December 4, 2021

Why investors should pay attention to COP26 climate talks –

2 min read

As world leaders gather in Glasgow for the COP26 climate summit on Sunday, there are plenty of reasons for companies and investors to watch closely.

Here’s just one: Experts are warning that the climate crisis could trigger the next financial meltdown. “The climate crisis is slow in the making, but it’s potentially disastrous,” Tobias Adrian, a senior International Monetary Fund official, told CNN Business earlier this year, noting that global warming could “absolutely” ignite a financial crisis, too. Earlier this month, the US Financial Stability Oversight Council pointed to climate change “as an emerging and increasing threat to US financial stability” for the first time.

Breaking it down: It’s no secret that extreme weather events linked to higher temperatures are already imposing significant economic costs. But the problem is only poised to get worse in the years ahead. Companies could see their assets destroyed — or be left with dwindling or worthless portfolios as government policies change, as well as investor and consumer attitudes. It’s a debate already playing out across the oil industry. Currently, there’s demand for nearly 100 million barrels of oil per day. But to limit warming to 1.5 degrees Celsius and avoid the worst effects of the climate crisis, the United Nations and partner scientists have warned that the world needs to “immediately and steeply” pare back on fossil fuel production.

If output is curtailed and demand drops as money is poured into renewable sources of energy, what happens to the value of the vast network of firms and infrastructure dedicated to pumping oil from the ground? Investment in the sector is starting to favor shorter-term projects, a result of uncertainty about the future. “People are trying to get their money back earlier, so long-term dislocation becomes less of a risk for them,” Nikos Tsafos, an energy and geopolitics expert at the Center for Strategic and International Studies , told me. “They’re not making 10, 20-year bets.”

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