Initiatives,br> The Carbon Tracker

The Carbon Tracker initiative is a new way of looking at the carbon emissions problem.

Burgess COMMENTARY

Peter Burgess

About Carbon Tracker

The Carbon Tracker initiative is a new way of looking at the carbon emissions problem. It is focused on the fossil fuel reserves held by publically listed companies and the way they are valued and assessed by markets. Currently financial markets have an unlimited capacity to treat fossil fuel reserves as assets. As governments move to control carbon emissions, this market failure is creating systemic risks for institutional investors, notably the threat of fossil fuel assets becoming stranded as the shift to a low-carbon economy accelerates.

In the past decade investors have suffered considerable value destruction following the mispricing exhibited in the dot.com boom and the more recent credit crunch. The carbon bubble could be equally serious for institutional investors – including pension beneficiaries - and the value lost would be permanent.

We believe that today’s financial architecture is not fit for purpose to manage the transition to a low-carbon economy and serious reforms are required to key aspects of financial regulation and practice firstly to acknowledge the carbon risks inherent in fossil fuel assets and then take action to reduce these risks on the timeline needed to avoid catastrophic climate change.

Carbon Tracker’s goal is to prevent a carbon crash by:

• • Working with capital market regulators and investors to assess systemic climate change risks and propose practical measures to minimise these risks to market stability and the operation of an orderly market.
• • Revisiting the way fossil fuel companies are valued including the accounting treatment of fossil fuel-based reserves to ensure that carbon limits are fully integrated;
• • Evaluating the concentration risk facing key global markets which are currently over-weight fossil fuels (such as the UK), and how indices, benchmarks and tracking products can be reformed to protect investors
• • Improving the quality and utility of disclosures required by regulators and listings authorities to ensure that future carbon risks associated with fossil fuel reserves are fully dealt with to enable investors to make informed decisions;
• • Updating the way fossil fuel companies are brought to the capital markets by investment banks;