IN SEPTEMBER 2013 a group of institutional investors with $3 trillion of assets under management asked the 45 biggest quoted oil firms how climate change might affect their business and, in particular, whether any of their oil reserves might become “stranded assets”—unusable if laws to curb emissions of carbon dioxide became really tight. Exxon Mobil and Shell are the most recent to get back with their assessment of the risk: zero. “We do not believe that any of our proven reserves will become ‘stranded’,” says Shell. In many areas of commerce, investors and managers are trying to harness the power of markets for environmental purposes. In oil and gas—the business which causes by far the most carbon emissions—investors and managers seem set on a collision course.

The oil giants make three arguments. First, over the next 40 years, the growth in population and national incomes will boost energy demand, especially in developing countries. Exxon reckons fossil fuels will account for three-quarters of demand in 2040 and renewables (such as solar and windpower) only 5%. Shell puts the fossil-fuel share at two-thirds. This will keep oil prices high.

Second, the companies dismiss the idea that governments will do anything to change this. Shell says: “We do not see governments taking the steps now that are consistent with the 2°C scenario,” that is, constraining carbon emissions so as to limit the rise in global surface temperatures to 2°C above pre-industrial levels. Such steps would mean cutting emissions of climate-altering gases by 80% by 2050; and the prospect of that, says Exxon, lies outside “the reasonably-likely-to-occur range of planning assumptions”. Jeremy Leggett of the Carbon Tracker Initiative, a group advising the investors, thinks oil firms are betting that affordable energy will trump climate change as a policy concern.

Third, Shell makes a narrower claim: since what it calls “proved reserves life” (proven reserves divided by the rate of production) is only 11.5 years, its current worth will be unaffected by regulatory limits in 20 or 30 years’ time. Although an oil project may run for decades, the payback period, the company says, is concentrated in its early years, so it will have paid its way long before tough laws come in (which of course Shell thinks will not happen).

So are investors happy that—assuming the firms are right—their shareholdings will make oodles of money whatever happens to the climate? Of course not. Carbon Tracker has written to Shell taking issue with practically all its arguments. It says the proportion of the world’s emissions subject to some form of legislation has risen from half to over two-thirds since 2007 (though Australia has just scrapped its carbon-trading system); so governments are not as supine as the firm thinks. Moreover, environmentally friendly policies and economic growth are not mutually exclusive: most governments want both, and the companies may well be wrong to assume they will sacrifice the first to get the second.

Carbon Tracker also thinks Shell is becoming too dependent on high prices, pointing out that, on the company’s own figures, the proportion of its potential output coming from projects with a break-even point of $80 a barrel (at current prices) will double between now and 2025. This would make the firm vulnerable to a carbon price which would switch demand away from oil to low-carbon energy.

The advisory group criticises all the oil firms for doing too little to diversify their risks. It says they are planning $490 billion of capital investment a year—over twice what they pay in dividends—on reserves that will require an $80 oil price to be economic. True, the firms are also selling more gas—a diversification of sorts. But overall, the group implies, energy firms are making a double-or-quits bet on expensive oil.

The oil firms are almost certainly correct that governments will not do enough to keep the rise in global temperatures below 2°C. This is still official policy almost everywhere, though it is only a matter of time before someone breaks ranks and says it cannot be achieved. But the investors may be correct that managers are betting their firms on high oil prices, that this is a gamble and that applying a discount to the value of their investments may make sense. Of course, if the oil bosses are right, especially if the climate does not warm as much as scientists fear, then investors will want to put their money into productive oil assets. But if Carbon Tracker is right, then they will dump oil shares—which is what should happen if the firms are making a huge gamble that will misfire.