Regan Brown
Despite the urgency of the climate crisis, institutional investors continue to hold significant investments in fossil fuels. In 2024, it was estimated that over 7,500 institutional investors held around $4.3 trillion in bonds and shares of fossil fuel companies, with US investors accounting for a substantial portion of this figure. However, global investment in clean energy is gaining momentum, with spending on grids and battery storage increasing and investment in clean energy expected to double that of fossil fuels in 2024. Nonetheless, the high level of investment in fossil fuels remains a critical concern, with critics arguing that it hinders the transition to a sustainable energy future and exacerbates the risks of climate chaos.
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What You'll Learn
US institutional investors hold $2.8 trillion
The lack of action by US regulators to effectively monitor and address the climate and transition risks associated with these investments is concerning. According to Alec Connon from Stop the Money Pipeline, this inaction could lead to an economic crisis and accelerate the world towards climate chaos.
While global investment in clean energy is expected to reach almost double the amount going to fossil fuels in 2024, totaling $2 trillion, the current state of US institutional investments in fossil fuels highlights the urgency of addressing the climate crisis. The transition away from fossil fuels is imperative, and the significant investments of US institutional investors in this sector underscore the need for regulatory intervention and a shift towards more sustainable alternatives.
It is worth noting that the data on US institutional investors' holdings in fossil fuels may vary across sources and timeframes. The figure of $2.8 trillion may not include recent updates or changes in investment strategies. Additionally, the complex nature of investment flows and the involvement of various financial institutions can make it challenging to capture an entirely accurate snapshot of the situation.
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Fossil fuel investments in Canada
Fossil fuel subsidies have been a highly debated topic, with governments worldwide subsidising the fossil fuel industry. Fossil fuel subsidies surged to a record $7 trillion, with governments supporting consumers and businesses during the global energy price spike caused by the Russia-Ukraine conflict and the economic recovery from the pandemic.
Canada is one of the largest international fossil fuel financers, averaging $11 billion per year from 2018 to 2020. In 2024, the IMF found that Canada provided $2 billion in explicit fossil fuel subsidies, with an implicit cost of $36 billion. Canada has committed to phasing out inefficient fossil fuel subsidies, and in 2021, it moved its deadline to complete this by 2023. However, Canada has not taken all the necessary steps and has even added new subsidies in the wake of COVID-19. The federal government has provided billions in financial support for the fossil fuel industry, and critics argue that this undermines climate policies and delays the transition to alternative technologies.
Canada's fossil fuel subsidies have significant implications for its economy and society. The money spent on subsidies could be used to improve education, job training, and healthcare for Canadians. Additionally, Canada's commitment to the Paris Agreement and the Clean Energy Transition Partnership aims to end international public financing for fossil fuels and prioritise support for clean energy. However, Canada's continued expansion of oil and gas production risks stranding billions in future investments as the world shifts to cleaner energy.
Canada's progress in ending fossil fuel subsidies has been slow, and it has faced challenges in transparency and policy implementation. The government has been criticised for its lack of transparency in tracking and calculating financing for the fossil fuel industry. While Canada has made promises to stop putting public funds into fossil fuels, there is a need for improved policies, implementation, and enforcement to ensure its commitments are met.
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Japanese institutional investors
Japan's five biggest institutional investors hold US$40.6 billion in companies with significant fossil fuel expansion plans, as measured by the Fossil Fuel Expansion Index (FFEI). These investments are increasing climate-related financial risks in Asia. The investors' FFEI holdings are heavily concentrated in just 10 companies, including Mitsubishi Corporation, Mitsui & Co., and Chubu Electric. These companies' fossil fuel expansion plans would release an estimated 7.7 gigatonnes of carbon dioxide equivalent emissions.
While Japanese institutional investors have made some investments in renewable energy, these investments only total $43.2 billion, far short of the $168 billion to $192 billion invested in fossil fuels. This clean energy to fossil fuel investment ratio of 1.07:1 falls short of the 4:1 ratio needed by 2030 to meet the Paris Agreement goal of limiting warming to 1.5°C.
In addition to private institutional investments, Japan is also the world's largest provider of public finance for fossil fuels, spending $10.6 billion per year on average between 2019 and 2021. This includes public finance for oil, gas, and coal projects, with Japan contributing $6.7 billion per year specifically to global gas projects. Japan has committed to ending new direct public support for the international unabated fossil fuel sector, but it has indicated that it will continue to finance upstream oil and gas developments.
To address the climate crisis and mitigate climate-related risks, Japan and Japanese institutional investors need to shift their investments away from fossil fuels and towards renewable energy solutions. This includes increasing investments in renewable energy technologies, sustainable aviation fuels, and the hydrogen sector. Japan's Ministry of Economy, Trade, and Industry has allocated $92 billion in GX public spending over 10 to 15 years, with funds directed towards these areas. Additionally, Japan plans to introduce carbon pricing and an emissions trading scheme in 2028 and 2033, respectively, to further incentivize the transition to a low-carbon economy.
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Global upstream oil and gas investment
In 2023, global upstream oil and gas investment rose by 7%, reaching $570 billion. This growth in spending was largely driven by national oil companies in the Middle East and Asia. Oil and gas investment in 2024 was consistent with demand projections based on current policies, but it fell short of expectations for achieving national or global climate objectives.
The Permian Basin is a key region for US oil and gas production, contributing to 46% of US crude oil production and 20% of US gross natural gas production. The basin's oil production is growing at an annual average of 485 kilobarrels per day, highlighting its significance in both domestic and international energy markets. US upstream companies have focused on capital discipline, digital transformation, and strategic acquisitions to drive profitable growth.
Despite the increasing investments in upstream oil and gas, global investment in clean energy is also rising. In 2024, investments in clean energy technologies are expected to reach $2 trillion, while investments in fossil fuels will be slightly over $1 trillion. This shift towards clean energy investments is a positive development in the transition towards a more sustainable energy landscape.
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Fossil fuel subsidies
There are different types of fossil fuel subsidies, including tax breaks on consumption, such as a lower sales tax on natural gas for residential heating, or subsidies on production, such as tax breaks on oil exploration. They can also be provided as free or cheap negative externalities, such as air pollution or climate change costs associated with burning gasoline, diesel, and jet fuel. Some subsidies are provided for electricity generation, such as for coal-fired power stations.
The amount of money allocated to fossil fuel subsidies depends on the definition used. Under a narrow definition, fossil fuel subsidies totalled around $1.5 trillion in 2022. However, under a more expansive definition, they totalled around $7 trillion in the same year, reflecting a $2 trillion increase since 2020 due to government support and surging energy prices. This amount is expected to decline in the short term as energy price support policies are phased out and international prices fall.
There are disputes about which definition to use when calculating fossil fuel subsidies. For example, the UK government stated in 2021 that it uses the IEA definition and does not subsidize fossil fuels. However, others argued that under the OECD definition, the UK does subsidize fossil fuels. The OECD has emphasized the high fiscal cost of government support for fossil fuels and has called for reforms to phase out inefficient support for fossil fuels and align fiscal policy with climate goals.
The consensus among economists is that the rich benefit the most from fossil fuel subsidies, as the poorest people do not usually own cars or consume energy at high levels. However, removing the subsidies may negatively impact poor people through indirect price increases in other areas, such as food. Additionally, some governments argue that subsidies are necessary to shield citizens from variations in international energy prices.
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Frequently asked questions
According to a report from July 2024, institutional investors held $4.3 trillion in bonds and shares of fossil fuel companies. However, a later report from the same organization in July 2024 put the figure at $5.1 trillion.
The US is the largest capital market in the world, and US institutional investors hold $2.8 trillion to $3.1 trillion in fossil fuel companies in 62 countries. This accounts for 65% to 72% of total institutional investments in fossil fuel companies. The biggest beneficiaries of US institutional investments are domestic oil and gas companies such as ExxonMobil, Chevron, and ConocoPhillips.
The US asset management company Vanguard holds and manages assets of coal, oil, and gas companies worth $444 billion, making it the world's biggest fossil fuel investor. Other top fossil fuel investors include JPMorgan Chase, Citigroup, Bank of America, and Barclays.
In 2024, investment in clean energy is expected to almost double the amount going to fossil fuels. Total energy investment worldwide is predicted to exceed $3 trillion in 2024, with $2 trillion going toward clean technologies and slightly over $1 trillion going to coal, gas, and oil.
