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Tariq Siddiqui's picture
COO Upstream EP Advisors LLC

Oil & Energy | Business Development | Capital Projects | Offshore Wind -  Proven leader in offshore development and operations, with 25+ years’ expertise in managing business through cycles...

  • Member since 2021
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  • Jan 28, 2021
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SHIFT TO CLEANER ENERGY PORTFOLIO AND INVESTMENT IS NOW!

Financial Institutes (FI) face a high risk from climate change if they do not do the orderly transition. More than 50% of the banks are still invested or continue to do major investments in fossil fuel opportunities. There is a great risk from the change in investor sentiments, rather rapidly as result of the changes in regulatory environment to meet the climate targets to achieve Net-Zero. This may wipeout, a substantial part of their portfolios. The banks have excused themselves for the 2008 financial crisis that wiped $2.0 trillion, on the account of lack of clarity and complexity of derivatives and its wider impact. The energy transition has been around since 2010, there is no excuse this time around not to see the implication of their massive investment in fossil-fuels and take corrective measures promptly. The investors of twenty-first century, like to see their retirement fund invested in 21st century technologies, and not in older nineteen or twentieth century technologies. 

The Work Economic forum (WEF) puts the onus entirely on financial institutes, i.e. they need to walk their talk now, a continued investment in fossil fuel will likely result in rising the emissions beyond Paris agreement targets. This is very ominous for upstream oil and gas industry, which is likely to loose one-third of its reserves if the targets have to be met. The investors are looking for the portfolio that are less prone to climate risk, and geared for rapid transition and transformation in their business models! The financial investors and their portfolio companies that have a disorderly plans for transition, are at high risk of severe financial distress.  

Companies like GE, Boeing and Volkswagen, are clear example of leadership and board failure to see the investment and technology trends; GE continued to invest in steam and gas-turbines, Boeing failed to innovate, they simply put a larger engine on 50 year old design and Volkswagen continue to invest in diesel, when trends clearly showed emergence of EV's. The companies, that embed a clear transition and transformation plans in their business models. 

Most of corporations that do take climate change seriously,  are focusing only on Scope-1 (direct emissions) and Scope-2 (indirect) emissions, leaving he largest Scope-3 (every thing else), it is likely that IPCC target of 2.0 may not be met, requiring drastic regulatory changes severely impacting financial institutes, investors and portfolio companies alike.  The need to shift to cleaner energy portfolio and investment is now.

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