Ten Financial Actors Featured in New Scientist

Just 10 financial institutions own nearly half of the unburned fossil fuels from the world’s largest fossil fuel companies.

The Carbon Underground 200 is a list of the 200 largest fossil fuel companies, created by FFI Solutions, a sustainable investing firm. Combined, the companies own 98 per cent of known fossil fuel reserves, an amount that would emit 674 gigatonnes of carbon if burned – nearly triple the global carbon emissions limits needed to constrain global warming within the 1.5°C target.

“We can’t achieve our global climate commitments without addressing this group of fossil fuel producers,” says Truzaar Dordi at the University of Waterloo in Canada.

Dordi and his colleagues wanted to know which financial actors have the most influence over these companies and thus could accelerate or slow a transition away from fossil fuels. The question was “who owns the owners?” says Dordi.

Using shareholder data from Bloomberg Terminal, a financial data service, the researchers identified 918 shareholders who own 1 per cent or more of at least one Carbon Underground 200 company. They then calculated how much of the potential emissions from the unburned fossil fuels each shareholder owned, based on their stake in the companies as of February 2021.

The team also counted the number of companies in which each shareholder had a stake to measure their connectedness in the network of companies and owners. The most central shareholder was like “the friend who seems to know everyone”, says Dordi. The group combined centrality and potential emissions to get a measure of shareholders’ relative influence.

The most influential shareholders were the asset management firms BlackRock and Vanguard. These were followed by the Government of India and the asset manager State Street. With more than 100 gigatons of potential emissions, Saudi Arabia owned the most potential emissions of any single shareholder but was listed fifth-most influential because almost all of its holdings were concentrated within a single company: Saudi Aramco.

Together, the top 10 institutions owned nearly half of potential emissions within the Carbon Underground 200 and had on average 20 times more connections within the network than the other shareholders.

While some of these institutions have used their influence to push for changes, a political backlash to them playing “environmental police” as well as energy security concerns seem to have reversed that pattern, says Jan Fichtner at the University of Amsterdam in the Netherlands.

Spokespeople for Vanguard and Fidelity Investments – also part of the top 10 – commented separately that sustainability is an important part of their investment strategies and that they encourage portfolio companies to prepare for climate-related risks, including the potential to end up with fossil fuel assets no one wants to buy. A report by the UK climate think tank Carbon Tracker found more than $1 trillion of oil and gas assets could become stranded in this way.

Journal reference: Environmental Innovation and Societal TransitionsDOI: 10.1016/j.eist.2022.05.006