A new report revealing the staggering scale of institutional investments in the fossil fuel industry shows that over 7,500 pension funds, insurance companies, asset managers and other institutions worldwide hold a combined $4.3 trillion in bonds and shares of coal, oil and gas companies.

The 2024 edition of ‘Investing in Climate Chaos’ from Urgewald and 17 NGO partners expressed concern that the massive capital allocation to the fossil fuel sector comes at a time when the world is grappling with the devastating impacts of climate change.

The report noted that catastrophic floods, hurricanes, wildfires and heatwaves are causing widespread destruction, and scientists have made it clear that a rapid phaseout of fossil fuels is essential to avoid even worse climate tipping points.

"If institutional investors continue backing companies that are still expanding their coal, oil and gas operations, it will be impossible to phase out fossil fuels in time," said Katrin Ganswindt, Head of Financial Research at Urgewald. "Investors need to draw a red line on fossil fuel expansion and they need to do it now."

The report found that nearly $4 trillion of the $4.3 trillion in fossil fuel investments are in companies actively developing new oil, gas and coal projects. This directly undermines global climate goals agreed at COP28 in UAE to "transition away" from fossil fuels.

The report also breaks down the investments by fuel type, revealing that over $1.2 trillion is invested in coal companies, even as the world has committed to phasing down unabated coal power. At the same time, a staggering $3.8 trillion is parked in oil and gas producers, many of whom are planning new exploration and development projects that are incompatible with climate stabilisation.

These findings raise serious questions about the commitment of the financial sector to supporting the shift to a low-carbon economy. While some investors have started to divest from coal, engagement efforts with oil and gas majors have had negligible impact, with over 95 per cent of companies failing to set Paris-aligned climate targets.

"7,245 institutional investors are locking us into a high-carbon future through their investments in an expanding oil and gas industry," Ganswindt warned.

The report also highlights the outsized role of US investors, who account for 65 per cent of the total $4.3 trillion in fossil fuel holdings. Canada, Japan, the UK, India, China, Norway, Switzerland, France and Germany are the other countries with the largest shares of institutional investments in the sector.

As the world grapples with the escalating climate crisis, 2024 could be a pivotal year for the financial system to align with sustainability goals. Around $3.2 trillion in outstanding debt of high-carbon companies is set to be refinanced in the coming years, presenting a crucial opportunity for investors to shift capital away from fossil fuels.

"The question is whether institutional investors will continue investing in these companies, which rely on heating up the planet, or if they will realise the potential for more heat waves, floods, and climate disasters," the report states. "2024 should be a turning point for central banks and regulators to align financial flows with the Paris Agreement."

With the stakes so high, the authors are calling on pension funds, insurers, asset managers and other institutional investors to immediately halt new investments in fossil fuel expansion and set clear timelines for phasing out existing holdings. Only by redirecting capital towards clean energy solutions can the financial sector play its part in averting catastrophic climate change. --OGN/TradeArabia News Service