Frequently Asked Questions (FAQ) - Fossil assets: the new subprimes?

The document clarifies the methodology used to identify "fossil assets" in bank balance sheets, noting that the scope is conservative and may underestimate risks due to bank opacity. It argues that while a significant loss in fossil asset value could severely impact bank equity, immediate bankruptcy is not certain as losses may be gradual and banks have other equity reserves. The text distinguishes its approach from the ACPR and AMF pilot exercise by focusing on stranded assets rather than optimistic climate scenarios. Finally, it proposes a "fossil bank"—a "bad bank" funded by the ECB—to repurchase fossil assets at a discount to ensure financial stability and a just transition without using public funds.

• Fossil assets are defined as those financing the exploration, exploitation, distribution (including refining and transportation), and electricity production from oil, gas, and coal. The identification process relies on bank-published balance sheets, sector risk breakdowns, and allocation keys for European indices and bonds when specific data is missing.
• The study's scope is considered conservative and limited, potentially underestimating fossil assets because banks often lack transparency or fail to classify activities dependent on fossil fuels in a way that allows for clear identification. This creates a risk of a "snowball effect" as other dependent activities are not included.
• While a significant drop in fossil asset value could severely impact the equity of banks—especially those whose holdings exceed their equity—the document states it cannot definitively predict bankruptcy. This is because asset devaluation is likely to be gradual, and banks may utilize other equity, insurance policies, or regulatory capital interventions.
• The report's findings differ from the ACPR and AMF pilot exercise because the regulators used "incomplete and optimistic" climate scenarios and a "dynamic balance sheet assumption" that allows for gradual adjustment, whereas this report focuses on the "stranded assets hypothesis."
• To prevent financial instability and the potential for banks to delay the ecological transition to preserve oil rents, the document proposes a "fossil bank." This would be a "bad bank" funded by the European Central Bank (ECB) that repurchases fossil assets at a discount to avoid using public funds and ensure a just transition.

APA

Reclaim Finance (n.d.). Frequently Asked Questions (FAQ) - Fossil assets: the new subprimes? https://reclaimfinance.org/site/wp-content/uploads/2021/06/FAQ-Fossil-Assets-report-EN.pdf

Chicago

Reclaim Finance. Frequently Asked Questions (FAQ) - Fossil assets: the new subprimes? n.d. https://reclaimfinance.org/site/wp-content/uploads/2021/06/FAQ-Fossil-Assets-report-EN.pdf.

Wikipedia

{{cite report |author=Reclaim Finance |title=Frequently Asked Questions (FAQ) - Fossil assets: the new subprimes? |url=https://reclaimfinance.org/site/wp-content/uploads/2021/06/FAQ-Fossil-Assets-report-EN.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{reclaimfinancendfrequently, author = {{Reclaim Finance}}, title = {{Frequently Asked Questions (FAQ) - Fossil assets: the new subprimes?}}, institution = {Reclaim Finance}, url = {https://reclaimfinance.org/site/wp-content/uploads/2021/06/FAQ-Fossil-Assets-report-EN.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }