Investors, shareholders should step away from ‘risky’ fossil investment: Steyer

Steyer’s first concern is the long slog required to bring a new oil and gas project online—11 years on average according to Global Energy Monitor

Today’s investors are also buying into fossil fuel assets that face mounting litigation risk. “In many ways, the fossil fuel industry finds itself where big tobacco was in the 1990s,” writes Tom Steyer. Bloomberg photo by Eva Marie Uzcategui.

This article was published by The Energy Mix on April 10, 2024.

It’s time for investors and shareholders to step away from fossil fuels—not for moral reasons, but because they’re a risky business bet, writes billionaire investor Tom Steyer, founder and co-executive chair of Galvanize Climate Solutions, in an opinion piece for CNN.

Despite the warmest February ever captured in weather records (and with March now taking its place as the tenth record month in a row), U.S. investment behemoths like JPMorgan Chase, State Street, BlackRock, and Pimco have been walking back some of their headline pledges on climate change, writes Steyer, a one-time candidate for a U.S. presidential nomination whose upcoming book, Cheaper, Faster, Better: How We’ll Win the Climate War, is now available for pre-order.

“The leaders of these firms, with a combined more than US$15 trillion under management, did not deny that climate change exists, that humans are its cause, or that its potential consequences are catastrophic,” Steyer says. However, “some might think that, questions of morality aside, fossil fuel investments are just too good to pass up. In the wake of Russian President Vladimir Putin’s invasion of Ukraine, the oil and gas industry has seen its profits soar. Even in the United States, where President Joe Biden’s Inflation Reduction Act is making historic investments in clean energy, oil exports are at an all-time high.”

But that’s today, he stresses. “If there’s one lesson I’ve learned in decades as an investor, it’s that things change. On closer examination, the simplest argument against funding new oil, gas, and coal projects is not that they’re immoral. It’s that they’re unsound.”

Steyer’s first concern is the long slog required to bring a new oil and gas project online—11 years on average according to Global Energy Monitor, 17 years for the biggest oilfields, according to another study. “This means that when institutional investors bankroll fossil fuels, they’re not just betting that demand for oil and gas will be sky high in the short term. They’re betting that demand will remain sky high 10, 20, or even 30 years from now.”

Although industry associations in Canada and elsewhere are more than happy to push that narrative, the International Energy Agency is projecting that oil, gas, and coal demand will peak this decade, marking the “beginning of the end” of the fossil fuel era.

“The future is famously difficult to predict, and there’s a chance that [the industry’s] prediction will turn out to be correct,” Steyer says. “But it’s hardly a sure thing,” with renewable energy growing at an exponential rate, a wave of new renewable technologies bringing down costs, global conflicts like Putin’s war prompting countries (particularly in the European Union) to urgently sever their dependence on fossil fuel imports, and the fossil industries’ own 1980s-era business model going out of date.

“What has changed is that the low-hanging fruit is gone,” he explains. “In many places where oil is easy to extract, the oil has either already been extracted, or someone is already extracting it. New technologies such as fracking have expanded the amount of oil than can theoretically be obtained, but at a substantially higher cost than traditional drilling.” And extreme oil projects in remote locations, in the Arctic or far offshore, are “more expensive still”.

Today’s investors are also buying into fossil fuel assets that face mounting litigation risk. “In many ways, the fossil fuel industry finds itself where big tobacco was in the 1990s,” Steyer writes. “They haven’t yet been forced to pay damages, but if the floodgates open, the projected cost to oil and gas companies could amount to more than $200 billion per year.”

Even now, with clean energy “already winning in the marketplace,” the massive fossil fuel profits that continue to draw big investors depend heavily on the $7 trillion per year the global industry receives in government subsidies.

Steyer cites the advice of conservative economist Herbert Stein, who sagely observed that “if something cannot go on forever, it will stop”. Today, when an institutional investor backs a new fossil fuel project, they’re “betting that our addiction to fossil fuels will go on forever,” Steyer writes. “Even if all I cared about was financial responsibility to my shareholders, I wouldn’t make that bet.”

 

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