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ClientEarth Communications

26th April 2018

Rule of law
Climate accountability

Global oil giants to lose value within five years – UK asset managers

Almost 90% of fund managers think oil companies will be worth less within five years, as the energy transition bites, according to a new UK survey from UKSIF and the Climate Change Collaboration. The number has almost doubled since last year.

Legal experts say the report should open the eyes of any fund managers not actively looking at the foreseeable impacts of the global transition to clean energy on financial performance.

ClientEarth lawyer Joanne Etherton said: “Evidence shows that shares in international oil companies are already underperforming and this study shows that asset managers expect them to face a downward revaluation over the next five years as the energy market transition gets underway in earnest.

“But the big question is, what are asset managers going to do about it? We have reached an impasse where investors point to a lack of low-carbon products while asset managers insist client demand is too low to justify creating new products.

"The results of this study show that claiming this lack of demand no longer rings true when nearly three quarters of respondents reported an increase in client interest in low-carbon products and investment strategies in the last year. Asset managers need to consider whether their acknowledgement that oil companies may not make a successful transition to a low carbon economy fits with their current client offerings."

Among those surveyed, 71% of asset managers were not confident that the international oil companies in their portfolios had business models that would adapt competitively to a low-carbon economy. For investors, this should ring alarm bells.

Asset managers, climate risk and the law

ClientEarth also said the report was a reminder for asset managers to examine their own legal duties when it comes to climate and energy risk.

Etherton added: “Many institutional investors, such as pension funds, are investing for the long term and asset managers investing on their behalf are under a legal duty to act in their best interests when making decisions about where they see long term capital growth – something that asset managers could be held accountable for if they fail to take action on known risks.

“If asset managers are under any doubt with regards to their legal duties on climate risk then they should call on the FCA to issue clear guidance to the market on how best practice climate risk assessment could be incorporated when investing on behalf of clients.”

30 UK fund managers were surveyed on the impacts of climate-related risks on the valuation of Integrated Oil Companies (IOCs).

Joanne Etherton spoke on the panel at UKSIF’s Ownership Day event at LSE, where the report launched.