Opening a different front in the fight against global warming, Mark Campanale has designed a new way to understand the value of fossil fuel companies’ carbon stockpiles not only to change how financial analysts and fund managers determine investment risk but also to mobilize shareholders to demand that companies align their business plans with the goals of the UN’s Paris Climate Agreement. The devaluation of carbon that results ensures that untapped coal, oil, and gas resources remain in the ground – and that internationally agreed upon global temperature-rise targets are met.
La idea nueva
Over the last twenty years, Mark has developed a new mechanism to help participants in, and regulators of, capital markets recognize how shares in publicly traded fossil fuel companies are mis-priced relative to climate risk in order to shift investment towards a lower carbon economy. His articulation of ‘stranded assets’ precipitated by a carbon bubble has changed the practice of analysts, fund managers, regulators, and ratings agencies while also opening a new front for shareholders and environmentalists to hold publicly traded fossil fuel companies to account. It’s enabled Mark to create a blueprint for how global finance can ensure more climate-aligned capital markets by explicitly linking financial risk to environmental risk and by creating the lexicon required to explain it. His work is enabling everyone, including fossil fuel companies themselves, to be held accountable.
Argued in a 2011 report that would help to kick-start the global fossil fuel divestment movement, Mark’s unburnable carbon thesis states that if fossil fuel companies’ known stockpiles of coal, oil, and gas are extracted from the earth, their use will generate enough carbon dioxide to drive global temperatures far beyond the 2 degrees Centigrade limit set out by the UN Climate Change Conference’s Cancun (2011) and Paris (2016) agreements. These reserves – termed the carbon bubble – are therefore unburnable and should be heavily discounted when assessing fossil fuel companies’ value for market trading and long-term investment. Otherwise, yet-to-be-extracted carbon, including all the related infrastructure such as oil pipelines and coal mines, will become ‘stranded assets’ that fall far short of their intended returns. Written off initially as ‘hot air’ by analysts and energy sector executives, the ‘stranded assets’ concept would within a year inspire leading environmentalist Bill McKibben to launch a divestment movement that has since seen institutional pension funds and individual investors with $14 trillion USD of assets commit to divest from fossil fuel companies. Mark’s analyses would also inform the Bank of England Governor’s calls from 2015 for investors to more carefully consider how finance should align with collective efforts to limit climate change. The International Energy Agency and Standard and Poor’s have also adapted their market narrative and climate risk commentary on stranded assets in response to Mark’s work.
Mark’s innovative reassessment of risk in the energy sector is also guiding the work of Planet Tracker, a non-profit financial think tank he co-founded in 2018. The organization investigates the risk of market failure related to environmental limits of oceans and land use. His stranded assets theory is also informing Mark’s calls for a Fossil Fuel Non-Proliferation Treaty alongside environmentalists, academics, and other social entrepreneurs around the world.
Facilitated by a growing awareness of global warming thanks to international agreements such as the Kyoto Protocol, Mark’s decades-long success at changing how people talk about and analyze risk has even contributed to fossil fuel companies themselves writing down their own unburnable assets. BP, for example, has recently written down their assets by $17 billion USD and announced its intention to cut by 2030 the volume of its oil & gas production by 40%.
Over the last hundred years, greenhouse gas emissions have increased six-fold. Carbon dioxide makes up the majority of those emissions, some 65% for the last year reported. The biggest generator of carbon dioxide is the burning of fossil fuels: coal, oil, and gas. Fossil fuel companies have nonetheless continued to attract investment in capital markets based on their reserve stockpiles, even though the use of those stockpiles will exacerbate global warming that the United Nations and Kyoto Protocol signatories have been trying to halt. The market capitalization of oil and gas firms alone rises into the trillions of dollars.
