A world first atmospheric and financial stress test for fossil fuel reserves
In this paper, Carbon Tracker, in partnership with UCL, set out a methodology for an “Atmospheric Viability Test” (AVT) — a climate-scenario-based financial stress test designed to assess whether new fossil fuel reserves are viable within the constraints of the remaining carbon budget.
Current policies to cut CO₂ emissions, alongside accelerated adoption of clean technologies and declining fossil fuel demand, risk eroding the value of fossil fuel assets. This could have severe ramifications for individual firms and the wider financial system, notably UK pension funds that invest in new projects and banks that finance new production.
Research from UKSIF shows that an estimated $19 billion (£15.2 billion) of UK pension fund assets could be at risk due to fossil fuel asset stranding by 2040 even if countries’ announced decarbonisation pledges are fulfilled.[i]
London has established itself as a world-leading centre for green finance, ranking second in the October 2025 Global Green Finance Index [ii]. Yet it’s equity and bond markets continue to attract companies seeking capital to exploit new fossil fuel reserves. Analysis by Carbon Tracker [iii] shows that London has one of the highest levels of embedded emissions from upstream oil and gas companies, when financial centres are adjusted to factor in state and restricted ownership.
This creates an exceptional concentration of climate-related financial risk within UK capital markets.
Recent legal developments in the UK (notably the 2024 Finch Judgement and subsequent DESNZ guidance), Norway, the EU and internationally have established requirements for fossil fuel producing companies to assess and disclose the climate impacts of their projects’ Scope 3 emissions within environmental impact assessments (EIA).
These developments highlight the growing recognition that climate-related risks are material to financial and operational decision-making. This is increasing project approval risk and underscores gaps in current disclosure requirements, strengthening our premise that fossil fuel listing rules should require the disclosure of how new reserves are viable in relation to the remaining carbon budget, to inform investment strategies and decisions to exploit reserves.
FCA Consultation on New Disclosure Rules
Currently, fossil fuel companies (referred to as ‘minerals companies’ in FCA regulations) are not required to explain how the exploitation of new reserves aligns with the remaining carbon budget consistent with the Paris Agreement. If fully extracted, remaining fossil fuel reserves would exceed these carbon budgets many times over. The science is clear: to meet global climate goals, the majority of coal, oil and gas must remain unburned.
Carbon Tracker and ClientEarth have therefore been advocating for the introduction of an “Atmospheric Viability Test” (AVT) – to be integrated into UK listings requirements for fossil fuel companies (referred to as ‘minerals companies’ in FCA regulations). The financial regulator already requires that issuers provide additional information on the geological extractability and the economic viability of fossil fuel reserves within prospectus documents – situated in a sub-report called a Competent Person’s Report.
This paper builds on our engagement with the FCA, which launched proposals in July 2024 on a new public offers and admissions to trading regime (CP24-12). The regulator consulted on issuing additional guidance relating to climate disclosures for minerals companies. ClientEarth and Carbon Tracker produced a joint response calling on the FCA to retain the existing prospectus contents requirements for fossil fuel companies, and to enhance and improve the disclosures through the introduction of a new climate stress test – the AVT. We also supported a meaningful number of investors, investor networks and civil society organisations to submit evidence too, representing nearly $100trn of AUM.
The FCA issued its response to the October 2024 consultation on UK listings reform (Policy Statement PS 25-9) in July 2025 – which included a specific question on Carbon Tracker/ClientEarth’s proposal for an Atmospheric Viability Test (AVT) to be included in prospectus materials. The statement notes that over 50% of those who responded to the question were in favour of a new climate stress test.
Despite this, the regulator wrote “that on balance, we do not consider that implementing this specific proposal would be proportionate and in line with our statutory objectives”. The consultation feedback did however result in the FCA’s decision to launch a work programme:
- Conduct a further review of key disclosure documents (prospectuses with Competent Persons Reports (CPRs)) to assess whether climate-related information has been included;
- Seek to engage with some of the international standard setting bodies to continue to explore how their current materials set expectations on addressing climate-related impacts in such reports and whether future guidance is planned; and
- Undertake further analysis and additional engagement to determine whether investors should receive additional climate-related information/scenarios which could potentially impact the valuation of the company’s assets and might therefore help to inform investment decisions. If so, the FCA will identify and test alternative policy options to address this.
As part of listings reform, the FCA has introduced climate disclosures and transition plan summaries at the point of listing. Even so, these requirements do not go far enough for fossil fuel companies who need to explain their assumptions and justification for exploiting new reserves.
We have therefore produced the report in response to the difficulties the FCA cited around the implementation and necessity of the new stress test, so this information features in the Competent Person’s Report within prospectuses.
Atmospheric Viability Test Methodology
Our paper, Regulating Unburnable Carbon:
- Provides a methodology for applying the AVT concept to stress test the viability of fossil fuel reserves under various authoritative climate scenarios (e.g., IEA Net Zero by 2050), including for carbon budgets associated with different warming levels.
- Is designed to enable integration into the most commonly used resources evaluation framework for UK prospectus disclosures/Competent Person’s Reports: the Petroleum Resources Management System (PRMS).
- Is intended to support the investment community whilst also safeguarding the long-term integrity and financial stability of the London Stock Exchange and other key institutions.
Importantly, the AVT is an additional disclosure lens. It does not replace existing economic tests within the Petroleum Resources Management System (PRMS), but sits alongside technical feasibility and economic viability assessments. The paper sets out a structured approach for integrating the AVT into PRMS and into the Competent Person’s Report (CPR) framework used in UK IPO prospectuses.
Adopting this policy solution would deliver:
- Alignment with the Climate Science: by testing reserves against remaining carbon budgets to a range of IEA (or similar) scenarios, investors can see whether investing in the offered securities might breach their own Paris aligned/meet net zero commitments.
- Alignment with climate Goals: the new test would align more closely with the Government’s green growth ambitions and its aspirations to lead the world in green finance, as well as being more consistent with the growing fossil fuel project-approval-constrained legal and commercial environment in the North Sea and elsewhere internationally.
- Enhanced Disclosure: the new proposed test improves transparency on financial risks related to the energy transition. How does the company discuss the viability of the reserves it plans to develop, under different IEA demand and price scenarios?
- Enhanced Investor Protection: it addresses inadequate current disclosures, reducing climate-related financial risks. In particular, by avoiding ‘carbon lock in’ of carbon intensive assets involved in the further extraction of fossil reserves; helps avoids the risk of stranded assets; and puts a ‘time line’ on potential depreciation of assets as they come to an end of their economic life, i.e. drilling rigs, mining equipment etc.
- Enhanced Market Integrity: it supports a transparent marketplace with accurate data and science-based stress tests against realistic warming scenarios.
[i] https://uksif.org/wp-content/uploads/2025/03/UKSIF-Stranded-Assets-Report-March-2025.pdf
[ii] https://www.theglobalcity.uk/sustainable-finance
[iii] https://carbontracker.org/reports/unburnable-carbon-ten-years-on/
