UK Oil and Gas Firms Face Hidden Risks in Net Zero Transition

A new academic study has found that many oil and gas companies in the UK may be misjudging the financial impact of the shift to net zero. This miscalculation could lead to inflated company valuations and expose investors to substantial financial losses.

Academic Collaboration Sheds Light on Industry Blind Spots

The research, a collaboration between UK and French academics, drew on company reports and 22 in-depth interviews with industry professionals. Its primary goal was to assess how well companies are identifying and managing financial risks tied to the net zero transition.

Shrinking Capital Access and Asset Write-Downs Ahead

Findings suggest that the transition away from fossil fuels will likely restrict access to investment for oil and gas companies, increase borrowing costs, and prompt significant asset write-downs. Smaller, high-emission firms with limited diversification are expected to be hit hardest, with some potentially facing stranded assets.

“These pressures could have put the future viability of some companies in question,” said Dr Freeman Owusu, of Loughborough University Business School.

"Our findings show that the transition to net zero presents significant risks for oil and gas companies in the UK. These risks include rising operational costs, reduced access to finance, and increased financial pressure. Together, these risks threaten the going concern of some oil and gas companies, lower market value, and have knock-on effects on the wider energy supply chain and government revenues.”

Two Critical Challenges Identified

The study highlights two pressing concerns: the financial risks inherent in the energy transition and the lack of precise, company-specific climate disclosures. These gaps could obscure the true financial position of firms moving toward decarbonization.

Reporting Frameworks Falling Short

Although global reporting standards such as the TCFD, CDP, ISSB, and TPT offer guidance on climate-related disclosures, the study concluded that they often overlook the specific financial accounting challenges facing fossil fuel companies. This leaves critical transition risks underreported.

Industry Experts Call for Greater Transparency

Interviewees stressed the need for clearer reporting on ESG performance, remaining fossil fuel reserves, asset devaluation plans, and the evolution of business models. Without this transparency, companies could lose credibility with stakeholders and face long-term reputational and financial damage.

Dr Owusu said, “What is particularly concerning is the lack of transparency. Our research highlights a disconnect between the magnitude of these risks and the level of disclosure currently provided by oil and gas companies.”

“We argue that more detailed and forward-looking disclosures are urgently needed not only to meet stakeholder expectations but to allow for informed investment and policy decisions. By clearly articulating the financial impacts of the net-zero transition, oil and gas companies can act responsibly and fulfil their social contract by being transparent about both current realities and future expectations. Ultimately, our study adds to the growing evidence that climate-related financial risks must be placed at the heart of corporate strategy and reporting, especially in high-risk sectors like oil and gas.”

Call for Action in Climate Accounting

By examining how financial reports do—or don’t—reflect the realities of the net-zero shift, the study contributes to the growing body of work on climate risk accounting. It underscores the need for reform in how oil and gas companies communicate their transition risks.

Roadmap to Better Disclosure

Finally, the research lays out actionable recommendations to improve climate-related financial disclosures. These are intended to help investors, regulators, and the public make more informed decisions in an increasingly climate-conscious financial landscape.

“Reaching net zero is vital for a sustainable future,” said Dr Owusu, “but it comes with real economic risks for carbon-heavy sectors. Honest, transparent financial reporting will be key to navigating these changes and making sound decisions.”