Will you be a carboniferous fossil in a low carbon economy?
Kodak is often held up as the archetypal extinction of the digital age. The photographic film giant invented but rejected the product – the digital compact camera – that lead to its own downfall. Now compact digital camera sales are falling fast as the smartphone fills that niche as the bedrock of a mobile digital lifestyle. Technological and socioeconomic evolution can be fast and brutal.
Now one of the key debates in sustainability is the ‘carbon bubble’ – the overvaluing of fossil fuel assets by markets which are not anticipating a transition to a low carbon economy. Joan Walley MP, chair of the UK Government’s Committee on Climate Change, said back in March:
“The government and Bank of England must not be complacent about the risks of carbon exposure in the world economy. Financial stability could be threatened if shares in fossil fuel companies turn out to be overvalued because the bulk of their oil, coal and gas reserves cannot be burnt without further destabilising the climate.”
Shell wrote to shareholders in May claiming that none of its proven resources would be stranded, putting its faith in Carbon Capture & Storage (CCS) to allow it to burn fossil fuels in a low carbon economy. Given that CCS technology is still somewhat immature – and not evolving half as fast as, say, renewables – that’s confidence.
It has to be remembered too, that assets come in lots of different forms, not just financial shares. If you have high carbon buildings, IT infrastructure, vehicles and/or manufacturing facilities, what will they be worth in a low carbon economy? I have had (good-natured) arguments with several large asset-intensive players who are assuming that the economy in 10 years time will pretty much look like the economy now and who refused to even consider the low carbon/circular economy scenario as a possibility.
Kodak thought that things wouldn’t change the way they did. It didn’t end well.
A sensible company would do a risk assessment on alternative scenarios at the very least rather than putting the blinkers on. Much better than sweating over euphemisms to explain plummeting asset values in an annual report in 5-10 years time.