LONDON: The current surge in oil and gas prices could not have come at a worse time. On the eve of the United Nations COP26 global climate conference in Scotland this month, soaring energy prices are leading to increased investor interest in fossil fuel companies.
The energy sector of the S&P 500 is up about 50% this year and has been the best performing group in the broad index.
Indeed, a recent report indicates that G20 financial institutions are exposed to nearly $ 22 trillion in carbon-intensive sectors despite increasing pressure for companies to divest from polluting industries.
The report, written by Moody’s Investors Service, warned that banks and asset managers need to “speed up” climate risk assessments and “set clear targets to achieve net zero in their funded emissions.”
Moody’s warning comes after the London Financial Times reported this week that global banks have refused to commit to the International Energy Agency’s roadmap to reduce greenhouse gas emissions to net zero by 2050.
The FT said negotiators of the Glasgow Financial Alliance for Net Zero, an initiative led by UN Special Envoy for Climate Action and Finance Mark Carney to encourage financial groups to stop funding fuel companies fossils, have struggled to convince banks to agree to end funding for all new oil, gas and coal exploration projects this year.
Many analysts believe that the huge rise in gas and oil prices is proof of the risks of phasing out fossil fuel production too quickly as renewables remain unable to catch up with global demand.
Earlier this year, Saudi Energy Minister Prince Abdulaziz bin Salman criticized the IEA’s call for the energy sector to be net zero by 2050, calling it a scenario ” la-la-terre ”.
Last week, Qatari Energy Minister Saad Al-Kaabi criticized governments for making statements on phasing out emissions without adopting clear plans to achieve net zero.
Al-Kaabi’s comments followed an announcement by the ruler of Dubai, Sheikh Mohammed bin Rashid Al-Maktoum, that the country planned to become the first oil producer in the Middle East to reach net zero in by 2050.
The UAE’s emissions averaged nearly 21 metric tonnes per person in 2018.
By way of comparison, the figure in France, which has also committed to net zero by 2050, is 4.6.
Along with the United Arab Emirates, Russia and Turkey also recently announced that they could be net zero by 2060 and 2053 respectively, although there have been no details indicating that they will move their economies away from the fossil fuels.
The move follows the EU’s plan to impose a border carbon tariff that could force Russian and Turkish companies to pay for excess emissions in key industries.
However, for Russia to reach net zero by 2060, it would require a massive overhaul of its economy.
Russia’s oil and gas sales represent between 15 and 20 percent of the country’s GDP, and fossil fuel exports account for more than 50 percent of all exports. The country’s coal industry contributes around 12% of the GDP.
Achieving net zero in Russia by 2060 will require a 65% reduction in its emissions, according to the World Resources Institute. Yet Russia’s most recent submission to the UN under the Paris Agreement suggested its emissions would rise 30% by the end of the decade from 1990 levels.
Meanwhile, Turkey, which last week became the last G20 country to ratify the Paris agreement, is expected to cut emissions by around 30% by the end of the decade to meet its 2053 target. WRI predicted that Turkey would double its current emissions by the end of the decade.
As governments step up their sustainability commitments to push back new regulations and respond to growing pressure from investors, the reality is very different.
The Moody’s report said that G20 banks’ exposure to carbon-intensive sectors was $ 13.8 trillion, while stocks held by asset managers were worth $ 6.6 trillion.
Regionally, Asia and the Americans led the way with $ 9 trillion and $ 8 trillion, respectively, with the EMEA accounting for $ 5,000 billion. There was no breakdown by country.
By sector, manufacturing, electricity and other utilities, transportation, oil and gas rank high among the major carbon-intensive exposures of G20 financial institutions.
Businesses and governments remain under increasing pressure from both climate-focused regulations and pressure from shareholders to divest from polluting industries.
However, in a report released last month, the WRI said G20 countries still account for 75 percent of global greenhouse gas emissions.
Helen Mountford, Vice President, Climate and Economy, WRI said: “The action or inaction of the G20 countries will largely determine whether we can avoid the most dangerous and costly impacts of climate change.