Energy transition risk will dent oil company valuations within 5 years, predict 89% of fund managers

PRESS RELEASE – London, 25. April 2018 – Less than one year after the One Planet Summit in Paris and release of global TCFD climate disclosure recommendations, the share of fund managers that expect oil company valuations to drop as a result of energy transition risks has nearly doubled to 89%, up from 46% in 2017. One third of the asset managers say they are already seeing transition risk impact today, according to a new report by UKSIF and the Climate Change Collaboration. The report is based on a survey of 30 fund managers on the impacts from climate-related risks on the valuation of Integrated Oil Companies (IOCs) and is being launched today at the London Stock Exchange for Ownership Day organised by UKSIF and hosted by FTSE Russell.

The headline findings of the report are summarised below:

• 89% of managers agreed that energy transition risk – such as increasing regulation around emission levels – will significantly impact the valuations of the IOCs in the next 5 years, compared to 46% when the survey was conducted in 2017.
• 90% of fund managers expect at least one risk, for example litigation or regulatory change – to ‘significantly’ impact the valuation of Integrated Oil Companies (IOCs) within 2 years.
• Over half of respondents (54%) said the reputational risks of IOCs are already negatively impacting their valuation. A further 25% (79%) said they will impact in the next 2 years.
• The number of managers who see litigation over climate-related risk as likely to impact IOCs within the next 5 years has doubled in past year.
• 71% have not decided if any IOCs are likely to make a transition to a zero-carbon economy.
• 41% of fund managers do not have strategies to engage on the issue. Of those that do, few are aligned on goals.