Big Oil Is a Big Loser (of Money, But Also Life)

Big Oil Is a Big Loser (of Money, But Also Life)
The Fearless Girl statue stands in front of the New York Stock Exchange in New York's Financial District. (Photo: Mary Altaffer, AP)

If you’re looking to start an investment portfolio, you may want to steer clear of fossil fuels. A report released Tuesday from Carbon Tracker, a financial think tank, shows the losses for oil stocks have been piling up.

Over the past 10 years, the report finds, the share value of fossil fuel companies and companies tied with their production dropped by $US123 ($162) billion. This isn’t just market volatility, the report says: This sector underperformed a key world financial index by more than 50% when compared to MSCI All Country World Index, a key world financial index. In other words, if an investor had bought only fossil fuel stocks over the past decade, they would have gotten 52% less of a return on their investment than their peers with more varied portfolios.

Yet according to the report, investors can’t keep their mitts off fossil fuels despite those companies being a losing investment. The fossil fuel industry sold around $US640 ($841) billion in equity to global investors during that time, the report finds, including 2,360 stock exchange transactions managed by almost 450 investment banks. This number dwarfs the amount of renewable energy investments. Over that same time period, there were only $US56 ($74) billion worth of issuances made in the renewable energy sector — less than a tenth of the investment made in fossil fuels.

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Why on Earth do investors keep returning to fossil fuel investments if they are so unprofitable? That’s a “good question with no easy answer,” the report’s lead author, Henrik Jeppesen, told Earther in an email. Fossil fuel stocks have done really well in the past, Jeppesen said — they outperformed the market from 1995 until 2008 — and many investors are skittish of missing out on another boom period. Financial FOMO is real apparently.

“I still meet investors who use this argument, and many trustees around have long memories,” Jeppesen said.

Some also think that we may be using fossil fuels for a while — especially with regards to plastics — so they “continue to see potential in the sector,” Jeppesen said.

The flip side of the coin is that investments in renewable energy are making bank. Renewable energy stocks, the report finds, outperformed that same world index by 54% over the same period of time, gaining $US77 ($101) billion in value. That position has been strengthening over time.

“We have seen a lot [of] big technological developments and breakthroughs across renewable energy and clean technologies in recent years,” Jeppesen said, noting that renewable companies have become even more competitive in the last few years compared to the earlier part of the decade. “In general, renewable energy companies are typically smaller and younger companies focused on technology development, which is a lot less capital intensive [than] companies using expensive extractive equipment to search for [and] produce oil, gas, and coal.”

The world’s financial system seems to be waking up to the fact that the fossil fuel industry is a losing bet. Since 2016, the report finds, an “increasing number” of fossil fuel share transactions have come from investors who already hold those shares — and who are looking to reduce or sell out their investments. “This may be a signal of declining confidence in the outlook for fossil fuels by insiders,” the report notes.

Reforming our financial system is actually a key part of the Paris Agreement, which says that “finance flows” should be “consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” This goal is listed right at the top of the Agreement, along with holding world temperatures “well below” 2 degrees Celsius (3.6 degrees Fahrenheit). But until recently, there’s been little discussion or attention paid to how to reform the global financial system, especially compared to how much we’ve paid attention to the temperature target in the agreement.

The report comes as big banks, investment firms, and other financial institutions are making increasing noise about how they’re working to fix the climate crisis. But just because financial actors are all of a sudden acting concerned about climate doesn’t mean that they’re ready to take their foot off the fossil fuel gas just yet. A separate report released this year from the Rainforest Action Network found that in the last year alone, global banks have provided $US750 ($986) billion in debt financing to fossil fuel companies. And, as we discussed last week, as a lot of the world’s most powerful financial institutions make promises to reach “net zero” or other kinds of climate commitments, many of those plans are actually pretty toothless if you look closely.

The financial sector is a place where untangling the PR spin on climate from a company’s actions and investments is going to be increasingly important, something the report underscores. BlackRock, for instance, has made a concerted effort making a name for itself as a leader in the “net-zero economy.” But the firm is still the world’s largest shareholder of fossil fuel holdings, the report finds, with $US149 ($196) billion in shares of these companies as of December. And Wells Fargo, which this month became the latest big bank to make a net zero commitment, was the biggest fossil fuel transaction advisor over the past decade of the 10 big investment banks surveyed. In comparison, only 1% of the transactions in its hands were with renewable companies.

Consumers looking to discern fact from fiction and hold financial actors accountable would do well to “follow the money,” Jeppesen said.