Our journey towards sustainability

Our clients
Focusing on Financial Services
Landmark events impacting the industry:
COP21
COP21 was the 21st Annual Conference of the Parties,
bringing together 196 parties who negotiated a global
agreement to limit global warming to 2°C above
pre-industrial levels with a “pursuit effort” of 1.5°C.
The success of COP21 will undoubtedly be
influenced by how quickly financial markets
react to the collective ambitions of each
country. In parallel, there are implications for
each FS sector that must be considered if the
aims of COP21 are to be realized:
• BCM: the World Bank estimates that US$6
trillion needs to be invested per annum
globally in infrastructure up to 2030 to
deliver a truly low-carbon economy. In
parallel, levels of funding need to shift from
fossil fuel projects to renewable energy
projects.
US$6t
needed in investment per annum until
2030 to deliver a low-carbon economy
• Insurance: insurers are expected to
reassess the way they price products
and set premiums to account for a range
of issues attributed to climate change,
including property damage, legal liability,
political risk, stranded assets and
economic effects.
• WAM: policy changes that are anticipated
as a result of COP21 have potentially
far-reaching implications for funds that
rely on the fossil fuel industry, particularly
if estimates that the industry could suffer
a US$34 trillion drop in revenues over the
next 25 years become a reality.
Stranded assets
At its core, a stranded asset is a
premature devaluation of the asset’s
value, potentially turning an asset into a
liability. Stranded assets are a growing
concern for financial institutions with
US$2 trillion of fossil fuels firms’ assets
at risk of becoming “stranded”. If we are
to have even a 50% chance of limiting
the rise of global temperatures by two
degrees Celsius, we can burn just a third
of current fossil fuel reserves between
now and 2050 according to the
International Energy Agency’s (IEA)
2012 World Energy Outlook. This has
very real implications for the investor
community, with oil and gas majors at
risk of losing up to 60% of their market
value if the current global carbon
reduction targets come into effect.
US$2 trillion
of fossil fuel assets at risk
Some investors are already taking note of the signals, and trying
to get ahead of the curve when it comes to stranded asset risk.
We are seeing over a third of institutional investors cutting their
holdings due to the risk of stranded assets, with another
27% planning to monitor this risk closely in the future. This
demonstrates that financial markets are beginning to start
pricing this risk into their decision-making.
Christina Larkin
Climate Change & Sustainability Services (CCaSS) Manager, EY UK
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