Bank of England: How climate change news affects energy firms’ share prices
Bloggers over at the Bank of England have looked at the effect of climate change news on energy firms' valuations.
Central banks are paying more attention to whether climate goals will leave vast reserves of oil, coal and gas unburnable, meaning fossil fuel firms are overvalued. Bank of England governor, Mark Carney, previously warned investors face potentially huge losses from this.
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Now Rhiannon Sowerbutts, an economist in the bank's macro prudential strategy and support division, has looked at whether signs that the world is moving towards a low carbon future has adversely affected these firms’ share prices.
She said that while energy firms' share prices had been falling, so had the price of their main asset, oil. To disentangle the two, she looked at share price changes around the time climate change news was released, and compared this to a firm’s country’s main stock market index.
Sowerbutts found that while the Paris Agreement moved some energy firms' share prices, other events were slightly less dramatic. "There’s usually a negative but statistically insignificant effect on the abnormal returns for oil and gas companies, but a positive and insignificant effect for renewable energy companies," she said.
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This isn’t necessarily a bad thing — encouragingly for financial stability, savvy investors could already be pricing climate change concerns into their valuations. Shareholders may have also anticipated unexpected events, or deemed them irrelevant to a firm’s market capitalisation.
However, Sowerbutts said of the findings: "This doesn’t mean as global citizens we can relax, either about financial stability or for the future of the planet."