A warning on fossil fuel pension holdings: Don't get left holding the bag
BOE's Carney warns pension funds and other investors could incur massive losses as fossil fuel investments become 'worthless.'
With fires raging in Australia and floods ravaging Indonesia, Mark Carney, outgoing governor of the Bank of England, warned that pension funds too could be in a world of hurt if they end up holding the bag on fossil fuel assets.
Related: Fed researcher warns climate change could spur financial crisis
The Guardian reports that Carney warned pension funds, along with other investors, that they could be on the hook for massive losses as fossil fuel investments become “worthless,” with global emissions reduction targets biting into the worth of fossil fuel companies and their assets—particularly as renewables eat into fossil fuels’ market share.
He’s quoted saying, “Up to 80 percent of coal assets will be stranded, up to half of developed oil reserves. A question for every company, every financial institution, every asset manager, pension fund, or insurer: What’s your plan?”
He pointed out that pension funds “could make [the] argument” to clients that, despite the fact that returns are still tempting at present, it’s better to abandon fossil fuel investments now before they sink in value. He says in the report that pension funds “need to make the argument, to be clear about why is that going to be the case if a substantial proportion of those assets are going to be worthless.”
He also warned that the financial sector isn’t tackling the problem quickly enough and said that climate deniers need to drop their opposition to coping with the climate emergency, saying, “We can’t afford on this one to have selective information, spin, misdirection.”
Aside from the climate issue itself and its potential effects, it’s a huge chunk of money that will be at risk, according to the Guardian, which wrote: “The Bank of England has said assets worth up to $20tn (£16tn) could become worthless very quickly if the financial sector and business do not make a smooth transition towards a zero-carbon economy.”
Retirees already facing crises of inadequate savings and increasing market volatility will not be happy if what they have managed to save turns out to be sunk into worthless fossil-fuel assets and vanishes, as it were, in a puff of smoke.
A Yahoo Finance report points out that Carney isn’t the only one sounding the alarm, reminding that in November, Marisa Drew, head of Credit Suisse’s impact advisory and finance division, was quoted saying that investments could “go to zero quickly” if firms ignore the risks.
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