© Shutterstock Many UK oil and gas companies are underestimating the financial risks posed by the energy transition and are potentially exposing investors to significant losses, according to a study.
Led by academics from the UK and France, the study explored how well transition risks were being accounted for by offshore firms.
The study found the net zero shift was likely to reduce access to capital for fossil fuel companies, push up borrowing costs, and trigger large-scale write-downs – leading to some assets being stranded.
Loughborough University lecturer Dr Freeman Owusu said these pressures “could have put the future viability of some companies in question”.
“Our findings show that the transition to net zero presents significant risks for oil and gas companies in the UK,” Dr Owusu said.
“These risks include rising operational costs, reduced access to finance, and increased financial pressure.
“Together, these risks threaten the going concern of some oil and gas companies, lower market value, and have knock-on effects on the wider energy supply chain and government revenues.”
Smaller firms ‘most exposed’ to net zero risks
According to the study, smaller firms with higher emissions and fewer alternative business streams were seen as “most exposed” to these risks.
The research identified issues surrounding the financial risks tied to the energy transition, as well as the need for clearer, more tailored company disclosures.
The study found existing reporting frameworks do not fully capture the unique financial and accounting risks facing oil and gas firms during the energy transition.
© Supplied by ShutterstockParticipants in the study called for greater transparency around environmental, social and governance (ESG) performance, alongside remaining reserves, plans for asset write-downs and evolving business models.
Without these changes, oil and gas firms risked losing stakeholder trust and weakening their long-term prospects, the study found.
Lack of transparency ‘concerning’
Dr Owusu said the lack of transparency from offshore firms was “particularly concerning”.
“Our research highlights a disconnect between the magnitude of these risks and the level of disclosure currently provided by oil and gas companies,” he said.
“We argue that more detailed and forward-looking disclosures are urgently needed not only to meet stakeholder expectations but to allow for informed investment and policy decisions.
“By clearly articulating the financial impacts of the net zero transition, oil and gas companies can act responsibly and fulfil their social contract for being transparent about both current realities and future expectations.”
Dr Owusu said the research project adds to the “growing evidence” that climate-related financial risks must be placed “at the heart” of corporate strategy and reporting, especially in “high-risk sectors like oil and gas”.
“Reaching net zero is vital for a sustainable future, but it comes with real economic risks for carbon-heavy sectors,” he added.
“Honest, transparent financial reporting will be key to navigating these changes and making sound decisions.”
Researchers analysed company reports and conducted in-depth interviews with 22 industry insiders.
The study involved researchers from Loughborough University, Nottingham University, University College London and ICN Business School in Nancy, France.
