Fossil fuel share offerings sharply underperform: Carbon Tracker

The value of share offerings in fossil fuel-producing and related companies have sharply underperformed global equities in the last decade, according to a new study from Carbon Tracker.

Collectively, between 2012 and 2020, fossil fuel producers sold equity for a total of US$453 billion to investors, an amount that had declined to about US$330 billion by the end of 2020 - implying a loss of nearly US$123 billion or almost a third of the value in absolute terms, according to Carbon Tracker.

Compared to MSCI All Country World Index (ACWI), these shares transactions have underperformed by almost 52% relative to ACWI during this time period.

A Tale of Two Share Issues: How fossil fuel equity offerings are losing investors billions found that between 2012 and 2020, investors have bought almost US$640 billion of equity issued by fossil fuel producers, fossil fuel dependent utilities, pipelines and service companies. But their investments have lost roughly 20% in value despite one of the longest and strongest equity bull markets on record.

"Investors have woken up to the fact that fossil fuel companies are no longer the growth stories they once were," said "Henrik Jeppesen, report author and US head of investor outreach at Carbon Tracker. "Climate risk is now very much a material one that cannot be ignored and clean energy stocks are rapidly replacing the old order as the choice investment for a transitioning world."

The Carbon Tracker report also found that share issuance by fossil fuel producing and related companies fell by 85% from US$70 billion to US$10 billion in the period analysed from 2012 to 2020, while renewables raised a record US$11 billion from public equity offerings in 2020 alone.

The report noted that since 2016, there has been a decline in fossil fuel IPOs, where companies raise money through new share issues, and an increase in sales by existing long-term holders, for example, founders, owners and governments, that could indicate declining confidence in future prospects for the sector. The proportion of equity issuances comprising secondary share sales surged from 6% in 2016 to 58% in 2020.

"It's astonishing that exchanges are still listing new fossil fuel companies intent on expanding production or developing new reserves in direct contravention of the Paris temperature goals," said Mark Campanale, founder and executive director of Carbon Tracker said. "But what this shows is that confidence is really beginning to evaporate as incumbents struggle to access historically strong flows of finance."

In contrast, clean energy initial public offerings (IPOs) which overtook carbon-heavy flotations worldwide for the first time last year, suggesting investors are shifting finance towards a low-carbon future as the coal, oil and gas industries have struggled, Carbon Tracker noted.

The value of equity transactions completed by electric utilities and renewables/cleantech energy companies increased by US$119 billion and US$77 billion respectively in absolute terms during this same time period. The equity transactions from electric utilities performed in line with the ACWI index, whereas all issuances from renewables/ cleantech energy companies outperformed by 54% relative to ACWI, the report noted.

The report notes that while oil and gas producers were able to tap equity markets in the market collapse of 2011-14, this does not seem to have been the case in the 2020 price downturn. From 2018-20 annual equity offerings have been less than half that of 2014-2016.

Despite the rapid growth in equity raised by clean energy companies, is still trivial in the context of what has to be generated to finance a global energy transition. According to the IPCC special report on Global Warming of 1.5C investments into clean energy infrastructure need to be in the order of US$3 trillion to US$3.5 trillion annually.

Moreover, of the total equity raised by companies on world markets, 10% was accounted for by fossil fuel  producer and electric utility companies but only 1% in renewables and cleantech between 2012-2020.

Read more: Carbon TrackerIPOMSCI All Country World IndexMark CampanaleHenrik Jeppesenclimate change