The valuation of publicly traded fossil fuel companies has traditionally included stockpiles of unused coal, oil, and gas. Valuations are then used by fossil fuel companies to borrow huge sums of money for extraction and exploration for even more carbon resources. But if all known carbon stockpiles – more than 2,500 gigatons in total – were used to generate energy, the carbon dioxide released would cause global temperature increases far beyond the 2 degrees Centigrade limit set out by the UN Climate Change Conference’s Cancun (2011) and Paris (2016) agreements. Eighty percent of coal, oil, and gas stockpiles are technically unusable, which means fossil fuel companies’ share prices do not adequately reflect the risks that most will remain unused. But because capital markets’ reporting frameworks do not require companies to explain what might happen if they have to discard their unusable reserves and write down their assets, there has been little financial incentive for fund managers, brokers, or investors to divest. Accounting practices allow for a company’s financial books to be signed off without descriptions of the likely impacts the clean energy revolution will have on the utility of their assets. That means ‘business as usual’ for companies whose product is the single biggest contributor to greenhouse gas emissions and global warming.
Without changes in how accounting practices are regulated in relation to the carbon bubble, investors will continue to suffer from an asymmetry of information. This risks a devastating ‘Minsky moment’ when markets aggressively correct, not unlike those precipitated by the dot.com boom of the late 1990s and the credit bubble prior to 2008.
Mark’s new mechanism for holding fossil fuel companies to account and driving shareholder investment towards renewable energy has facilitated new practices and mindset shifts amongst analysts, shareholders, financial regulators, environmentalists, and even energy industry executives. He achieves this through a three-pronged strategy. Firstly, he employs bespoke scenario analyses to determine how predicted shifts in supply and demand will impact fossil fuel-exposed companies and projects. Secondly, Mark develops the evidence base and disseminates research to influence both investment decisions and financial regulation. And thirdly, he works through the partnerships Carbon Tracker has built to craft a coalition that understands and acts upon the financial implications of tackling climate change.
Carbon Tracker’s scenario analyses identify the highest-cost, riskiest fossil-fuel investments in light of predicted supply and demand and global temperature-rise limits so that analysts, asset managers, and investors can make informed decisions on their long-term worth. These analyses also build the case for regulatory reform in order to improve transparency of climate-related financial risks. No one in the finance sector was engaged in such work until Mark laid the foundations for the Carbon Tracker Initiative with publication of Unburnable Carbon in 2011. By 2018, these scenario analyses had gained so much credibility among analysts and investors that the CEO of one of the world’s largest fossil fuel companies felt the need to speak out against them specifically. But his criticism fell on deaf ears, and the company – along with other fossil fuel multinationals – has since written down its carbon assets by billions of dollars.
Identifying risk as his ‘weapon of choice’ against global warming and those most responsible for it, Mark and his team publish multiple research reports each month on topics ranging from fossil fuels and carbon markets to climate risk exposure and energy transition. As such, this research highlights not only current challenges to managing climate change but also solutions that divestment from the carbon economy could fund. Mark amplifies these findings through regular speaking events, and by getting his ideas in front of key decision-makers to ensure they have the latest on climate-related risk. Within six months of publication of his Unburnable Carbon report in 2011, for example, the Norwegian Government Pension Fund replicated the report’s analysis and initiated divestment from fossil fuel companies. Dialogue with leading environmentalist Bill McKibben about Mark’s ‘Unburnable Carbon’ report would – by McKibben’s own account – launch the multi-trillion dollar fossil fuel divestment movement. Danish and American pension funds, along with a major French insurer, would eventually sell off their coal bonds in response to Carbon Tracker’s modeling, which only served to strengthen the association of finance risk and climate risk.
Mark also sought and secured meetings with the Bank of England as early as 2010. These culminated in an invitation in 2015 to present his carbon bubble thesis to the G20’s Financial Stability Board (FSB), which is comprised of the heads of the world’s central banks, in an event chaired by Bank of England Governor Mark Carney. Not long after, Carney would deliver his groundbreaking speech, ‘Breaking the Tragedy of the Horizon – climate change and financial stability,’ in London. For the first time, Carney had mentioned both unburnable carbon and the threat of stranded assets to capital markets’ financial stability. Carney then integrated these concepts into the FSB’s work, including in its new Task Force on Climate-related Financial Disclosures (TCFD). The TCFD was tasked with developing climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors, and other stakeholders. Mark presented his formula for risk disclosure at its first meetings. The TCFD’s most recent status report from 2019 states that 374 financial institutions globally have aligned to its reporting standards to date, with 34 central banks in support of banks and investment firms reporting on climate-related risk.
