Climate Action

Interview with Mark Campanale: Founder of Carbon Tracker Initiative

Climate Action spoke with Mark Campanale, the Founder and Executive Director of Carbon Tracker – a not for profit financial think tank aimed at aligning capital market actions with climate reality.

  • 26 August 2016
  • William Brittlebank

Climate Action spoke with Mark Campanale, the Founder and Executive Director of Carbon Tracker – a not for profit financial think tank aimed at aligning capital market actions with climate reality.

Firstly, could you please introduce us to who Carbon Tracker are and what you do?

The Carbon Tracker Initiative (Carbon Tracker) is a non-profit think-tank of energy analysts, finance professionals and communicators credited for ‘changing the financial language of climate change’ (The Guardian). Its mission is to align capital markets with the realities of climate change. Through pioneering analysis into the ‘carbon bubble’ and ‘stranded assets’, Carbon Tracker investigates the financial risks faced by high-carbon investments in the face of a rapid energy transition.   It was founded by myself and Nick Robins in 2009 from an idea we’d been bouncing about during the noughties whilst at Henderson Global Investors together.


Why is it so important to align the capital markets with the realities of climate change?

Due to risks and opportunities. First, physical risk: in order to avoid the most dangerous impacts of climate change, scientists have shown that we must limit global warming to 2C, a target now adopted unanimously by governments through the landmark Paris Agreement on climate. Yet we know that if we were to burn all known fossil fuel reserves and resources, we would go way beyond this 2C target, ushering in potentially irreversible damages from extreme weather events and rising sea levels. This translates immediately into one type of financial risk: as described by the chairman of the Axa insurance company, “a world of 4C is uninsurable”. As debates by the Institute of Actuaries have pointed out, how would pension schemes meet their funding liabilities with run-away climate change, where they have a fiduciary duty to scheme members to pay benefits.

Equally important – but not as obvious – are the financial risks that Carbon Tracker has brought to the attention of markets. If up to two thirds of fossil fuels cannot be burned, investors in these projects risk being left with up to $2 trillion in “stranded assets”, investments rendered valueless by a combination of rapid technological progress from renewables, more stringent climate policies and shifts in market sentiment.  This is why it is important to shift capital away from high-cost, high-carbon projects into the increasingly profitable green economy. In addition, Citigroup has argued that up to $100 trillion of fossil fuel revenues are at risk – and the businesses linked to them – from the clean energy transition to a low carbon future


Carbon Tracker has won the Guardian Sustainable Business Award for Innovation in Communicating Sustainability for the past two years. What do you think sets Carbon Tracker apart from its competitors?

What distinguishes Carbon Tracker from other climate-focused organisations (frequent collaborators, in fact, more than competitors) is the ability to translate climate science into the language of financial markets, which has triggered “the climate swerve: a major historical change in consciousness that is neither predictable nor orderly” (New York Times). The novel suggestion was that the science of keeping the planet to 2 degrees created a new ‘baseline’ reference point against which all future fossil fuel projects could be tested.  With enough fossil fuels under development by companies to take us beyond 2 degrees, financial analysts could then assess and test company business strategies. Does more growth make more sense? Are our valuation scenarios correct?  These new metrics have had a profound effect on how investors view risk in the sector.  Institutions such as Legal & General, Schroders, Newton, ABN Amro, CCLA and Sarasin have all published research on the topic, prominently citing Carbon Tracker’s contribution to their analysis.

The centrepiece of Carbon Tracker ground breaking research was the creation of the ‘carbon supply cost curve’ – all of the world’s major oil, gas and coal projects analysed in terms of financial viability and carbon emissions. Relying on databases that were standard for energy analysts, Carbon Tracker’s granular analysis allowed investors to identify which individual projects carried the greatest financial and environmental risk. However, Carbon Tracker made sure that rigor did not come at the expense of accessibility, making extensive use of infographics, interactive maps, animations and social media. Finally, introducing terms such as ‘stranded assets’ and ‘unburnable carbon’, Carbon Tracker created a new financial lexicon, with the Wall Street Journal declaring that ‘the concept of the carbon bubble has gone mainstream’.


Can you explain what the Carbon Bubble entails?

You start with the maximum amount of carbon dioxide that can be put in the atmosphere while still having a reasonable chance to keep global warming below 2C. This is our ‘carbon budget’. If you compare this with the carbon emissions embedded in fossil fuel reserves and resources, it becomes clear that only about a third of them can be burned – this is the carbon bubble. The other two thirds need to be left in the ground – not to mention investments wasted searching for more fossil fuels in places like the Arctic or the ultra-deep sea.  This simple formula can then be used company by company, stock exchange by stock exchange, until the final calculation gives you the carbon bubble for all major financial markets. For clarity, we never said this is a financial bubble, but there are important financial implications.  Models which presume all fossil fuels can be developed and burned, or are based on continuous expansion of the sector, may be flawed. As Mark Carney, the Governor of the Bank of England, put it, if investors suddenly decide to reassess the viability of the fossil fuel sector, this “could potentially destabilize markets”. This is why it is important that the world embark on an orderly transition to low carbon, which avoids financial dislocation and value destruction.


Carbon Tracker provides information, research and events to educate key decision makers and groups. Can you tell us about your current research projects and upcoming events?

Carbon Tracker’s research is split into two defined, but linked areas.  The first, is a major focus on mapping out the implications of the energy transition involved for key stakeholders, with a focus on coal, oil and gas sectors, on capital expenditure by companies and scenario planning around demand and supply. The second workstream focuses on improving company disclosures to incorporate climate risk, in response to growing demand for information from investors and regulators such as the SEC in the US and the UK Financial Stability Board.

Turning to opportunities, Sense & Sensitivity, a report we put out this year found that oil majors would be worth up to $140 billion more if they aligned their production with a 2C target. So we are keeping an eye on both sides of the risk-reward equation.

We will also be launching a major piece of research done in collaboration with the Grantham Institute at Imperial College London, looking at the disruptive potential of clean technologies. We wanted to find out how the future energy mix would look like when faced with rapidly falling costs of solar PV or electric vehicles and the decoupling of energy demand from economic growth. From Apple to Tesla, there is abundant evidence that massive changes can occur quicker than expected, so this is definitely a piece of research of interest to forward-looking investors. In terms of events, we will be taking part in Climate Week in New York, then set our sights on the COP22 conference in Morocco.


Carbon Tracker is sponsoring the Sustainable Investment Forum taking place during New York Climate Week in September. What were your motivations behind your involvement with this event?

SInv is well-known as a high-level event that brings together key players in the private, public and non-profit sectors, so this was a natural fit for Carbon Tracker, whose work spans across all these areas. Also, for a number of years now we have had requests to establish a firmer presence in the US, so we are working to recruit a North American Director - the New York Climate Week was a natural place to start.


You, personally, will be speaking at SInv. Could you give us a brief outline of what you will be discussing?

With over two-thirds of investors declaring they are closely monitoring stranded asset risk – as identified in a recent EY survey – the importance of climate disclosures is clearly set to grow. I will be discussing recent progress from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, as well as scenario planning for a 2 Degree Stress-Test.