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Fossil fuel stocks lost $120 bn in decade: analysis

Patrick GALEY
·3-min read
The trend was in stark contrast to the gains made in renewable energy initial public offerings (IPOs), according to the analysis by industry think tank Carbon Tracker

Share offerings in fossil fuel producing and related companies lost $123 billion in the last decade, underperforming a baseline world equities index by 52 percent, according to analysis released Wednesday.

The trend was in stark contrast to gains made in renewable energy initial public offerings (IPOs), according to the analysis by industry think tank Carbon Tracker, which lays bare the yawning losses faced by investors in high-carbon energy.

Issuance of fossil fuel offerings fell by 85 percent from $70 billion to $10 billion in the period analysed from 2012-2020.

This contrasted with a record $11 billion in renewable public equity offerings, it found.

In all, investors bought almost $640 billion of equity issued by fossil fuel producers, utilities, pipelines and service providers -- a drop of 20 percent in value despite nearly a decade of bullish equities, the analysis showed.

Mark Campanale, founder and executive director of Carbon Tracker, said that investors were mistaken in thinking that the historic low oil prices witnessed at the height of the pandemic last year were an aberration.

"They're thinking that actually fossil fuel stocks have gotten bombed out, that the bottom is purely cyclical and there's going to be a recovery post Covid, that there's going to be a huge bounce," he told AFP.

"Whereas in fact there's this fundamental structural change taking place in the energy system from high carbon to low carbon and it's being driven by technology."

The analysis looked at stock market fortunes of fossil fuel companies and compared them against renewable companies and against the MSCI All Country World Index (ACWI) as a benchmark.

It found that an investor who bought into all fossil fuel and related equity issuances from 2012 until 2020 would have seen their investments outperformed by the ACWI by 52 percent.

Campanale said that many people were likely losing money due to fossil fuels' relative losses in equities markets.

"If you're a member of a pension scheme that has a default passive fund manager that replicates the market, you're almost certainly going to be buying one of these IPOs," he said.

"It will be costing you money because of the huge underperformance."

- 'Dead cat bounce' -

The report showed that investors were largely missing out on the opportunity to increase the value of their assets by buying renewable offerings.

Only one percent of the total equity raised by companies during the period analysed came from renewable and clean tech offerings.

Those already invested in renewables made a good return, however, with the MSCI Global Alternative Energy Index outperforming the market baseline by 54 percent, making it one of the best performing sectors in terms of growth rate.

Campanale said it was "astonishing" that exchanges were still listing new fossil fuel offerings for companies intent on expanding production in contravention of temperature limit goals of the Paris climate deal.

"The world has already financed more fossil fuels than we can possible burn to stay below two degrees, so you have to ask why stock exchanges are admitting even more," he said.

He added that world markets were likely to see a "dead cat bounce" as oil and gas prices rebound while the global economy recovered from the pandemic.

"That's more from hope than reason. But the fundamentals are still the same," Campanale said.

"The cost of capital for fossil fuels is now greater than it is for renewables."

pg/wai