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Blueprint For Fossil Fuel Companies

In our view, fossil fuel companies and their shareholders are exposed to the following key risks associated with climate change.

Commodity Price risk:

  • What is the risk to the value of existing company reserves in a ‘low carbon’ scenario for demand where commodity prices are likely to be lower but certainly more volatile?

Demand/Volume risk:

  • What is the relative exposure to future high cost, high carbon developments that may prove unnecessary and hence sub-commercial in a ‘lower carbon’ scenario?

Capital allocation risk:

  • Is there sufficient flexibility within existing capital budgets to avoid pressure on shareholder dividends and employee levels in a ‘lower carbon’, low price scenario?

Management risk:

  • Are management and shareholder interests aligned correctly for a ‘low carbon’ scenario, which would likely require a low/no growth investment strategy?

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