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Reducing greenhouse gas emissions today seems necessary to limit climate change. Excess carbon dioxide in the atmosphere is partly due to deforestation, but mostly due to the burning of fossil fuels. The researchers were looking for ways to bring about a radical change in this area: they identified in their study which 10 financial actors have the greatest impact on the economy based on fossil fuels. These actors can play a critical role in global decarbonization efforts.
Decarbonization, a pillar of the energy transition, aims to keep global warming below 2°C. It consists in deploying renewable energy sources (solar, wind, hydraulic, biomass, geothermal energy) as quickly as possible in order to abandon the use of fossil fuels (oil, gas and coal), sources of CO2 emissions. Creating and installing the necessary infrastructure, and encouraging companies to use carbon-free energy is a real challenge, especially since energy efficiency varies from one energy source to another and can affect crop yields.
Since the entry into force of the Paris Climate Agreement in 2016, 195 signatories have nonetheless committed themselves to major economic and social transformations aimed at reducing greenhouse gas emissions. It is now clear that the measures were for the most part too unambitious. However, according to a recent study, a few organizations can make a difference. “Investors are central to the transition to sustainability because of their enormous influence on the governance of the fossil fuel industry,” write Truzaar Dordi, a senior fellow at the University of Waterloo, and his staff.
The future of the world is in the hands of 10 investors
A 2020 analysis by Fossil Free Funds found that just 200 companies (collectively referred to as the Carbon Underground 200 or CU200) own 98% of the world’s oil, gas and coal reserves. Dordi and his colleagues aimed to find out who owned these companies by studying the structure of the market and pinpointing the shareholders with the greatest potential influence on their management.
Their analysis shows that 10 organizations — governments, private equity advisors and sovereign wealth funds around the world — that are considered to have the greatest impact on the fossil fuel economy can make changes today that will have a transformative impact on the fight against climate change.
To compile this list, the researchers ranked shareholders according to their fossil fuel holdings and their investments in the world’s top 200 fossil fuel companies. The largest shareholders include the governments that signed the Paris Agreement and well-known US investment managers, according to the team.
This “top 10” definitely includes: BlackRock (USA), Vanguard (USA), Government of India, State Street (USA), Kingdom of Saudi Arabia, Dimensional Fund Advisors (USA), Life Insurance Corporation (India). , Norges Bank (Norway), Fidelity Investments (USA) and Capital Group (USA). The authors of the study note that these 10 players alone account for 49.5% of the 674 gigatonnes of potential CO2 emissions from the world’s largest energy companies.
The fact that only a handful of investors have the right to make decisions about half of the world’s emissions is “either a problem or an opportunity,” Dordi said in a press release. That 49.5% would really be enough to turn the world far beyond +1.5°C warming…
The only way to avoid disaster
But this figure shows, first of all, that they are the key to climate change, they are even necessary to achieve a sustainable energy transition. “The decisions of these financial entities through their holdings in UC200 could lead to a transition to low-carbon technologies,” the researchers write.
As individuals, we can only influence the consumption of fossil fuels – for example, by limiting the use of cars and aircraft to reduce demand. But the investors identified in this study have the right to influence the production of these fuels directly. “Without them, we simply won’t have what it takes to meet our emissions targets and avert disaster,” Dordi said.
In their study, the researchers describe how these 10 actors can actually advance the fight against climate change. They cite, in particular, the “public disclosure of the planned phase-out of fossil fuel financing.” Recommendations also include an assessment of the exposure of the portfolio to climate risks at +2°C in the world and the alignment of investment portfolios with the +1.5°C scenario.
However, the researchers are not too optimistic: they believe that the financial system is unlikely to support the necessary transformational changes, “unless it is disciplined to do so.” In their view, these investors should now be held accountable for funding economic activities that contribute to climate instability.