OPINION: Jeremy Leggett

In my August column, I wrote: “I expect to see a major diversion of investment from fossil fuels to clean energy before long.”

Readers might reasonably expect either periodic encouraging updates, or a grovelling apology for falsely raising expectations. Here is the first of the former.

I chair the financial think-tank Carbon Tracker, which first quantified the problem of the “carbon bubble”: the risk that carbon-fuel assets are in danger of being left in the ground because of climate policymaking that has essentially deemed most of them “unburnable” if we want to have a chance of keeping global temperature rises below 2°C.

In 2011, Carbon Tracker was the first to chart carbon exposures company by company and stock exchange by stock exchange. This year, we put numbers on the capital expenditure at risk of being wasted by the fossil-fuel industries.

A few weeks ago, I was invited to Norway and Sweden to talk about all this. The Norwegian state pension fund (often referred to as the oil fund) is the biggest sovereign wealth fund in the world. At $800bn and growing, it is overweight in carbon-fuel investments, especially considering that its revenues come largely from Norwegian oil and gas.

Any recognition by this fund of carbon-fuel asset-stranding risk would send a huge signal to capital markets.

The Norwegian Labour Party, when in government, opposed any change to rules allowing fossil-fuel investments by the fund. In September’s election, Labour was replaced by a minority conservative coalition.

The environmental non-governmental organisation WWF arranged a day of Carbon Tracker briefings for ex-ministers, including former foreign affairs minister Jonas Gahr Støre. Three days later, he announced that Labour would support the pension fund’s complete withdrawal from coal, and look at oil and gas too.

Combined with support from the smaller parties, this would create a majority in parliament in favour of getting the oil fund out of coal.

A day later, the new prime minister spoke at a climate conference for the first time. Erna Solberg did not mention the oil fund in her speech, but asked about the Labour move, she said she would look at coal companies to check that they weren’t investing in renewables ahead of any support for withdrawal by the sovereign wealth fund. She won’t have to spend too long on that exercise, of course.

So what looks like the inevitable withdrawal of the world’s biggest pension fund from coal next year will send a huge signal to the markets, favouring renewables actively and by default. All coal would look to be in danger of investor withdrawal as a result. Oil and gas will come under the same microscope.

Giant Norwegian insurance company Storebrand has already pulled out of coal and tar sands in favour of low-carbon investments. In October, the $38bn Fourth Swedish National Pension Fund, AP4, pulled out of investing in all fossil fuels. One of a group of five state-owned pension funds, AP4 plans to invest in a tailored emerging-markets fund comprising companies that have both low carbon emissions and few fossil-fuel reserves.

Chief executive Mats Andersson professes: “If it works, we will increase our exposure so that hopefully it will be a much bigger part of our portfolio. We want to do this on a global basis. In ten years’ time, carbon will be priced and valued in a different way so that companies with a high carbon footprint will perform worse. This sustainable approach isn’t about charity, but about enhancing returns.”

Many investors prefer active engagement on stranded-asset risk to complete divestment. For these investors, an increasingly attractive option is to pressure carbon-fuel companies to stop wasting capex, and to return cash as dividends.

Already this is affecting the marketplace. “Oil majors under pressure to curb spending” read a headline in the Financial Times on 5 November. Total has said its capex will start falling in 2014, and ExxonMobil, Chevron and Shell have signalled that they expect theirs to level off in the next few years.

Meanwhile, drilling costs, on the whole, rise ever higher. Big Oil is producing far less oil and gas per dollar invested than it used to. Does this sound like an industry primed for growth? It sounds increasingly like a sunset industry to me.

Something will have to replace it.

All the evidence for this article can be found at

Jeremy Leggett is founder and non-executive chairman of international PV company Solarcentury. His new book, The Energy of Nations: Risk Blindness and the Road to Renaissance , is published by Routledge