Stranded Assets

Stranded Assets: What happens when oil cannot be used?

For more information, see "Bellwether for change: Rockefeller Brothers Fund Divests"

Those divesting from fossil fuels are reducing long term risk from ‘stranded assets’ owned by oil companies. If current reserves cannot be used, then investments in fossil fuels are a higher risk than previously reported. Such risks first gained public attention when the term ‘Stranded Asset’ was coined by Carbon Tracker Initiative. Since then, 350.org has been pushing for divestment in fossil fuels, along with organizations such as 2 Degrees and Ceres

At the turn of this century, it was believed that oil reserves were running out. These arguments were used to support renewable approaches to energy and transportation. Today, reserves are over three times what can be burned if the planet has any hope of staying below critical temperature levels.

’Stranded Asset’ is the term for explored, identified and owned fossil fuel reserves that are on the balance sheet of large companies as assets. These reserves cannot be burned if the planet is to stay below the global 2 degrees above pre-industrial levels. But if those assets cannot be burned they are in fact liabilities, and could have a material impact on the future earnings that investors need to know about. Ironically, the fossil fuel industry continues to successfully lobby for government supports for more exploration, which exacerbates the problem.

CRI, the Carbon Asset Risk Initiative, coordinated by Ceres and the Carbon Tracker Initiative, brought together 75 institutional investors, representing more than $3 trillion in assets, to develop programs to prevent shareholder capital from being wasted on developing high-carbon, high-cost fossil fuel reserves, and to drive fossil fuel companies to acknowledge and plan for the escalating physical impacts of climate change.

The Guardian is backing a Keep it in the Ground campaign which is having success in persuading investors to divest from coal. They proudly published the news when the world’s largest sovereign wealth fund, held by Norway, decided to sell of more than $8bn in coal assets. Even the investment bank Goldman Sachs, declared in January that the fuel had reached retirement age.

Some funds have chosen to stay invested in fossil fuels working as ‘activist investors’, especially faith based organizations that became involved early. However, Inside Climate News investigated 25 years of shareholder proposals. They found that ExxonMobile, Chevron and ConocoPhillips had 113 resolutions put on ballots: 30 were blocked or withdrawn, never getting to a vote, and the remainder did not pass.

Such statistics do not warrant high expectations for shareholder activism in the future.