PARIS, Dec 7: Poring over a Bangladeshi flood map as a London financial analyst 12 years ago, Mark Campanale had no idea the moment would spawn a financial concept powerful enough to rivet central bankers, anger oil moguls and fuel a grassroots movement to get investors to dump their fossil fuel holdings.
The map was in the prospectus of a British firm seeking to raise money to build a coal-fired power plant in Bangladesh. Not only was Campanale angry that a company would pump more carbon emissions into the air from a low-lying country vulnerable to climate change in the form of rising sea levels; he was also mystified that investors didn't see the financial risks that went with it.
"I was offended that the markets weren't picking up the risks, given what we knew about coal and climate change," Campanale recalls. "I thought: 'This is mad'."
More than a decade later, Campanale's eureka moment has grown into a powerful - and vigorously contested - theory: that energy investors are sitting on a $2 trillion "carbon bubble" because vast amounts of coal, oil and gas companies' reserves will never be extracted if the world is to limit itself to a rise in global temperatures of 2 degrees Celsius over pre-industrial levels.
The concept has rippled out from that Bangladeshi map to become part of the climate change lexicon. It has formed the basis for warnings about "stranded assets" by Bank of England Governor Mark Carney and inspired groups like Norway's sovereign wealth fund to divest billions in fossil fuel holdings.
It has also been embraced by green activists usually hostile to market solutions for climate change, igniting a global campaign to get investors to divest from fossil fuels. It has resonated across global climate change talks in Paris this week, even if it has not yet entered the formal agenda.
The concept "shifted the argument fundamentally from an ethical or moral issue into one which has an impact on risk to portfolios", says Charlie Thomas, manager of Jupiter Asset Management's Ecology Fund, valued at 429 million pounds ($648 million).
In the years following the Bangladeshi prospectus, Campanale began honing the issue with Nick Robins, a former HSBC analyst, and Jeremy Leggett, an oil and gas consultant-turned-environmental-activist. In the early days, they called the phenomenon "unusable reserves". It didn't stick.
After the failed 2009 climate summit in Copenhagen, Leggett wrote an opinion piece in Britain's Guardian newspaper highlighting long-term risks to coal investments.
"Of the 2.8 trillion tonnes of carbon bubble, two-thirds of it is coal," Royal Dutch Shell's chief financial officer Simon Henry told Reuters. He says only 1.5 per cent of the total is held by international oil and gas companies. "This idea of stranded assets is just arithmetic nonsense."
Indeed, coal is suffering most. On the eve of the Paris conference, a $34 billion state pension fund in Sweden pulled out of 28 coal companies, and Allianz, Europe's biggest insurance firm, said it would cease investing in coal-heavy mining and utility firms.
"What was an obscure report three years ago is now the talking points of the World Bank, the IMF and so on," says McKibben. "It's become clear we simply have to keep the carbon in the ground."        ?Reuters