Leading Sustainable Organizations
Is there a credible scenario in which most oil, coal, and gas reserves are left in the ground?
Well, yes — if investors and policy makers believe that burning them constitutes a greater risk then leaving them untapped.
Earlier this year, the London-based financial services company HSBC (the third largest publicly held bank in the world) came out with a report in which their analysts calculated that taking climate change seriously could cut share prices of major oil companies by up to 60%. That report, cheerily entitled Peak Planet: The next upswing for the climate agenda — held some sobering news for business. Now that it has been made freely available on the company’s website, executives concerned with managing risks may want to read it.
HSBC knows its audience, and uses the language of business to explain the current situation. The world’s “carbon budget” refers to the maximum amount of carbon that can be dumped into the atmosphere if we hope to limit the increase in average global temperature to 2°C above preindustrial levels.
That’s the level above which unpredictable feedback loops could produce catastrophic changes in the environment — disrupting business and societies. But at current burn rates, global carbon emissions will have to peak by 2020 and begin a hasty decline if we want to avoid the worst climate change scenarios that even a 2ºC temperature increase make likely.
One of the ways to achieve this goal is to leave somewhere between 60% to 80% of our currently known fossil fuel reserves in the ground — hence the potential loss in market value if the international community adheres to previously negotiated emission reduction targets. But will it? More people are beginning to give that possibility serious consideration.
Nick Robins, Head of HSBC’s Climate Change Centre of Excellence, says that a “number of factors will put climate change back on the political business and investment agenda. First is a growing recognition of the severity of the situation, that we haven’t got global emissions under control … Second, public opinion is changing especially in the U.S., especially after the droughts.”
He also notes that the economics of addressing climate change are becoming more favorable and technology is becoming cheaper.