It's called the carbon bubble - made up of the over-inflated valuations of fossil fuel assets that may turn out to be unburnable - and a growing chorus of commentators are warning that it could go pop.

As it was with those US sub-prime mortgage defaults that started to notch up in 2007, it is not immediately clear how the problem of too much value being placed on oil, coal and gas could ever affect little old me and you directly.

We can perhaps understand if a sudden decline in the supply of any of the above led to petrol prices going up, or an increase in our heating bills.

But the real impact of a carbon bubble could go way beyond the obvious, because of the extent to which global financial markets depend on output from fossil fuel producers - and therefore the extent to which all of our long-term savings do, too.

How exposed are our savings?

The UK pensions market is the second biggest in the world behind the US, with a total value of £2 trillion, according to Towers Watson. To put this number in context, it is 112% of the country's entire GDP.

And it's being invested on our collective behalf until the day we draw down our pension pots, while we hope for a comfortable retirement. Half of the sum is allocated to equities, as opposed to bonds - a higher allocation than the global average.

The biggest company in the FTSE 100 by market capitalisation is Royal Dutch Shell, worth a whopping £135 billion. Another two oil and gas companies - BP and BG Group - are in the top 10.

According to Gyorgy Dallos, a senior adviser to the Global Climate & Energy Programme at Greenpeace International, around 20-30% of the FTSE 100 - a key indicator of the make-up of most UK pension funds - consists of oil, gas and coal companies.

"Many fund managers underestimate their exposure to carbon", says Dallos. "For example, while fossil fuel extraction has a share of about 9% of the global economy, it has a 16% share of the capital raised by listed companies and a 22% share of the capital invested in listed companies."

Which gives some idea of the extent to which all of our stock market investments depend on the value of fossil fuel companies being maintained.

Using the Towers Watson figures, this suggests that at least around £200 to £300 billion of UK pension savers' money is directly tied up in fossil fuels.

Imagine that 20 to 30% as the proportion of your pension pot that could be at risk, and it brings home to us what is personally at stake for you if collectively, the investment management industry does not take seriously the risk that the fossil fuel resources that underlie the companies' valuations could become unburnable.

Even investments in the FTSE that are not directly exposed to coal, oil and gas would be impacted by a fall in their value. Popular tracker funds, for example, those that are linked to the overall performance of the FTSE, would suffer if the value of these assets collapsed.

Explain this big 'if'

So what's threatening this value, exactly? Primarily: climate change and the need to do something about it.

If the impetus to prevent further climate change reaches the point where measures such as a global carbon tax are agreed, for example, then those fossil fuel reserves that have contributed to the heady share price performance of oil, gas and coal companies will become 'unburnable' or 'stranded' in the ground.

If fund managers are aware of this threat (and a great many are not) they have to weigh up whether they believe the problem of climate change will become bad enough, within the investment term, to require the kind of action that would erode the value of their fund.

Many, buoyed by the apparent indifference of the fossil fuel industry itself to the threat of climate action, may decide that there is nothing to worry about and the extraction of oil, gas and coal will be allowed to continue indiscriminately. Business as usual is one response.

But fossil fuel costs are rising

But even if we continue business as usual, value could begin to unravel.

Because to continue with business as usual would require an ever increasing amount of capital expenditure by the industry to explore territories previously off limits - the Arctic, for example and the Canadian Tar Sands - tapping these new resources, quite apart from being a bad idea environmentally, is hugely expensive.

Dividends - the payments earned by shareholders as a reward for keeping their shares, have come under increasing pressure as companies have had to spend their money on more exploratory drilling rather than rewarding shareholders.

So some shareholders are already feeling the impact and rather than see their dividends further eroded, might prefer to sell their shares in favour of a more rewarding dividend stock.

With the higher cost of finding new resources, comes increasing prices. The oil industry needs to charge more per barrel in order to break even. It is questionable how far oil prices in particular can rise before there is a natural market correction and demand falls.

