The notion advanced in this article, that fossil fuel companies might be significantly overvalued, has the ring of truth while also having enormous strategic potential. Quantitative analysis shows clearly that most recoverable fossil fuels will need to be left in the ground if we are to hold climate disruption to tolerable levels. This cannot help but impact the value of all fossil fuel related assets, from oil fields to coal mines, from oil tankers to refineries, and from coal fired power plants to coal fired cement kilns. Changes in accounting standards to reflect these lowered values could put pressure on stock prices, and this suggests that calling for such accounting changes would be a natural complement to the divestiture movement. While that would put a chink in the value of many investor portfolios, it would in the longer run create a more honest market in the stocks of fossil fuel related companies and in so doing would help investors make better decisions to protect themselves from downside risks. That makes this, as an argument and as a push for accounting standards change, a natural ally of the push for divestment.

Article

The Economist published a short article, “Either governments are not serious about climate change or fossil-fuel firms are overvalued.” The article explains: “Markets can misprice risk, as investors in subprime mortgages discovered in 2008. Several recent reports suggest that markets are now overlooking the risk of ‘unburnable carbon.’ The share prices of oil, gas and coal companies depend in part on their reserves. The more fossil fuels a firm has underground, the more valuable its shares. But what if some of those reserves can never be dug up and burned?”… To satisfy the estimated below 2°C target, much of the “proven” reserves will have to stay forever in the ground as untapped, unburnable fuel. More…

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