* PRI forecasts oil demand to peak in 2026-28
* Says IEA forecasts underestimates needed transition
By Ron Bousso
LONDON, Sept 23 (Reuters) - Financial markets risk majordisruptions by relying on business-as-usual forecasts thatunderestimate the impact of climate-change policies that areexpected to abruptly tighten next decade, a leading group ofinvestors has warned.
The report by the U.N.-backed Principles of ResponsibleInvesting (PRI), representing investors with $86 trillion ofassets under management, joins a growing chorus of warnings thatforecasts and investments by oil and gas companies are out ofsync with the pace needed to meet energy transition targets.
The International Energy Agency's central outlook, whichunderpins many government and business projections, is notaligned with targets set out in the 2015 Paris climate agreementto limit global warming to "well below" 2 degrees Celsius byslashing greenhouse gas emissions, the PRI warned.
Scientists view a rise of more than 1.5 degrees Celsius inthe Earth's average temperature as a tipping point where climateimpacts such as sea-level rise, natural disasters, forcedmigration, failed harvests and deadly heatwaves will rapidlystart to intensify.
PRI released a new forecast which it said "aims tofundamentally reset investors' forward-looking risk management,strategic asset allocation and company engagement."
The study, branded the Inevitable Policy Response (IPR),predicts "an abrupt and disruptive" government policy responseto climate change by 2025, which it expects to be a "tippingpoint."
Under the IPR scenario:
- Oil demand peaks in 2026-2028 and oil in road transportpeaks in 2025, much earlier than the IEA's forecast that doesnot foresee demand growth stalling before the 2040s.
- Thermal coal, the most carbon-polluting fossil fuel, willbe "virtually non-existent" by 2040.
- Wind and solar power will generate half of the world'selectricity by 2030.
- Internal combustion vehicles are phased out much fasterthan most outlooks
- Forestation - needed to absorb excess carbon dioxide - isvastly accelerated.
"We foresee an inevitable policy response by 2025 that willbe forceful, abrupt and disorderly because of the delay," FionaReynolds, chief executive of the PRI, said in a statement. "Thiswill create considerably greater disruption than many investorsand businesses are prepared for today."
The Inevitable Policy Response forecast responds "toconcerns that financial markets are overly reliant onbusiness-as-usual outlooks – such as the International EnergyAgency's New Policy Scenario (NPS) – that assume limited policyresponse to climate change," according to the PRI.
The IEA's forecast, PRI said, "assumes the world will glidetowards" a 2.7 degree Celsius - 3.5 degree Celsius warming abovepre-industrial levels by 2100 "without any further climatepolicy action beyond what has already been announced."
This scenario was highly unlikely given "the human sufferingthis would result in."
The world's top oil and gas companies have come under heavypressure from investors to adapt to the energy transition bylowering their carbon emissions and investing more inrenewables.
BP Chairman Helge Lund told Reuters in June that theLondon-based company would rather see a rapid, orderly phasingout of fossil fuels than a delayed and disorganisedtransition.
PRI represents 2,600 signatories including most of theworld's biggest investors such as BlackRock, Wellington,CalSTRS, Allianz, Aviva, Amundi.
(Reporting by Ron BoussoEditing by Leslie Adler)
BP (BP.)