The known unknown - clean competition

What is happening in the coal, oil and gas industries also needs to be considered in the context of the clean competition. The five-year growth rate for solar PV is 50% globally, with uptake boosted by the falling cost of technology. For wind, that figure has been 25% a year for the last five years, according to the International Energy Agency.

The favourable economics of renewable energy are already apparent and this natural shift towards it should switch global demand away from the dirty incumbents, harming their balance sheets and also pulling the rug out from beneath the traditional power generation industry.

Generating electricity in Germany has become less profitable than it once was as a result of the market being flooded with zero marginal cost solar energy, which can now meet a huge chunk of national demand, so that the power stations barely need to be switched on at times of high solar output.

If solar continues to grow at its current rate in the UK, the country is set to become Europe's 'solar hotspot'. While this is potentially great news for energy bills - especially for those households less dependent on gas or with their own panels already, it's not such great news for shareholders in the Big Six.

Centrica and SSE are also among the top 30 companies in the FTSE 100 by market capitalisation, and the march of solar energy is eroding their business model - though not yet on the scale of Germany. Green domestic tariffs are already cheaper than the Big Six standard tariffs.

Domestic-scale batteries for solar installations only heighten the threat, by allowing solar generators to use ever less grid-supplied electricity. Products are already on the market, and lower-cost offerings are on their way in this fast-developing technology field.

We can expect further downward pressure on energy utility valuations.

What's the investment industry's response so far?

The level of ignorance over the threat within the industry is staggering.

When I spoke to the Association of British Insurers about it at the end of last year, one of their chief spokespeople had never heard of the growing divestment movement, which encourages companies, organisations and individuals to take their money out of fossil fuels, or the carbon bubble.

He might have more recently become acquainted with the subject, as some high profile divestments - the Church of England and the British Medical Association - have made news. Philanthropic trusts and family fund managers are one step ahead of the retail investment market - 12 pulled $2 billion out of fossil fuels in January.

The topic has increasing prominence on the widely read industry trade website Investments & Pensions Europe.

Prominent economists and MPs discuss it. Even some oil and gas executives are quietly worried about it.

But when I check the #divestment on twitter, it is climate campaign groups and students who are highlighting the threat, not the IFAs and brokers we entrust with our cash.

In the stick-to-what-you-know, fusty, old school world of asset management, investors are more likely to receive emails telling them to buy bargain shares in small oil and gas exploration companies than urging them to switch to clean energy stocks as a safer dividend play.

What needs to happen?

Professional investors have more visibility over what could happen and the sensible, more active ones will be working out how to time their exit, if they haven't already.

Pension funds need to disclose their exposure as a matter of course.

Funds need to consider re-allocating some of their fossil fuel equity to renewable and energy efficiency investments.

The figures are there to support such a move. According to Impax Asset Management, removing all fossil fuel companies from the MSCI World index and adding selected renewable and energy-efficiency alternatives would have generated better returns in the seven years to 2013 than the underlying index.

MSCI's research shows that performance during the last five years would have been the same or better if all fossil fuel reserve companies had been removed from the full index.

A savers' right to know

Pension savers and investors, who currently have very little visibility, have the same right to know exactly what their money is invested in and whether they are exposed. They can then decide for themselves whether the risk of being invested in fossil fuels is one they wish to take.

But the benefits of greater transparency will only be felt if there are also more alternatives made available for people to switch their savings to - options that expressly exclude fossil fuels. (See Trillion Fund's divest is best campaign and pledge your pension).

If the threat continues to be swept under the carpet, this could well become the next big financial collapse.

If asset managers and pension funds continue to ignore the elephant in the room, they face being accused of negligence - squandering billions of other people's money on potentially disastrous investment decisions, because they were not taking the risk of climate change and what the cost of dealing with it could do to financial markets seriously enough.

Rebecca O'Connor is communications director for Trillion Fund, the crowdfunding platform offering loans and alternative investments in clean energy.

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