Stranded Assets and the Transition to Low-Carbon Economy

Weber, Olaf; Dordi, Truzaar; Oyegunle, Adeboye

doi:10.1007/978-3-030-54530-7_3

Cited by 4 publications

(7 citation statements)

References 50 publications

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“…Because of ethical considerations, socially responsible investors hope to limit the fossil fuel industry's business development and capital expansion by switching the capital flow [6,14,41]. Because of financial concerns, returns-driven investors hope to avoid risks related to stranded assets resulting from the low-carbon economy transition [29,37,42]. On the one hand, moral concerns might precede financial concerns because socially responsible investors avoid the potential financial risks related to stranded assets.…”

Section: Discussionmentioning

confidence: 99%

“…From a financial point of view, shifting capital away from the fossil fuel industry might be a strategy to avoid financial losses resulting from stranded assets [28,29] and declining sales of fossil fuels. Furthermore, a previous study [3] found that divesting from fossil fuels and investing in clean energy increased the risk-adjusted financial returns of US investors.…”

Section: Financial Aspects Of Investing In the Fossil Fuel Industrymentioning

confidence: 99%

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Investors’ Moral and Financial Concerns—Ethical and Financial Divestment in the Fossil Fuel Industry

Zhang

Weber

2022

Sustainability

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It is discussed intensively whether divestment decease sales in the fossil fuel industry or whether investors divest from the fossil fuel industry because of stranded assets. Furthermore, it is unclear what the consequences of these activities are for the fossil fuel industry. Therefore, the study explores the direction of causality between cash flow factors, such as production factors and sources of financing and sales of the fossil fuel industry using lagged regression models and applying the Granger causality test. Our sample consists of fossil fuel companies from the Carbon Underground 200 list. Because R-squared values for both lagged financial factors and lagged sales were similar, we suggest a “bi-directional causality” between the financial flow factors and sales. We conclude that divestment (because of ethical concerns) can cause lower sales and that lower sales can cause divestment because of fear of the risk of stranded assets. Because a third factor usually causes bi-directional causations, we conclude that the need for the fossil fuel industry to reduce greenhouse gas emissions is the third factor that influences both the ethical and financial motivation of divestment. Consequently, the study contributes to theoretical approaches to divestment.

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Section: Discussionmentioning

confidence: 99%

Section: Financial Aspects Of Investing In the Fossil Fuel Industrymentioning

confidence: 99%

Investors’ Moral and Financial Concerns—Ethical and Financial Divestment in the Fossil Fuel Industry

Zhang

Weber

2022

Sustainability

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“…Finally, oil and gas companies may suffer due to less access to capital. Since the Paris Agreement, several initiatives have emerged that seek to restrict financing and investment in new projects, with investors and financiers seeking to reduce their exposure to climate risks and avoid reputational or legal problems (Weber et al, 2020;OECD, 2021;Monasterolo and De Angelis, 2020). Among the most prominent initiatives we have is the Glasgow Financial Alliance for Net Zero (GFANZ), a coalition of more than 550 financial institutions from more than 50 countries that seeks to accelerate the decarbonization of the economy, proposing recommendations, medium-term targets and aiming to reduce the net emissions of their portfolios to zero by 2050.…”

Section: ) Impacts On the Oil And Gas Sectormentioning

confidence: 99%

The impact of climate risks on the cost of capital of oil and gas companies

Bettega,

Goncalves,

de Souza

2024

Preprint

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In a context of energy transition and decarbonization, companies operating in the oil and gas sector may be more exposed to climate risks, both physical and transition related. This greater exposure may reflect in a higher cost of capital, given the risk of stranded assets, stigmatization of the sector and reduced funding. This paper seeks to study this hypothesis, applying econometric models to analyze whether climate risk, represented here by a Carbon Intensity metric (scope 1 and scope 2 greenhouse gas emissions per US$ of revenue), has a significant effect on the systematic risk coefficient (beta) of these companies. The results show that Carbon Intensity has a statistically significant positive effect on beta, contributing to the argument that greater climate risk can increase companies' systematic risk. According to the most robust model (Model 1), a 100% increase in Carbon Intensity generates a corresponding rise of 0.0608 in beta, everything else kept constant - an increase of 7.25% in relation to the average beta of the sample.

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“…As highlighted by the literature on stranded assets and their link to the low-carbon economy transition (Weber et al, 2020), lessons for legitimizing the transition will predominantly be learned through the barriers and drivers affecting popular sustainable SAMPJ 15,3 finance. Furthermore, Zadek (2019) mentions that green bonds provide a nonmarket intervention when it comes to redirecting global sustainable finance flows [3] and raising awareness around climate change.…”

Section: Introductionmentioning

confidence: 99%

“…As highlighted by the literature on stranded assets and their link to the low-carbon economy transition (Weber et al. , 2020), lessons for legitimizing the transition will predominantly be learned through the barriers and drivers affecting popular sustainable finance.…”

Section: Introductionmentioning

confidence: 99%

Catalyzing the growth of green bonds: a closer look at the drivers and barriers of the Canadian green bond market

Saravade,

Weber

2024

SAMPJ

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Purpose This paper aims to examine the Canadian financial sector’s reaction to opportunities and risks created by the green bond market in a low-carbon and climate-resilient (LCR) economy. Design/methodology/approach The authors used a concurrent mixed methodological approach that undertakes an online survey and semistructured interviews with critical green bond market stakeholders. Findings The most significant market driver in Canada is the reputational benefit for stakeholders, i.e. its ability to meet the high demand for sustainable finance and the marketing potential of its green credentials. The major market barriers are transactional costs, i.e. additional tracking required for reporting purposes, lack of market liquidity and identification of environmental impact or additionality. Canadian green bonds are also more likely to be evaluated on their green impact than their global market peers. Research limitations/implications Limitations of this study include its focus on Canada, which may exclude or not apply to drivers and barriers in other green bond markets. Practical implications The paper helps create an accounting-based conceptual framework for key motivations and barriers that affect financial decision-making regarding green bonds. Social implications The authors identify economic and policy-related barriers and drivers for green bonds, addressing the financing gap for the LCR economy. Originality/value To the best of the authors’ knowledge, this study is the first to identify and compare Canadian green bond market drivers and barriers and to examine relevant stakeholder- and policy-related approaches that can be targeted to scale this market effectively.

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Stranded Assets and the Transition to Low-Carbon Economy

Cited by 4 publications

References 50 publications

Investors’ Moral and Financial Concerns—Ethical and Financial Divestment in the Fossil Fuel Industry

Investors’ Moral and Financial Concerns—Ethical and Financial Divestment in the Fossil Fuel Industry

The impact of climate risks on the cost of capital of oil and gas companies

Catalyzing the growth of green bonds: a closer look at the drivers and barriers of the Canadian green bond market

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