Ten financial actors with the most influence on the fossil fuel economy own 49.5% of potential emissions from the world’s largest energy firms, a recent study has found.
In a paper published in the journal Environmental Innovation and Societal Transitions, researchers from Canada, France and New Zealand take a deep look into the CU200, which are the 200 Carbon Underground firms that own 98% of global fossil reserves in the form of oil, gas, or coal.
Following their analysis, they found that the companies that could play a decisive role in helping de-carbonize the future are US-based investment advisors Blackrock, Vanguard Group, State Street Corp., Dimensional Fund Advisors, Fidelity Investments, Capital Group Company, together with India’s State Government and Life Insurance Corporation, as well as the Kingdom of Saudi Arabia and Norway’s Norges Bank.
Other players in the top 20 include America’s JPMorgan Chase & Co., Citigroup Inc., HDFC Asset Management, Geode Capital Management and the Bank of New York Mellon, India’s Adani, Gautam S., the Russian Federation and China’s Shaanxi Coal & Chemical.
“This shows us that both investors and governments can be at the forefront of change if citizens and clients urge them to de-carbonize,” Truzaar Dordi, lead researcher from the University of Waterloo, said in a media statement. “A concentrated number of investors with the potential to influence the trajectory of the fossil fuel industry is either a problem or an opportunity, depending on how you see things.”
America at the forefront
By region, the study shows that 60 firms on the CU200 are registered in the United States, followed by China, Canada, Russia, Australia, and India. These firms may trade on a different stock exchange than the country in which they are registered. By stock exchange, 61 companies are traded on a United States stock exchange, followed by China, Canada, Australia, Hong Kong, and Russia. In contrast, ownership distribution is skewed toward the United States, with 213 of 918 distinct direct and indirect shareholders with greater than 1% ownership in at least one of the fossil fuel firms in the sample based out of the United States.
“If they’re serious, capital markets can enable a low-carbon transition within the top coal, oil and gas reserve owners in the world,” Dordi said. “Recent pledges to reduce carbon exposure in investment portfolios and engagement with the fossil fuel industry indicate we may already be moving in that direction.”
The paper outlines specific ways the top 10 governments and private investment advisors can make changes that will have a transformative impact in the fight against climate change. Some recommendations include public disclosure of a scheduled phase-out of fossil fuel financing, an assessment of a portfolio’s exposure to climate risk in a 2°C world, and an alignment of investment portfolios with a 1.5°C scenario.
“Individually, reducing the demand for fossil fuels by driving and flying less and turning off the air-conditioner are great. We should keep doing that,” the researcher pointed out. “But we also need to reduce our production of fossil fuels, which these 10 actors can lead. Without them, we simply won’t have what it takes to meet our emissions targets and avoid catastrophe.”
In other words, the authors of the study believe that, through their influence on the functions of resource mobilization, capital markets have the potential to disrupt incumbent regimes and create enabling conditions for sustainability transitions.