A new analysis is raising red flags for investors. As the world shifts toward clean energy, it could leave $2.3 trillion in fossil fuel assets stranded by 2040, and if that happens, taxpayers may be left footing the bill.
What's happening?
According to Bloomberg, a report from the UK Sustainable Investment and Finance Association and Transition Risk Exeter, coal, oil, and gas reserves — as well as related investments — may lose their value well before expected.
With tightening environmental regulations, rapidly evolving clean technologies, and falling demand for dirty energy sources such as oil and gas, these investments may become "stranded" and no longer deliver returns.
"Too many oil and gas companies are betting on demand that won't materialize in a decarbonizing world, and the public are at risk of paying the bill," said James Alexander, CEO of UKSIF.
The United Kingdom is the fourth-most-exposed country, with as much as $150.5 billion in losses predicted by 2040. Nearly 17% of U.K. retirement savings are also tied to fossil fuel assets. The United States, Russia, and China are even more exposed and potentially looking at worse outcomes.
Why are these stranded fossil fuel assets concerning?
The financial losses will massively impact companies and shareholders, but they could also hurt municipal budgets, retirement accounts, and everyday savers. If public pension funds or national retirement programs continue to invest in fossil fuel assets, entire communities may be impacted.
Beyond the immediate financial risk, this also points to a broader concern. The longer we delay cutting pollution and embracing clean energy, the more difficult and expensive the economic adjustment will be. Luckily, strategically choosing your investments is a powerful way to create change and help protect our planet.
"Oil and gas exploration may appear attractive in the short run," said Phil Holden of the Open University. "But the longer extraction remains misaligned with the global decarbonization trajectory, the more dramatic the economic realignment needed."
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What can I do to protect my investments and the planet?
As more experts warn of a fossil fuel bubble, the best way to avoid getting burned may be to shift your money away from high-risk, polluting industries.
Luckily, investing in plenty of emerging technologies and industries can benefit your wallet and the planet. Whether you want to find specific stocks that align your monetary goals with your values or upgrade your 401(k), you can make your money speak for you.
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