BP will write down $17.5bn of its oil and gas assets in response to the accelerating shift away from fossil fuels, the company announced this summer. It follows similar, if smaller, moves by Shell ($2b), Chevron ($10b) and Equinor ($9b). For Mark Campanale, sustainable investment veteran and co-founder of think-tank the Carbon Tracker Initiative, it is vindication – and also just the beginning. “We have estimated there is something like $30trn of fixed assets in the fossil fuel economy – pipelines, oil rigs, coal mines, coal ports, tankers. All of that is going to have to be written down because it will be used less and retired early,” he says.
“The interesting thing about the BP announcement,” he continues, “is that its share price went up… The market is looking to reward companies who are preparing themselves early rather than late for this fundamental change.”
Certainly, Campanale is gratified to see the acceptance by oil company CEOs such as BP’s Bernard Looney of elements of the stranded assets thesis, but he expects emboldened investors to push fossil fuel companies further, faster. He cites the work of Market Forces, an Australia-based NGO, supporting shareholder campaigns to force fossil fuel companies to draw up “wind-up” plans.
“If companies won’t create managed decline plans in line with the Paris Agreement, I think investors are going to appoint their own managers and directors to do it for them,” says Campanale. “I think investors are increasingly ripe for that kind of more assertive action.”
The danger, however, is that listed companies simply sell carbon-intensive assets to less-accountable private companies, or to state-owned producers in authoritarian countries. The answer, believes Campanale, lies in a “fossil fuel non-proliferation treaty”, modelled on the nuclear non-proliferation treaty. One element of such a treaty would be a global public register of fossil fuel reserves and who controls them; another would be a mechanism to compensate poorer companies for leaving resources in the ground.
Such a treaty might appear to be a long shot, but Campanale’s been here before. Much like the Cassandra of Greek mythology, Campanale and a small band of fellow travellers have been prophesying investor losses from climate change for years, in the face of indifference and scepticism.
BP’s write-down, however, is evidence of the Carbon Tracker thesis manifesting itself in the real economy. The small, London-based think-tank, launched in 2011, was set up to demonstrate the relevance of climate change – then often seen as an “abstract concept”, Campanale says – to financial markets, and particularly to the valuation of individual companies.
Along the way, it popularised concepts such as the carbon bubble and stranded assets – and spawned a fossil fuel divestment movement that has attracted investors representing $14trn of assets.
Campanale and Carbon Tracker co-founder Nick Robins never intended to launch a think-tank. In the early noughties, when they were both running socially responsible investment funds at asset manager Henderson Global Investors, they began trying to drum up interest in the concept of the carbon bubble.
Put simply, this is the idea that fossil fuel companies are overvalued because they collectively cannot exploit the reserves they claim without causing catastrophic climate change. As the impacts of climate change become clearer and more costly, the thesis goes, policymakers will act to control carbon emissions – and the carbon bubble will either slowly deflate or burst dramatically. Either way, investors in the sector stand to lose trillions of dollars.
Selling the story
“Nick and I were storytelling about the thesis probably from around 2002, trying to get NGOs interested,” says Campanale. “We were telling them they had missed an angle about markets, finance and listed companies. We couldn’t get any traction.”
Eventually, Campanale and Robins decided to do the work themselves with the backing of a handful of charitable foundations (including, ironically, the Rockefeller Brothers Fund, set up by the sons of Standard Oil Company tycoon John D Rockefeller). In 2011, Carbon Tracker’s first report, ‘Unburnable Carbon: Are the World’s Financial Markets Carrying a Carbon Bubble?’ was published.
The innovation, Campanale says, was to link the idea of the “carbon budget” – the volume of fossil fuels that could be burnt before ‘safe’ limits of greenhouse gas emissions in the atmosphere are exceeded – to specific listed oil, gas and coal-mining companies.
“What we did was take climate risk from a general concept to something material,” Campanale says. “What no one had done was link climate risk to specific stock exchanges… and to individual companies and individual companies’ business models. Moving climate risk from an abstract concept to something specific that markets could price, that was a huge breakthrough.”
Carbon Tracker may have presented its argument in the language of finance and investment, but it didn’t mean that oil and gas analysts were buying. Campanale proudly produces a cutting from the Financial Times, dated July 2011, which quotes an unidentified analyst describing the concept as “a bollocks subject …. complete hot air”.
Fortunately, some rather more influential voices disagreed. Nicholas Stern, the author of the hugely significant 2006 UK government report on the economics of climate change, wrote another piece in the FT, at the end of 2011, setting out and endorsing the Carbon Tracker case.
“Nick and I had been to see him, and he said he really liked the piece of work we had done, and that he wished he had thought of it. That was a huge, generous compliment.”
But an even bigger breakthrough was an article written by US climate activist Bill McKibben and published the following July in Rolling Stone. Entitled “Global warming’s terrifying new math”, it used the Carbon Tracker thesis as the clarion call for a fossil fuel divestment campaign that swept college campuses before spreading to the AGMs of pension funds, endowments and charitable foundations around the world.
McKibben’s Do the Math tour, which launched the movement, “got literally thousands of trustees of endowments, of foundations, of universities, of faith groups, to write to their asset managers at UBS, or Goldman Sachs, or wherever, asking about this carbon bubble thing. And all these asset managers had to figure it out.” The upshot was that Campanale wound down the day job – by this point helping to raise capital for green technology firms – to devote ever more of his time to Carbon Tracker.
Investors are only one of the constituencies that Carbon Tracker is targeting. Regulators are another key group. Mark Carney, then governor of the Bank of England, was persuaded about the systematic risk the carbon bubble poses to the UK’s financial markets, especially given how many natural resources companies are listed in London.
Unburnable carbon at the Bank of England
“One of my personal highlights was being invited by Mark Carney to present to the Financial Stability Board of the G20, in 2015, just ahead of the launch of the TCFD,” says Campanale.
The TCFD, or the Task Force on Climate-related Financial Disclosures, was set up by the Financial Stability Board to draw up voluntary recommendations for such disclosures by companies and investors, which it published in 2017.
“About three weeks later, he gave his own stranded assets and unburnable carbon speech at Lloyds of London,” Campanale adds.
Since the first ‘Unburnable Carbon’ report, the Carbon Tracker Initiative has expanded to some 30 staff in the UK and North America, and has produced a series of reports and notes digging deeper into the climate risks faced by various parts of the fossil fuel economy.
This work includes providing company-level analysis to Climate Action 100+, a group of institutional investors that is systematically engaging with the world’s largest emitters. It has provided the underlying analysis for shareholder resolutions related to climate change and dug into the deteriorating economics of coal-fired power plants.
Carbon Tracker’s parent, Investor Watch, has also branched out into research on natural capital. It has launched the Planet Tracker Initiative, analysing the implications of ecological boundaries for investment in agriculture, food and land use, and materials. Again, the goal is to target listed companies and their parent exchanges.
“I would like to see a situation where you can’t list a seafood company without presenting a sustainable resource management plan for the fishery in which it operates,” says Campanale. “That is a very obvious and straightforward ask.”
The secret to Carbon Tracker’s success, believes Campanale, is in its co-option of experienced financial analysts.
“We hired analysts out of the City and Wall Street,” he says. “If you want to understand the fossil fuel industry, hire someone who has been writing about it as a financial analyst for 25 years.
“They are the people that we knew, from the beginning, that we wanted to hire, and they are the people that have really built Carbon Tracker into what it is today.”