The UK Sustainable Investment and Finance Association (UKSIF) has said that the country’s pension funds are “significantly exposed” to losses caused by stranded fossil fuel assets in a new report. These losses could amount to as much as £15.2 billion (US$19 billion) by 2040, around 17% of the approximately £88 billion in fossil fuel assets held by UK pension funds, if current green transition policies, mid-term action plans to cut emissions, and long-term net zero targets are fulfilled. The losses from stranded fossil fuel assets across the UK is rated at US$141 billion. However, the analysis argues that this loss is significantly smaller than the potential US$12.5 trillion in economic losses by 2050 caused by climate-intensified natural disasters in a global warming scenario between 2.5°C and 2.9°C. To mitigate this risk, UKSIF identified four priority areas for UK asset managers, asset owners and policymakers to collaborate to offset stranded asset losses while transitioning away from fossil fuels. These areas are capturing international investment, industrial decarbonisation strategies, investment stewardship, and mandatory transition plans. “The surest way to offset the risk of losses posed by stranded assets is to invest in industries that will thrive as fossil fuels decline,” said James Alexander, CEO at UKSIF. “The UK government must demonstrate global climate leadership by implementing ambitious decarbonisation policies and fostering investment in the growth industries of the future, like renewable energy. Together, the coordinated efforts of investors and policymakers can meaningfully mitigate stranded asset risk while also ensuring that the UK plays a leading role in the global green transition.” The report was published in collaboration with Transition Risk Exeter, a newly launched company within the University of Exeter that provides climate scenario analysis for enhanced investment resilience.