Mark has sought strategic partnerships with asset managers at leading investment firms to encourage a re-appraisal of energy sector investments among pension funds. He’s advised Goldman Sachs on how its clients can divest from fossil fuel companies and how its analysts can model energy transition risk. Mark and his team have also road-tripped to major European cities presenting his analysis to the pension trustee clients of State Street Global Advisors, America’s second-oldest bank. Mark is partnering with environmental organizations such as ClientEarth by providing them with the financial model that just convinced a Polish court to hold a local coal firm legally responsible for disregarding climate risk and block its planned coal-fired power station. That partnership is currently focused on ensuring that the listing rules of the London Stock Exchange limit fossil fuel companies’ ability to raise money through listings in UK pension funds. And Mark is working with the UK Government’s Cabinet Office to ensure that accounting practices that support more sustainable finance get onto the COP26 agenda. His most recent work in support of a global Fossil Fuel Non-Proliferation Treaty takes an even bolder step to protect the environment. The partnership with leading environmentalists and academics from around the world is aiming to prevent the expansion of the fossil fuel sector by treaty by suspending new production licenses and extraction plans.
Mark is strengthening the sustainable finance model beyond the energy sector, as well. His non-profit organization Planet Tracker, which he co-founded in 2018, aligns capital markets to environmental limits other than those relating to climate change. Research reports document environmental challenges such as overfishing, the impact of tourism on developing countries’ ecological well-being, and food waste. Data dashboards relating to fishing and farming expose which corporations are engaged in the most environmentally damaging practices and list asset funds that have invested in them. By so doing, Mark is nudging firms, fund managers, and shareholders to push for corporate behavior more closely aligned to sustainable practice.
Mark credits his family for instilling in him a passion for the natural world. Both his father and grandfather farmed olive and almond trees before migrating to the UK from Italy, and Mark believes their custodianship of the land is in his genes. By the age of 15, he knew his own future would be tied to nature. Mark volunteered then with a local aid charity and became particularly interested in rural development, which he would study alongside politics and history at York University. It was upon completing graduate work in agricultural economics that Mark joined the LiveAid group to determine how to spend monies raised during the globally televised BandAid benefit concerts in 1985. He then went on to work on fair-trade funded projects with coffee growers in Tanzania and Kenya and soon concluded that to sustain equitable trading opportunities and economic development for the region, focus had to shift away from an aid model and towards a business model. His own research into how little money British investors during the Empire earmarked for what were then ‘colonies’ to develop their own economies highlighted the pitfalls of the ‘aid’ mindset.
Inspired by Tessa Tennant, a global pioneer of green finance, Mark co-founded some of the UK’s first responsible investment funds during his early work with asset management firms in the late 1980s. He advocated for assessing publicly traded companies’ worth not on their prospects for growth alone but also on the extent to which their growth would respect ecological boundaries. He facilitated shareholder activism in companies listed on major stock exchanges from London to New York to protect the environment from North America to West Africa to Southeast Asia. His work made it increasingly clear that addressing climate change is a mathematics issue, and that the finance sector and shareholders alike need to play their part. And while the concept of the carbon bubble and the threat it posed was articulated by 2009, Mark would be the first to use his insider knowledge as a financial analyst to extrapolate that unburnable carbon was essentially stranded assets that should not be part of capital markets’ valuation of fossil fuel companies. It was the detailed but widely accessible analysis of this problem that would serve as a clarion call to the finance sector and environmentalists alike to change how investment in the energy sector was done.
In the same year that Mark published the Unburnable Carbon report (2011), he secured funding from the Rockefeller Foundation to set up the Social Stock Exchange (SSE). SSE has since provided a dedicated platform for social businesses to raise capital from ethical investors. Mark is no longer associated with the Exchange, but his relationship to it illustrates yet again his career-long commitment to ethical investment that values the common good as much as it does profit.