How to deal with worries about stranded assets
IN SEPTEMBER 2015, at a candlelit dinner at Lloyd’s of London, Mark Carney, the governor of the Bank of England, addressed the insurance industry on climate change. He gave warning in advance that there would be no jokes. Then he dropped a bombshell on the oil industry.
His message was twofold. First, if the world seriously intended to limit global warming to 2ºC, most of the coal, oil and gas reserves in the ground would be left “stranded”, or unrecoverable. Such “transition risk” could jeopardise financial stability, he argued. Second, a task force would be set up to prompt companies to disclose how they planned to manage risks and prepare for a 2ºC world, similar to the one created to improve risk disclosure by banks after the financial crisis.
Ever since that speech, oil companies have been incensed by the idea that they may be the next Lehman Brothers. Ben van Beurden, chief executive of Royal Dutch Shell, talks of financial regulators trying to “weaponise financial markets against oil and gas”. Patrick Pouyanné, the boss of Total, has urged Mr Carney to “take care of the pound, not the oil industry”.
But Mr Carney’s...