The Intergovernmental Panel for Climate Change (IPCC) released their fifth assessment report in November 2013. With a high degree of confidence the report summarises the following:
- The global average combined land and ocean surface temperature has risen by 0.85 degree over the period 1880 to 2012.
- Almost the entire globe has experienced some form of surface warming.
- The largest contribution to the rise in temperature is caused by the increase in atmospheric concentration of carbon.
That ‘it is extremely likely that human influence has been the dominant cause of the observed warming since the mid 20th century. Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Limiting climate change will require substantial and sustained reductions of greenhouse gas emissions.’
It is estimated that human activity uses 31 gigatons of carbon per year, and rising (a gigaton is 1 billion metric tons). Scientists also estimate that humans can burn no more than 565 more gigatons before a global temperature rise of 2 degrees becomes unavoidable. At the current rate of emissions that is 18 years before we exceed our carbon budget! Most governments agreed in the Cancun Agreement of 2010 that we need to avoid a temperature rise of 2 degrees, and there is a possibility this will be revised down to 1.5 degrees.
A carbon budget of 565 gigatons represents just 20% of the total known carbon reserves reported by fossil fuel companies and countries (estimated to be 2,795 gigatons by the Carbon Tracker Initiative in the UK). This implies that if humans are to avoid the consequences of global temperatures rising to 2 degrees and beyond then much of the value of fossil fuel reserves currently listed on company balance sheets is worthless. This ‘unburnable carbon’ is roughly worth $USD20 trillion. The cost of climate change for future generations will be far more than this if the excess carbon is burned. In this context it seems absurd that last year the top 200 global fossil fuel companies allocated $674bn toward finding and developing more fossil fuel reserves. This is either materially negligent in relation to the climate for future generations, or it is a complete waste of investors capital given the bulk of it was funded from retained earnings.
These inconsistencies beg involvement far beyond capital markets. Yet it is important to note that almost every adult in the western world has financial exposure to these unburnable fossil fuel assets – mostly through superannuation investments managed with a very short term focus. This points to the duty of shareholders to exercise stewardship over their investment capital so it is employed with financial diligence and climate security. With this in mind a growing and legitimate fossil fuel divestment campaign is emerging. It is asking investors to take steps to divest of fossil fuel companies in order to avoid contributing to the primary cause of climate change.
Investment funds directly managed by Ethical Investment Services do not invest in fossil fuel companies. We continuously lobby the investment managers we use to avoid fossil fuels, with varying levels of success. The recent divestment campaign is helping with our advocacy and we are anticipating more fossil fuel free managed investment funds to emerge through 2014.