Mark Campanale - Presentation - Promoting a sustainable financial system

Promoting a Sustainable Financial System International Conference on Divestment Mark Campanale Founder and Executive Director, Carbon Tracker Initiative

London, 1st July 2015

Summary • More fossil fuels out there than can possibly be burnt • The companies now agree…

• For investors, fossil fuel sector now a high risk, low return industry for investors • Sector will contract as climate policy bites • Companies need to avoid a disorderly transition and put themselves into planned ‘run-off’ and close down • Shareholders lead this process!!

Carbon budget deficit for listed companies Only one third of proven reserves can be burnt to keep global warming below 2ËšC assuming 900GtCO2 carbon budget

RESOURCES: the estimated amount of hydrocarbon contained in the deposit RESERVES: the amount of resources that are technologically and economically feasible to extract Carbon Tracker Initiative For more technical definitions, please visit www.carbontracker.org

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Current emission trend and reduction needed to reach 2ËšC target

Source: Vuuren and Faber (2009).

Carbon Supply Cost Curves Fossil fuel companies with resources in high cost, high carbon areas are at risk of committing too much capex to uneconomic projects

Carbon Supply Cost Curves: Oil •

Half of future global developments (2015-2050) have breakeven prices of $60/bbl Brent or over.

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A focus on capital intensive, high cost projects has depressed returns and stock ratings.

• Oil report, May 2014

A BAU model (2015-2025) could put an estimated $1 trillion of capex earmarked for high projects (deepwater, Arctic, Oil sands and other unconventionals) at risk.

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Investors in Canadian oil sands are at risk of companies wasting $271 billion of capital on projects in the next decade that need prices of over $9/bbl 5 a barrel to give a decent return.

Oil Majors, Oil Sands, August 2014 All reports are downloadable at www.carbontracker.org

Growing capex, falling production New projects & new investments don’t make financial sense

Wall Street Journal, Jan 2014

How Profitable Is $70 Oil? And $50 Oil?

Source: Goldman Sachs Global Investment Research. Annotated by Tom Randall/Bloomberg

Exponential Growth BloombergNEF: Fossil fuels just lost the race with renewables Is this the beginning of the end?

Power generation capacity additions (GW) 13

Engagement PLUS Divestment The future of the fossil fuel corporation, its relationship with stakeholders as the carbon budget to 2˚C (or 3˚C) declines in the next two decades.

• How do we know what sort of Board can implement a ‘manage and decline’ strategy?

• What do we know about their business plan for a 2˚C world?

• Where does the role of capex versus dividends work?

• What does a company look like in ‘wind down and run off’ and how can you value them? Worth more running off and paying out? Or BAU? Here the role of shareholder resolutions in challenging board strategies has a place.

Thank you.

Mark Campanale Founder and Executive Director, Carbon Tracker Initiative www.carbontracker.org @carbonbubble

Where would you invest your money?

Which of the great companies on the left will be brave enough to make the jump and join the firms on the right?