Jennifer Faust, Managing Director, and Matteo Scalabrino, Senior Analyst, hosted the latest BwB Talk Series, where we bring innovative leaders in impact, finance, and the environment to speak with our network around the world. The BwB Talk Series helps generate new ideas for our network by bringing experts to share their deep knowledge of sustainability topics This week, the Founder & Executive Chair of The Carbon Tracker
Initiative, Mark Campanale, enjoyed a talk and discussion.
Climate Tracker Initiative in a not-for-profit think tank that carries out research on the financial markets and in particular the risks associated with climate change. One prime example is that the company’s analysis brought into the mainstream narrative concepts such as the ‘Carbon Bubble’ (i). In this talk, Mark spoke about the Earth’s Carbon Budget, and how the transition to a low carbon world has progressed in recent history and into the future. Considering the Carbon Budget, we can only emit about 360GtCO2 for a 66% chance to keep warming to 1.5C and we have just 9 years to achieve that at our current rates of emissions. Some of the key takeaways from the talk were:
1. Fundamentally different models for the two energy sources: Fossil fuels and renewable energy sources have starkly varying models. Fossil fuels are inherently inflationary in nature due to their limited quantity whereas renewable energy sources (which already have the lowest levelized cost of energy) are inherently deflationary as any advances in technology reduce the marginal cost. Another major difference is that a fossil fuel company’s business model is one where money is made on the spread. Renewable energy operates differently, as it is a business model fundamentally based on yield.
2. Long-term change would be stable: Since COVID-19, fossil fuel production has actually increased, proving that timing of fossil fuel decline is inherently hard to predict (ii). Although an increase has been seen, Mark is not particularly worried. It is thought that this is a cyclical shock, with the underlying structural shifts of changes in demand and the divestment movement (such as Divestinvest) and investors for climate aligned finance (the Glasgow Finance Alliance for Net Zero), proving structurally sound (iii). The structural signals are one of reduced demand over time for fossil fuels. The struggle, therefore, is not the divestment movement, it is the stopping of the funding in the first place. Divestment is not enough on its own. Surprisingly, in 25 years of climate change discussions at the international level, COP26 was the first time ever that fossil fuels are actually mentioned in the final communique. While all stakeholders are committed to their contribution to the Paris Climate Agreement, they still continue to sanction financing of large-scale fossil fuels production (iv).
3. Passing on the risk, by incumbents: Despite the emphasis in the Paris Agreement to cut emissions by 50% over the decade, 25% of equity markets and 50% of non-financial corporate bond markets are still linked to the fossil fuels system (v). Over the last decade, there were more than 2,360 IPOs of coal, oil and gas companies raising $640 billion (vi). Companies are basing their business plans on prices and demand in a business-as-usual
scenario. When demand falls (to align with the Paris Agreement), oil price will need to drop to $10-18/barrel, and this is where value destruction occurs (vii). There are very large fossil fuel reserves with the largest coal, O&G companies in the world. If Exxon, Shell and BP were to burn all their oil reserves, it would take us to 4°C warming. The International Energy Agency (IEA) announced that given that the world wishes to limit the warming to 1.5C, existing fossil fuel reserves with the companies are sufficient and no new investment needs to be signed off for the fossil fuel companies (viii). The serious question is therefore around stewardship and responsible ownership (ix). When Mark spoke to regulators and institutional banks, the question was asked if these institutions keep track of outstanding loans and existing lines of credit for fossil fuel companies, in order to understand the build-up of risk. The answer is that no data is kept on them. It is no-one’s job to collect that data. How do 19-01-2022 19-01-2022 they manage risk? Mark suggests 50% of credit markets are linked to the fossil fuel system such as cement, steel, aviation, and no-one is collecting the data. Keep up to date with our BwB Talk Series on our LinkedIn and Twitter. The BwB Talk Series is held periodically through the BwB network and brings together innovative thought leaders to speak with stakeholders around climate and finance issues. The BwB Talk Series supports collaborative and iterative conversations with people worldwide. Please direct any questions or requests for additional information to firstname.lastname@example.org or your
usual BwB contact.
Bankers without Boundaries, an innovator in finance, is a not for profit powered by former investment bankers to assist high impact projects that benefit the environment and social good.BwBworks with local and sub- and national governments,cities, institutions,and foundations to mobilise capital advisory and research services. BwBapplies financial concepts and structuring to public projects to align them with the investment needs of
capital markets, thinking about risk reduction, scaling and generation of financial returns alongside broader positive co-benefits and impacts. To learn more about Bankers without Boundaries and our work, visit
iii. https://www.divestinvest.org/ and https://www.gfanzero.com/