Capital costs rise on sustainability concerns
An intensifying investor focus on sustainable investing and the climate emergency is impacting the oil and gas sector
Investors are increasingly focused on the threat of global warming and the need to rapidly decarbonise the global economy, with up to $118tn of funds committed to making climate risk disclosures by 2020.
And they are responding by divesting oil and gas holdings, or, at a minimum, fully integrating sustainability into their investment process, driving an incrementally negative view of the sector. Consequently, the sector's weighted average cost of capital (WACC) has risen, causing a valuation derating, reduced capital availability and low market liquidity.
This negative increase in the industry WACC occurs in several ways. Firstly, capital flows out of the sector as new is
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