Deflating the carbon bubble


‘Rethink what fiduciary responsibility means in this changing world. It’s simple self-interest. Every company, investor and bank that screens new and existing investments for climate risk is simply being pragmatic.’ Jim Yong Kim, President, World Bank

Our financial system has gone through a variety of bubbles: the real estate bubble, the commodity bubble, the dot-com bubble. There’s a new one, one that is more or less literally hanging over our heads. The carbon bubble.

Our pensions and investments, which pour billions into fossil fuel companies, are banking on the fact or fallacy that their reserves will always sell. With five times more known reserves of fossil fuels than are required to cause dangerous climate change, humanity – and I would say each of us – has a moral and common-sense choice to make.

If we think it is a fact that these reserves will always sell, then we are investing in the destruction of our children’s world. If we hope the world will get its act together and avert the worst climate change scenarios, then the majority of these reserves will be stranded assets. The bubble has to deflate, or pop. As the OECD Secretary General Angel Gurria says, ‘The looming choice may be either stranding those assets or stranding the planet.’

A new report published in March 2014, The price of doing too little too late: The impact of the carbon bubble on the EU financial system, concludes that the best way to limit the risk of popping the carbon bubble would be a quick and decisive transition to a low-carbon economy. Reinhard Bütikofer, industrial policy spokesperson of the Greens/EFA in the European Parliament, said: ‘With over €1 trillion in high-carbon assets, we have identified that the carbon bubble is a significant risk … Investments in fossil fuel companies could therefore quickly turn into fool’s gold.’

A second report released at the same time, by The Australia Institute, Climate proofing your investments: Moving funds out of fossil fuels, claims that screening out coal, oil and gas extraction industries from investment portfolios can already have negligible impact on risk-adjusted returns.

Want to help the UK Churches to gently deflate the carbon bubble? Get involved!

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Ruth Jarman