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Investors' new climate calculation: Engage or divest?

Climate change is changing the math associated with stranded assets, but those to offload potential stranded assets now might be struck with short-term losses.

The concept of stranded assets, as described in a 2011 analysis by Carbon Tracker, is straightforward: If we are to avoid the worst effects of climate change by limiting global temperature increases to no more than 2C, then as much as 80 per cent of the reserves already counted as assets by fossil fuel companies will have to stay in the ground.

If that calculation is indeed accurate, then investors would appear to be faced with two alternatives: divest, and move their assets into the renewable energy infrastructure that will replace current power generation; or engage, and somehow persuade fossil fuel companies to finance and operate that new infrastructure.

Addressing the problem of financing a clean energy infrastructure at a recent Environmental Finance event in London, James Cameron, the Chairman of Climate Change Capital, asked, "Who is going to do that work if it is not the European utilities?" Cameron noted that while financial institutions have taken the lead in acquiring clean energy assets, it seems unlikely that they will evolve into companies that will actually operate the infrastructure.

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