Climate regulation will hurt fossil fuel industryFollowing shareholder pressure, oil giant Exxon Mobil has agreed to report on how climate change will affect its business model on Thursday last week.

The Carbon Asset Risk report due later this month will disclose how Exxon plans to respond to the risk that toughening regulations will render much of its reserves worthless as stranded assets. Exxon is the first major fossil fuel company to provide this information.

While increased transparency is welcome, a report won’t do much to mitigate the carbon asset risk that is inherent in Exxon Mobil’s business model. The agreement with shareholders requires Exxon to start talking about these risks. It does not require accepting its role in fueling climate change, let alone reducing carbon emissions.

To avert runaway climate change and meet governments’ agreed goal to limit global warming below 2 °C however, 80 percent of the known carbon reserves of the fossil industry need to remain unburnt.

It is good news that there is increasing awareness that fossil fuel companies are currently grossly overvalued. Investors now need to take the logical next step and pull their money out of high-carbon assets.

Exxon’s move is just the latest example of a shifting trend as the high risk of fossil fuel assets is more and more acknowledged. Earlier this year, 70 global investors managing over $3 trillion of assets demanded the oil, gas and coal companies asses the risks that climate change poses to their business plans. Here are some examples from earlier this month:

  • In its annual and strategic report for 2013, Royal Dutch Shell warns that its profitability will be hit as governments step up efforts to reduce greenhouse gas emissions. Earlier this year, Shell had already reported a 48 percent decline in expected earnings.
  • Norway decides to set up an expert group to see if its $840bn oil fund (the world’s largest sovereign wealth fund) should stop investing in fossil fuel companies.
  • A study commissioned by the the Greens/ European Free Alliance warns that over €1 trillion in European financial institutions is at risk from the carbon bubble.

Now we need to move from awareness to action! It’s high time to divest from fossil fuels!

The post Exxon bows to shareholder pressure to report on carbon asset risk appeared first on Fossil Free.

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