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Fossil Fuel Investments: A Risky Strategy

Somewhere along the line, an unknown business manager coined the phrase: "Without data, you're just another person with an opinion." Well, with data, the long run risks to retirement funds created by investments in the global fossil fuel industry is staggeringly apparent.

In 2011, the Carbon Tracker Initiative identified the 100 largest publicly owned coal companies and the 100 largest publicly owned oil and gas companies. The group took a careful look at the fossil fuel "reserves" of these companies. Those reserves represent the fossil fuel deposits these companies have located and have rights to sell, but are still in the ground. The data is available because fossil fuel companies track this information carefully - for the simple reason that their futures depend on it. Enormous sums of money were spent finding and buying rights to those reserves. Those reserves are the foundation of the future income projections and long-term financial health of these companies. So, this information is "material" to these businesses and has to be reported to investors.

Tied to that is the idea of "stranded assets." As we move to a new clean energy economy, the vast majority of the reserves that are in the ground must stay in the ground. The scientific consensus is that something like 70-80% should never be used. So, the valuations of the major fossil fuel companies will crumble because the value of their core assets will eventually fall. For an investor, that's about as fundamental as you can get. If you think this is not a real investment threat, take a look at what's been happening to the coal industry. When more people wake up to the fact that the world economies must switch to clean energy, all the fossil fuel companies will follow suit.

The work of the Carbon Tracker team was a hugely important piece of groundbreaking work that spawned new ideas, and they continue to fundamentally change the dialogue around global energy. Along with many other organizations, this work is already deeply affecting government policy in legislatures that are driven by rational thought, rather than ideological stupidity.

In 2014, Fossil Free Indexes updated the list and renamed it the "The Carbon Underground 200." As you might guess, more fossil fuels deposits have been found by the fossil fuel companies and so the potential emissions are now higher than the earlier numbers. Not surprising since these companies are compelled to go the wrong way. FFI's work will be increasingly influential in the creation of a variety of fossil fuel free investments.

To better understand the impact of these efforts, start by heading over to the website of Ceres. As you navigate around the site of this non-profit, you'll begin to get a sense of the scope and scale of the efforts being undertaken to directly influence the wider business community. Then do some web searches for articles and reports on "stranded assets" and "fossil fuels." You may be surprised to see the reports written by global banks, investment companies, and governments. Informed investors are paying attention.

You might also be wondering about the supporting companies who derive most of their revenues by providing services to the major fossil fuel suppliers - finding, extracting, refining, and delivering fossil fuels. But, when it comes to shifting away from fossil fuels, the valuations of these companies isn't important. What matters are the fuel deposits still in the ground, and the major fossil fuel suppliers are the key to that market, and to creating rational government policy promoting clean energy and eliminating dirty energy. Simply focusing your personal divestment efforts on the major fossil fuel suppliers is where you have a powerful voice. It is a perfect way to send the message that divestors need to send.

Fossil Free Indexes' Mission Statement:

"Our mission is to source and analyze carbon emissions data and to generate research, benchmarks, and investment solutions for investors who are attentive to climate risk. Our goal is to serve a broad client base, from individual retail investors to institutional asset owners, investment advisors, and asset managers. As investors work to understand, measure, and act on the risks associated with climate change in their holdings, we will work alongside them to provide tools and solutions for their portfolio management process. "

Carbon Tracker Initiative's overview:

(1) "Carbon Tracker Initiative is a non-profit organization working to align the capital markets with the climate change policy agenda."

(2) "Carbon Tracker is a new way of looking at the carbon emissions problem."

(3) "Carbon Tracker provides an innovative research framework able to integrate the financial markets and the climate change sector into a comprehensive and consistent perspective."

(4) "Carbon Tracker's goal is to prevent the materialization of carbon-related risks in the capital markets, by finding evidence-based incentives and solutions and improving the transparency of the carbon (CO2) embedded in financial markets."

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