Tom Francis

Director, Oil and Gas Research

Fossil Free Indexes, LLC
tomfrancis@fossilfreeindexes.com
781-504-6413
Thank you for the opportunity to speak today. My comments address the definition
of a fossil fuel company and some of the issues around divestment. I am Director of
Oil and Gas Research at Fossil Free Indexes and I maintain the list of 100 oil and gas
companies in the Carbon Underground 200.
Fossil fuels are the coal, oil and natural gas that we depend upon for heat,
electricity and travel. The first point Id like to make is that divesting from fossil fuel
companies while enjoying electric lights and comfortable heating or driving an SUV
is not hypocritical. It is a recognition that the our reliance on fossil fuels has to
change. It insulates State of New York investments from the decline of an industry
that is unlikely to adapt as global energy policy evolves.
The Carbon Underground 200 identifies the largest holders of fossil fuel reserves.
Its tempting to think of it as a list of the worlds biggest coal and oil companies,
but Its not. To understand the Carbon Underground 200, its important to make the
distinction between burning fossil fuels and holding fossil fuel inventory. In terms of
carbon dioxide emissions, current fossil fuel inventory is about 100 times what the
world burns each year. And to avoid the worst consequences of global warming, we
can continue emitting at the current rate for about 20 years. So fossil fuel
companies hold four or five times the amount of inventory that can safely be burnt
and they continue to invest in searching for more inventory. Global warming
is already imposing significant costs on the State of New York. Is the prudent to
continue investing in an industry whose current inventory, if exploited and burnt, is
very likely to threaten the States financial stability?
I want to talk a little about the companies in the Carbon Underground 200. I noticed
a Sunoco gas station while driving through Albany this morning. Sunoco is not a
Carbon Underground 200 company. This is because Sunoco refines and markets
gasoline, but it doesnt hold reserves it buys the crude oil that it becomes
gasoline. Exxon Mobil and Luk Oil are on the list, as well as shipping giant Maersk
and Arcelor Mittel, the worlds largest steel company. The Carbon Underground 200
provided a disciplined approach to divestment and does not bar investment in the
energy sector. When describing what I do, it would be easy to say that I choose the
oil and gas companies. I dont. I maintain the data and the process. Companies end
up on the list because they meet a strict criteria.
Finally, I would like to talk about the costs and benefits of divestment. Fossil Free
Indexes created a version of the S&P 500 without Carbon Underground 200
companies. There are about 25 companies which get removed. Remember, were
not removing the energy sector; just the companies holding fossil fuel reserves. The
ticker is FFIUS and you can get a quote or chart though any financial website.
Returns for FFIUS are statistically indistinguishable from the S&P 500. The two

indices were compared over a ten year period including boom and bust periods.
When the boom and bust periods were isolated, returns were still statistically
indistinguishable. Lately, FFIUS has tended to outperform the S&P500 because of
the collapse of crude prices. Divesting from fossil fuel companies does not mean
that the State will lose money or suffer inferior returns.
Fossil fuel reserves are substantial assets which contribute to the value of Carbon
Underground 200 companies. Proven reserves are used for collateral in commercial
lending and banks serving the energy sector typically review proven reserves twice
a year. As global energy policy moves away from dependence on fossil fuels, these
reserves (and the companies which hold them) will become less valuable. To avoid
the worst consequences of global warming, about 80% of current proven reserves
will need to remain in the ground. But these losses will not be distributed equally.
The reserves most at risk for stranding are the complicated high cost/high risk
projects which public companies specialize in because of their access to capital.
In closing I would like to stress these three points: first, divesting from Carbon
Underground 200 companies does not mean selling all energy sector holdings.
Second, divesting from Carbon Underground 200 companies does not imply inferior
portfolio returns. And third, Carbon Underground 200 companies are at substantial
risk to devaluation due to global energy policy.
Thank you.

Statistics/Definitions
Proven Reserves: oil, gas or coal deposits with a 90% chance of being commercially
viable
2014 Proven Oil Reserves: 52.5 years at current consumption rate
2014 Proven Gas Reserves: 54.1 years at current consumption rate
2014 Proven Coal Reserves: 110 years at current consumption rate
2014 Proven Coal, Oil and Gas reserves in CO2: 3,200 GtCO2
Annual world CO2 emissions from fossil fuels: ~32 GtCO2
IPCC CO2 budget (2014-2050) with 80% chance of keeping global warming within 2
degrees Celsius: 700GtCO2
1 metric ton of CO2 is emitted for every 103 gallons of gasoline burnt
@25mpg, a car could drive to Pluto and back almost 50 times before emitting 1
GtCO2
@60mph, a car could drive 4,700 centuries non-stop before emitting 1 GtCO2
ExxonMobils proven reserves of oil and gas (2014): 8.13 GtCO2

Gazproms proven reserves of oil and gas (2014): 44.1 GtCO2

Carbon Underground 200 proven reserves of coal, oil and gas: 555 GtCO2