute.

Further reading:

The other reason for divestment

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US academics: fossil fuel divestment reduces long-term financial risks

Dutch town first in Europe to plan fossil fuel divestment

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