Letter on transition: Which future should IOCs be investing in?

In an age of ‘poly crisis’ and ‘radical uncertainty’ the only thing we can say about the future is that it will not be business as usual

When assessing the financial risks associated with climate change, central banks distinguish between ‘transition risks’—the risks to asset values associated with the transition to a low-carbon economy—and ‘physical risks’—the risks to assets as a consequence of extreme climate events and longer-term climate change. The pace of the energy transition is the critical uncertainty that determines the balance between the two risks. An accelerated transition mitigates climate risk but increases the scale of transition risk faced by the incumbent fossil fuel industry, and vice versa. In the last year or so, the debate about the pace of the energy transition has become increasingly fractious and pola